Mandating transparency on deforestation and ecosystem conversion

Abstract: The production of eggs, meat, and dairy products in the EU indirectly contributes to deforestation and ecosystem conversion (DEC) in Latin America due to extensive imports of soy for animal feed. This thesis explores under which preconditions the mandatory European Sustainability Reporting Standards for the agriculture and farming sector can increase transparency in the opaque soy supply chains and incentivize reductions of imported DEC. An ex-ante intervention theory framework is used to establish the intended impact mechanism. Then, weaknesses in the mechanism are identified and complemented with recommendations for disclosure requirements that mitigate those weaknesses. Ten expert interviews, policy documents and evaluations, multi-stakeholder publications, and applicable scientific literature are the data sources for the qualitative thematic analysis. The identified impact mechanism for EU farming companies moves through increased awareness, strengthened due diligence processes, policies, and targets against DEC, and a shift in demand towards traceable soy. Increased transparency and reduced imported DEC can be achieved if soy traders are faced with a spillover of reporting requirements and incentivized to upscale exports of traceable and DEC- free soy to the EU. Weaknesses in the causal chain include uncertainty connected to behavior changes, a power asymmetry in favor of large soy traders, and a high risk of regulatory leakage. The main recommendation is the inclusion of quantitative disclosure requirements on supply chain traceability, ecosystem conversion, and scope three greenhouse gas emissions from land- use change. This allows for benchmarking by NGOs and financial institutions, increasing the pressure on laggard farming companies to adopt behavior changes. To avoid leakage, the scope of demand-side regulation must consistently not only include tropical forests but also other vulnerable ecosystems such as savannahs and grasslands. Further, policymakers are urged to strengthen diplomatic efforts aiming to spread the coverage of demand-side regulation to more consumer countries, most importantly China.