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China’s imports of soft commodities are causing massive damage to the environment, the extent of which is revealed in a new report.

For every US dollar of soft commodities imports, 7,467kg of embodied emissions are released into the atmosphere. This is well over three times the second-highest emitting import, mining and quarrying products.

Deforestation is the second biggest culprit in carbon emissions after power generation.

The report, by the Cambridge Institute for Sustainable Leadership (CISL), the Banking Environment Initiative (BEI) and the Research Centre for Climate and Energy Finance (RCCEF – a Beijing-based organisation), says that “it is widely reported that up to half of tropical deforestation is actually the result of illegal conversion of forested land to agriculture, with significant proportions of the resultant commodities then being exported.”

China imports 60% of all the world’s soy beans and 11% of all palm oil – two of the most destructively-grown crops. Its importance to global supply chains is massive and growing. The report says that “of the deforested areas in the tropics, for example, the largest proportion is used for livestock and to grow animal feed (49%) and the second largest part is used to grow the oil crops soy and palm oil (27%)”.

The onus, the report’s authors claim, is now growing within the financial sector to stop funding unsustainably sourced soft commodities in this area. Efforts are thus far nascent, but the report’s co-author Thomas Verhagen of the CISL, says he is hopeful that some real progress can be made in its banking sector.

“The very fact that it was the Chinese banking regulator that invited the BEI and the CISL to come and work with Chinese banks to share lessons from international practice on the topic is a positive sign,” Thomas Verhagen, CISL

“China seems to have laid a very good foundation to green its soft commodities imports and now looks ready to make major strides to achieve this. There are already some promising signals from Chinese policymakers that this issue matters to China’s food security and foreign relations,” Verhagen tells GTR.

He adds: “The very fact that it was the Chinese banking regulator that invited the BEI and the CISL to come and work with Chinese banks to share lessons from international practice on the topic is a positive sign. During the workshops that we ran, we’ve learned that Chinese banks have already made early steps to take action themselves. This is important leadership, but clearly there is much more to be done.”

In its work with Chinese banks, the CISL found that some Chinese banks have started to identify clients they consider “green” to the China Banking Regulatory Commission (CBRC) in their reporting. However, given the short-term nature of trade finance, it’s likely that banks will only be able to classify a borrower as green, irrespective of the underlying commodity being financed.

Furthermore, despite there being widely-accepted practices on the production and supply of certain commodities, Chinese banks and importers are beholden to few of them. If an individual farmer in Indonesia is able to sell his palm oil to China without satisfying the terms of the Roundtable on Sustainable Palm Oil (RSPO), then where is the incentive to comply?

The case of IOI, the Malaysian palm oil giant that was dropped by a number of buyers such as Mars, Kellogg’s and Nestle, is an example that such bodies can be extremely important and the obligation for the Chinese government to provide support and education around these is clear.

With the Chinese government joining the US in ratifying the Paris Agreement in Hangzhou this month, a global move to limit greenhouse gas emissions, experts are hopeful that a culture change will be implemented within the financial sector too.

“I expect that this will work out as a game-changer,” Verhagen says. “The US and China alone represent 40% of global greenhouse gas emissions. The fact that they have added their names to the list of countries that have already ratified the Paris Climate Agreement will, I think, be seen by leaders across the financial sector as evidence that governments are serious about transforming the global economy such that it doesn’t add greenhouse gas emissions to the atmosphere before the end of the century.”