ESG Benchmarking: Part #2 - AI, the "New Hope of ESG"

Following my first post on Traditionalists (the disclaimer in that post still stands here!), we are now venturing into AI-powered ratings known as Alternative Ratings or Contemporaries. Contemporaries are heavily reliant on the technological power of data scraping and AI, using sentiment analysis (SA) to come up with ESG benchmarking for companies. SA uses words, adjectives, tone, and aspects of a subject/thing to determine the connotations, opinion, or stance derived from the sentence, document or source of information provided. There are various sources of data to use for Sentiment Analysis, including but not limited to:

1. Product reviews

2. Stock market information

3. News articles

4. Debates

5. Posts

6. Social media and micro blogging (a rich source of information)

There are quite a number of Contemporaries in the market now. However, there is not much information about how things work algorithmically, and different Contemporaries have different approaches. One of the more established contemporaries, TruvalueLabs (TVL). TVL uses various data sources including news, journals, and trade blogs, but avoids social media due to random noise and unreliable data from the source (Hughes, Urban, and Wójcik, 2021). 

How good are they? Can they really replace the Traditionalists?

The big data approach taken by Contemporaries is one of their biggest strengths. They take an “outside-in” approach to ESG rating, and rely on external data scraped off the internet and public sentiment paired with noise (aka controversy) to help determine a company’s rating. This is thought to be “democratic”, since they are not relying on company disclosures (Hughes, Urban, and Wójcik, 2021). 

The use of technology also allows Contemporaries to work with far more data: TVL can scrape data from 100,000 sources daily in comparison to the under 4,000 sources the Traditionalist MSCI would use (Hughes, Urban, and Wójcik, 2021). This wider access allows Contemporaries to have a broader perspective on a company to help determine its ESG rating. 

GreenWatch is an AI tool used specifically to tackle the problem of greenwashing. It verifies the authenticity of “green” claims made by a company by analysing its environment-related statements made in corporate communications, including how forthcoming the company is regarding its stance on climate change, against its carbon scores. Companies are then placed into one of four categories: (1) green leaders; (2) hidden green champions; (3) green incrementalists; or (4) potential greenwashers (Bloomberg, 2021).

Having access to a treasure trove of external data with a democratized perspective comes with various advantages. For one, it may help to combat the issue of greenwashing faced in the Traditionalist approach, a potential solution to the problem! Additionally, the Contemporary approach may mitigate the problems caused by the subjectivity of ratings and lack of standardization present in Traditionalist approaches by avoiding as much subjectivity as they can in their rating method.

Contemporaries also have advantageous flexibility to help determine ESG ratings. This is due to an important feature of TVL’s algorithm called the dynamic “Impact %” which they use to calculate weightings of key issues for companies: if there are more noise generated for certain controversies, the weighting for a related key issue is adjusted for the company. 

Finally, one very important feature brought by technology is the fact that Contemporaries can keep track of companies in real time. Contemporaries constantly scrape data and can update investors in real time about company ESG ratings and their respective issues. One such case study showed that TVL was able to decrease ratings for a commodity trading company called Glencore in light of various controversies they were involved in, whereas MSCI ratings were only adjusted after their annual review of Glencore (Hughes, Urban, and Wójcik, 2021). This means that investors have better access to more up-to-date information and data to make an investment decision. This means that investors have better access to more up-to-date information and data to make an investment decision. The images below show the controversies picked up by TVL in a relatively short period of time as well as the data points and ratings that were given to the company.

Hughes, Urban, and Wójcik (2021): “Spotlight events for Glencore. Source: Truvalue Labs.”

Hughes, Urban, and Wójcik (2021): “Insight Materiality trendline for Glencore from the TVL online platform. The dotted line refers to the daily pulse score, from which the Insight score (solid line) is derived as an average. The purple circles refer to ‘spotlight events’, ESG events which create a lot of data points. Larger circles equate to more datapoints. Source: Truvalue Labs.”

TVL provides a good insight of the capabilities and solutions Contemporaries provide to issues faced by Traditionalists. This includes a more democratized and transparent approach, access to far more data sources in comparison to Traditionalists, more objectivity, standardization, and up-to-date information to help investors make better decisions with relation to ESG and investment.

When broadly comparing the Traditionalist and Contemporary approaches to ESG ratings, it seems that Contemporaries win on various fronts: they can update investors quickly and try to be as objective or transparent as possible. However, not all Contemporaries may follow the exact same methodologies and get the exact same ratings. It is all dependent on the data sources they use, the key issue frameworks they choose, and how their algorithms work. 

Unfortunately, Contemporary data is not widely open to the public, and the data mentioned here is all only from TVL. With a lack of access to their data, we cannot undergo certain stress tests to see if there are unique features of Contemporaries, such as picking up on issues that Traditionalists do not see. For the moment, they seem to be able to do what the Traditionalists do with less subjectivity.

Check out my first post on AIs and ESG benchmarking: ESG Benchmarking: Part #1 - ESG, AI, and the Investment Industry

By MUHAMMED Hazim, Segi Enam intern, 23 Aug 2021 | LinkedIn

Edited by Nadirah SHARIF

ESG Benchmarking: Part #1 - ESG, AI, and the Investment Industry

The Environment, Social, and Governance (ESG) criteria is the way forward. This standard is used to provide social credit ratings for companies, and see how they tackle ESG-related issues to become a more sustainable company. ESG is in high demand amongst investors, because they want to invest in places that align with their own values. International organisations have endorsed the use of ESG-related standards, including the United Nations (UN) via its Principles for Responsible Investment (PRI), an initiative to make sure investment companies incorporate ESG issues into their investment decisions. From 2006 to 2018, Assets under Management (AUM) has grown from 6.5 to 81.7 trillion dollars under the PRI initiative (Eccles & Klimenko, 2019), showcasing a growing interest in ESG principles amongst investors.

However, ESG is also important to investors for financial reasons. Companies that ignore ESG issues tend to lose money (meaning investors do too). The Bank of America estimates that up to $600 billion has been lost to ‘ESG controversies’ in the S&P 500 since 2013 (Reuters, 2020). On the other hand, the Bank of America reports that the highest performing ESG firms are outperforming the lowest performing firms by more than 40%, become high quality stocks, are less volatile, and have higher three year returns (Eccles & Klimenko, 2019). 

ESG is thus very important: it makes sure companies are held accountable for their business, and for investors, they can put their money in a company that is profitable and that they are confident in. To that end, sustainability ratings are widely used, and there are various agencies, such as MSCI, Bloomberg, and Sustainalytics that do ESG ratings for companies. 

The Edge Markets (2021): RHB has downgraded various plantation companies amidst growing ESG concerns.

A question you might be thinking of is that if ESG ratings exist for companies, why do people still make investments in companies that get caught up in ESG controversies, like Dieselgate 2015? There is an issue with the current rating system, and a tech alternative powered by Artificial Intelligence (AI) has entered the playing field. In this series of posts, we will look at how ESG is currently being benchmarked, its limitations, and how effective the new AI-powered benchmarking is.

TRADITIONAL RATING AGENCIES

Quick Disclaimer: 

Before I continue with this post, I would like to note that various ideas noted down in this paper were primarily derived from the work of Arthur Hughes, Michael Urban, and Dariusz Wójcik from the School of Geography and the Environment at the University of Oxford (Hughes, Urban & Wójcik, 2021). My area of exploration on the topic was to compare the different approaches to ESG rating, and their paper is the first comparative study on the human-driven and AI approach to ESG benchmarking. There was one other informative paper related to ESG benchmarking (In, Rook, Monk & Rajagopal, 2019), but it was a general paper on possible alternative ESG data sources rather than a commentary analyzing how the human and AI based approaches work. In these series of posts, I have supplemented their work with some of my own research and commentary to enhance the discussion on how ESG affects investors.

What about them? How do they work?

Traditional rating agencies refer to the big players in ESG rating such as MSCI, Bloomberg, and Sustainalytics. In this post, I will be referring to them as Traditionalists. The analysis and final output benchmarking by Traditionalists is subject to the discretion of a human analyst. In terms of their modus operandi, Traditionalists identify key issues and apply weightings to them to use as criteria for a company’s ESG rating. Key issues refer to ESG-related issues that affect a company financially. Data used alongside the key issues and weightings come from corporate data, online data, and face-to-face contact (F2F) to come up with the final rating for a company. 

What's wrong with what they’re currently doing?

For starters, Traditionalists take a rather questionable approach in coming up with ratings by relying heavily on company disclosure—it is estimated that 45% of benchmarking is based on disclosures. This becomes a problem if a company chooses to be less transparent about their ESG problems. Therefore, there is a justifiable concern regarding transparency of these data sources, particularly the integrity and reliability of this data. 

There is actually a term for an extreme version of this problem known as greenwashing, where a company influences and misleads their ESG ratings, and is a major problem in the Traditionalist ESG rating system. Moreover, there is a lack of standardization in the selection of key issues and weightings: in the case of MSCI, weightings are decided for the entire year, and key issues are subject to change at the discretion of MSCI. Therefore, the methodology in determining the rating for one year may be different from another. 

So how confident can an investor be in a Traditionalist rating? To add to the organizational subjectivity, Traditionalists rely heavily on the brainpower of a select few, often leaving analysts with the tall task of examining a long list of companies—MSCI, for instance, rates about 14,000 companies with a manpower of only 185, meaning that a single research analyst handles an average of almost 80 companies (Hughes, Urban & Wójcik, 2021). 

This complication  has led to major flaws in ESG ratings. Take Boohoo, for example, a major fashion retailer in the UK. They had been rated highly and included in various ESG funds, until they got caught up in a wage scandal for underpaying workers (Chatelin, 2020). On the other hand, an environmentally conscious but small company could be given a lower rating than they deserve due to limited company disclosure (Reuters, 2020).

Source: Sustainalytics (accessed Jul 2021)

From my own data sleuthing, Traditionalists continue to have shortcomings in their reporting. Looking at Top Glove, which has been removed from three ESG indexes amidst forced labor allegations, poor labor conditions, and a poor safety protocols that led to Covid-19 infecting 25% of its workforce (The Business Times, 2021; Nikkei Asia, 2021), Top Glove still has a medium ESG risk rating of 26.1 (scoring is on a scale of 0–40, with 0 being the worst and 40 being the best) and a Level 2 (moderate) controversy level (on a scale of 1–5, 1 being low and 5 being severe) (Sustainalytics, accessed Jul 2021). From a chronological perspective, the forced labor allegations happened in March 2021, and the poor labor conditions and Covid situation in June 2021. Sustainalytics last updated their rating in April 2021.

All in all, the Traditionalist approach, although viable for the most part for investment decisions, is riddled with significant amounts of subjectivity, is not necessarily reliable or up-to-date, and possibly suffers from a lack of transparency. A quote obtained during an interview with a research analyst conducted by Hughes, Urban & Wójcik (2021) best summarizes the limitations of the Traditionalist approach:

“With MSCI scores, there’s a lot more research that goes into them than I think people give them credit for. But it is somewhat arbitrary because they cover so many companies.”

By MUHAMMED Hazim, Segi Enam intern, 16 Aug 2021 | LinkedIn

Edited by Nadirah SHARIF

The IPCC Report on Climate Change: What does it mean for Southeast Asia?

Last week, the world was abuzz with the latest climate change assessment report by the Intergovernmental Panel on Climate Change (IPCC), and for good reason: for the first time ever, the IPCC is unequivocally holding humans to blame for the 1.5°C increase in global temperature, which would inevitably occur by 2040. The near 4,000 paged-report makes abundantly clear the damage human-driven activities have caused to the environment, as well as the impacts consequent of those actions. It also makes it clear that no place on earth is spared from the effects of a rising global temperature.

Chapter 3 of the IPCC report details the emergence and intensity of climate change related events by region under different situations of global warming. For Southeast Asia, three key events were identified: (1) flooding due to sea level rise; (2) precipitation events; (3) and crop yield.

Sea level rise and coastal flooding

Global average sea level is estimated to rise between 0.26–0.77 metres by the end of the 21st century if global warming is limited to 1.5°C; in comparison, a 2°C increase in global temperature would mean an addition of about 0.1 metres. In either case, the Southeast Asian region is projected to be one of the most at risk of coastal flooding, assuming that there are no improvements made to existing protection levels. Interestingly, one of the studies (Clark et al., 2016) referenced in the report identified Indonesia and Thailand as countries with a population count of above 50 million facing a particularly high risk of coastal flooding.

That being said, this news of sea level rise is nothing new—similar projections have been made time and again, supplemented by interactives maps by organisations such as NASA and Climate Central. All of them arrive at the same conclusion: coastal flooding is fast becoming an increasingly huge problem, and how much damage can be contained is heavily dependant on how much global warming can be limited. A Greenpeace report recently estimated that by 2030, rising sea levels would leave 15 million people across seven major East and Southeast Asian cities vulnerable to flooding, along with a projected cumulative economic damage of about USD724 billion.

Precipitation events

In the previous IPCC report published in 2018, it was found that the ratio of rainfall during the wet season to dry season throughout Southeast Asia has generally increased between 1955 and 2005. The frequency of extreme precipitation events, i.e. days with precipitation comprising the top 1% of all days with precipitation, in most of the northern parts of the region was also noted to have increased, with the Malay Peninsula experiencing more intense rainfall throughout the northeast and southeast monsoons. Accordingly, the 2018 report projected a continued rise in extreme precipitation events associated with monsoons for the Southeast Asian region.

Three years later, the projection remains fundamentally unchanged. Southeast Asia is projected to record an increase in heavy precipitation events for both global warming of 1.5°C and of 2°C; the latter is expected to result in a stronger and statistically significant increase than the former.

“[The monsoon] brings heavy rains that are crucial for agrarian economies in the area. But monsoons in the recent years have increasingly brought devastating floods… Instead of more constant, less-intense rains, torrential downpours are now more frequent.”

Crop yield and food security

The Southeast Asian region has been identified to be highly vulnerable to food security risks based on its heavy dependence on maize, rice and, wheat. While lower yield and reduced nutritional quality of these cereal crops are expected as global temperature rises, these negative effects are projected to be smaller if global warming is limited to 1.5°C instead of 2°C.

Photo: Milo Weiler/Unsplash. The Mekong River plays an indispensable role in the economies of multiple countries. It is estimated that fisheries in the Lower Mekong Basin alone generate USD17 billion a year, comprising 3% of the combined GDP of Cambodia, Laos, Thailand, and Vietnam (The Diplomat, 2016).

Regardless of either situation, the measures necessary for a nation to adapt to a warmer world in order to safeguard its food security remains highly complex. In this case, the Mekong river basin makes for a useful illustration—it is a hotspot for a myriad of climate-associated risks, namely higher temperatures and precipitation, flooding, and saline intrusion, i.e. flow of sea water into an area not typically exposed to high levels saltwater. All these risks lead to a domino effect posing different challenges: hotter climate, more floods, and saltier waters mean less fertile soil and unsuitable habitats for terrain and marine life (see also: Marine species increasingly can’t live at equator due to global heating), which in turn mean lower agricultural productivity, which in turn significantly disrupts farming and fishing activities at the Mekong river.

The IPCC Report on Climate Change

On Monday, the Intergovernmental Panel on Climate Change (IPCC) released its highly anticipated Special Report on Global Warming of 1.5°C. The sixth of its kind and the product of eight years of collaboration between hundreds of experts, the report presents a damning conclusion: humans are categorically the cause of climate change, and some of these changes are now irreversible.

What is interesting (read: disheartening but not surprising) about the findings is that for the first time in history, the IPCC report is unequivocally holding humanity responsible for global warming (EarthSky, 2021). It found that in 2017, warming caused specifically by human activities have already reached about 1°C above pre-industrial levels, i.e. between the years 1850–1900 (while in principal it should be any time period before the start of the industrial revolution in the mid-1700s, the report explains that the chosen time period was the earliest whereby near-global climate observations were made).

The report also estimates that current temperate trends would mean that human-driven global warming could very well reach 1.5°C by 2040. This makes the ambitious goal set in the 2015 Paris Agreement to keep global temperatures from rising more than 1.5°C virtually impossible (Fortune, 2021; Business Insider, 2021).

Source: The Guardian (2021); IPCC (2021)

Still, there is some hope, even if it is just a sliver. The report explicitly states that limiting global warming to 1.5°C versus 2°C would generally give nature and humans a better chance of adapting to climatic changes, largely by reducing the risks and impacts associated with increased global temperature, including inter alia droughts, heat waves, sea level rise, terrestrial and marine biodiversity loss, food security, and water supply. However, according to co-ordinating lead author and University Chile’s Maisa Rojas, the catch is that “unless there are immediate, rapid and large-scale reductions of all greenhouse gases, limiting global warming to 1.5°C will be beyond reach” (Nature, 2021).

IPCC (2021): “Five integrative reasons for concern (RFCs) provide a framework for summarizing key impacts and risks across sectors and regions, and were introduced in the IPCC Third Assessment Report. RFCs illustrate the implications of global warming for people, economies and ecosystems. Impacts and/or risks for each RFC are based on assessment of the new literature that has appeared. As in [the IPCC 5th Assessment Report], this literature was used to make expert judgments to assess the levels of global warming at which levels of impact and/or risk are undetectable, moderate, high or very high. The selection of impacts and risks to natural, managed and human systems in the lower panel is illustrative and is not intended to be fully comprehensive.”

Ultimately, however, there is very little good news contained in the nearly 4,000 paged-assessment report—it paints a vivid picture of the severe adverse effects rising global temperature have caused—and will continue to cause—the planet, with UN Secretary-General António Guterres describing the report as essentially a “code red for humanity.” To drive the final nail in the coffin, as lead author and Imperial College London’s Joerji Rogelj states, this is likely the last report from the IPCC while there is time for the earth to stay below 1.5°C (The Guardian, 2021).

SIIA Haze Outlook 2021: Case Studies—Riau and Central Kalimantan

Last month, the Singapore Institute of International Affairs (SIIA) launched its Haze Outlook 2021. Co-authored by SIIA and Segi Enam Advisors, it is a risk assessment report on the possibility of a severe transboundary haze incident for the year in the ASEAN region.

Like its predecessors, the report has an appendix featuring two case studies of Riau and Central Kalimantan. These case studies illustrate a geographical overview on hotspot intensity in relation to other relevant information, including forest and peatland moratorium areas designated by the Indonesian government and districts with food estate projects in planning.

Riau

In contrast to September 2019, there were no high confidence-levelled hotspots detected in 2020 of the same month within the Riau district, likely reflective of notable efforts made by the provincial government in launching its own sustainability and forest fire prevention campaigns under the umbrella of the “Green Riau” strategy. The concern this time lies in with the central government’s food estate programmes—for Riau, its districts of Rokan Hilir, Pelalawan, and Indragiri Hilir (indicated in purple) have been earmarked. While the exact location of these programmes are still unknown, much of the land within the three districts noticeably consists of either peatland or areas protected areas recognised by the International Union for Conservation of Nature (IUCN) and/or under moratoriums prohibiting the conversion of forest land into commercial plantations.

Central Kalimantan

Central Kalimantan recorded significantly fewer hotspots in September 2020 compared to September 2019, which was a source of great relief for region. Similar to Riau, the concern this time again lies in the central government’s food estate programmes—for Riau, its districts of Pulang Pisau and Kapuas (indicated in dark purple) have been earmarked, both of which overlap with the 1996 Mega Rice Project (indicated in light purple), an unsuccessful food security project that was later abandoned and left much of the area dry and vulnerable to fires. A significant portion of these districts notably constitute peatlands and protected areas, again painting a similar story in Riau.

Our previous posts on the SIIA Haze Outlook 2021: (1) Reviewing 2020; (2) Issues to Watch in 2021; and (3) Opportunities for Climate Action and Green Recovery.

Read the full report here: SIIA Haze Outlook 2021

Malaysia Downgraded to Worst Ranking in Human Trafficking Report

Last Thursday, the US State Department released its annual Trafficking in Persons (TIP) Report 2021. The report evaluates a nation’s compliance with the standards as detailed in the Trafficking Victims Protection Act (TVPA) 2000.

Each country is then categorised into one of the four tiers: (1) Tier 1, nations whose governments fulfil the minimum standards under the TVPA 2000; (2) Tier 2, nations whose governments do not fulfil those minimum standards but are making significant efforts to do so; (3) Tier 2 Watch List, the same as Tier 2 but with either a significantly high/increasing number of estimated trafficking victims or a failure to provide evidence of increasing efforts to combat severe forms of human trafficking; (4) Tier 3, nations whose governments do not fulfil the minimum standards under the TVPA 2000 and are not putting significant effort to do so.

In the report, Malaysia has been downgraded from Tier 2 Watch List to Tier 3. One of the main reasons for the downgrade was that while the government has made some effort in 2020 to address trafficking issues raised that year, these efforts were ultimately hindered by, inter alia, the lack of cooperation between official agencies, inadequate avenues for victims to turn to for help, corruption, and the government’s continuous error of conflating human trafficking and migrant smuggling.

The Malaysian government has since responded to the report, promising to review recruitment fee agreements and levies as well as its memorandums of understanding with other countries to identify elements that would pose a risk of labour exploitation.

The downgrade has drawn justifiable concern from various parties, many of whom are calling the government to be more proactive. The Bar Council released a press statement detailing a list of proposals the government may undertake to combat human trafficking. The Human Rights Commissions (SUHAKAM) is urging the government to set up a Royal Commission of Inquiry (RCI) to implement the recommendations made in the TIP report. Even foreign agencies are taking special notice—the British High Commission recently called for project proposals to address the modern slavery problem in Malaysia. Response from the corporate sector suggests the sector is treating the report more cautiously, wary that its findings could have elements of a smear campaign.

Regardless, this downgrade may not come as a surprise to those who have been following the news on labour issues in Malaysia—in the past year alone, three Malaysian-based companies were issued Withhold Release Orders (WRO) by the US Customs and Border Protection (USCBP). These WROs, which prohibit the companies to import their goods into the States, were in response to allegations of forced labour, some of which were concerns raised by NGOs.

BFM: Moving Forward with Challenges in Migration Issues

The US State Department released its annual Trafficking in Persons (TIP) report earlier this month, and in it was a damning development: Malaysia was downgraded from Tier 2 Watch List to Tier 3. The downgrade essentially suggests that the country has failed to fulfil the minimum labour standards and is not putting significant effort to do so.

An important issue for sure, BFM invited Segi Enam principal Khor Yu Leng to discuss the matter: Moving Forward with Challenges in Migration Issues.

COVID-19 has complicated migration, with a pause being put on migrant labour flows, and concerns about how this could worsen the problem of human trafficking. First, we find out how the pandemic has affected migration trends in the region. Then, we discuss Malaysia's downgrade to Tier 3 in the US State Department’s Trafficking in Persons report, and how this affects businesses. And finally, we hear what it’s like for migrants here in our country.

Image Source: John Salvino, Unsplash; produced by: Loo Juosie, Kelvin Yee, Azlyna Mohd Noor; presented by: Lee Chwi Lynn, Sharmilla Ganesan

SIIA Haze Outlook 2021: Opportunities for Climate Action and Green Recovery

The SIIA Haze Outlook 2021, published last month and co-authored by the Singapore Institute of International Affairs (SIIA) and Segi Enam Advisors, has something a little different than last year’s report—a segment exploring opportunities for climate action and green recovery, with particular focus on nature-based solutions (NBS) and carbon markets.

Theoretically, nature-based projects could lead to carbon emissions reduction and carbon offsets, while providing opportunities for investments. While the sector is still in its early stages of development, interest in carbon credits generated form Indonesia-based NBS projects is growing. The Katingan Mentaya Project managed by PT Rimba Makmur Utama illustrates this interest—a forest restoration and protection initiative located in Central Kalimantan, it generates an average of 7.5 million triple gold certified carbon credits a year, and carbon credits generated from the project have already been purchased by major global multinational firms.

Accordingly, many plantation companies that spoke to SIIA have expressed some interest in generating carbon credits from their own conservation projects, both current and future. Ultimately however, it is still too early to assess how willing project developers are to sell credits internationally compared to domestically.

Our previous posts on the SIIA Haze Outlook 2021: (1) Reviewing 2020; and (2) Issues to Watch in 2021

Read the full report here: SIIA Haze Outlook 2021

SIIA Haze Outlook 2021: Issues to Watch in 2021

Continuing from previous posts on SIIA’s Haze Outlook 2021, of which Segi Enam was the co-authors, there are several relevant issues that bear watching in 2021.

On the meteorological front, Indonesia is expected to enter into its usual June–September dry season following a wet spell that was in large part caused by La Niña. Meteorological departments generally expected this dry season to either remain normal or drier than it was in 2020 but much less so than the droughts in 2015 and 2019. Both the Indian Ocean Dipole and El Niño-Southern Oscillation phenomena are forecasted to stay neutral throughout the third quarter of 2021. Overall, however, meteorologists warn that there are still some uncertainty in these forecasts, since it is difficult to make predictions during the transition seasons from April to May.

Given the favourable weather conditions, policy and human factors become decidedly important in the evaluating the risk of a severe transboundary haze. On one hand, the relevant policies in effect are sending a strong message of commitment to sustainability on the part of the Indonesian government, particularly in the areas of peatland and mangrove conservation, net zero emission goals, and haze prevention in the midst of the pandemic. On the other, there are concerns that the more recent policies, namely the Omnibus Law and food estate programme, would leave adverse environmental consequences.

Source: Segi Enam Advisors based on data from The World Bank (2021) for palm oil and rubber prices, GFW (2021) for tree cover loss and primary forest loss, KLHK (n.d.) and KLHK (2017) for official estimated burned area in 2015, 2019, and 2020.

That being said, there are other factors that bear watching. The Covid-19 pandemic is the most obvious; while it has presently not resulted in a severe haze incident despite the disruptions it has caused to fire management efforts, its impact in 2021 and beyond remains unclear. What the pandemic has caused is a near multi-year high in prices within the agricultural commodity market, which in turn raises the question of whether it would drive Indonesia growers to carry out land clearing and replanting activities.

Read the full report here: SIIA Haze Report 2021

PEFC Supporting Sustainable Rubber

The Programme for the Endorsement of Forest Certification (PEFC) has launched the Our Supporting Sustainable Rubber campaign in effort to ramp up sustainability standards within the rubber industry. PEFC held an online webinar to officially kickstart the campaign yesterday, in which several interesting pieces of information were revealed:

1. Problems faced by rubber smallholders are essentially: (1) price volatility; (2) low productivity; (3) unsustainable practices; and (4) compliance issues. To that end, PEFC is a key partner in an initiative with the UN-REDD Programme to develop a sustainable forest trade certification framework, with its pilot project already ongoing in the Lower Mekong region in Thailand.

2. The Global Platform for Sustainable Natural Rubber (GPSNR) is looking to create a risk-based platform that would allow certified companies to assess its sustainability standards against the standards recommended by the GPSNR. The platform was led by tire companies as an alternate (non-certification?) approach. The International Rubber Study Group (IRSG) also has a self-declaration approach to rubber sustainability.

3. There was a point made about the increasing global demand for traceability, and that it may be more beneficial to view the requirement of traceability as a tool to improve sustainability practices rather than to reveal good and/or bad practices in itself. Panellists also noted that there is also a lot of work that still needs to be done to identify pertinent sustainability issues, especially when it comes to social issues such as equality of pay.

Edit (08.07.2021, 12.50 p.m.): Edited to include last two sentences in point 2.