Solutions for Land, Housing, and Health ● www.cloudburstgroup.com

Next Steps for the VGGT: Mandatory Compliance or Self-Regulation in the Private Sector

Gregory W. Myers, PhD

Director of Private Sector Engagement, Land Tenure

The Cloudburst Group

March 2015

Overview

• Is the VGGT important to the private sector?

• How do we encourage greater application of the VGGT by the private sector?

• What are the challenges with mandatory compliance of the VGGT?

• Advantages with voluntary application of the VGGT?

• How do we make progress? Indicators, standards and tools for the private sector

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Increasing Recognition of the VGGT by the Private Sector• Since 2012, both states and private sector are increasingly saying that

businesses need to adopt VGGT-like policies and practices.

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• Increasing number of businesses operating in agriculture in emerging markets committing to “no land grabbing” and supporting VGGT, but

• Private Sector may lack tools to assess tenure challenges, or

• May be using wrong methods to assess tenure challenges

What’s the motivation?

• For the Private sector, this recognition is based, in part, on growing reputational and financial risks, particularly when:

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• Land-based investments involve the large-scale transfer of tenure rights of hundreds or thousands of smallholder farmers, pastoralists or other local populations

• Investments take place in societies with over-lapping legal and customary systems of land and resource governance

• Complicated by weak local institutions, laws and policies, and

• In countries where there is rising demand for arable land.

Slow up-take, cautious commitments, asking for help, a few false starts….• Having committed themselves to the VGGT, some private firms now say they are having

trouble implementing what they committed to.

• The number of firms doing much beyond making global statements supporting the VGGT, FPIC or “no land grabbing,” is very small.

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• Asking technical experts for help to understand tenure problems and possible solutions….

• Problems with using the wrong tools or methods, such as those to evaluate human rights violations in the workplace, giving false negatives on the presence of tenure challenges

Some Questions the Private Sector is Asking:

• How do private firms interpret FPIC?

• How do businesses determine if land grabbing has occurred in its supply chain when it does not have direct control over its supplier?

• Are the methodologies used to assess human rights violations in other business contexts sufficient?

• Once a land assessment is conducted, do businesses have the means to interpret those results?

• Finally, for the private sector, the biggest question is, how do they know when they have “done enough”?

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What Reasons does the Private Sector Give for the Slow Adoption of VGGT Policies and Procedures?

• Uncertainty: what exactly does it mean to implement the VGGT? Also what if the VGGT—a soft law instrument—conflicts with national law or existing trade agreements?

• Duplicative standards and guides: multiple, overlapping or competing reporting requirements; some of which are commodity specific, others are by sector, and still others are more global.

• Cost: the transaction costs of dealing with many smallholders and other variables at the local level are high, may make some investments unprofitable.

• Complexity: the subject is too complex, or the principles or guidelines are too cumbersome to adopt.

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These Arguments Suggest:

• First, the private sector is struggling with understanding how to evaluate tenure risk in their land based investments in emerging markets, let alone develop solutions and operationally respond to the VGGT.

• Second, that businesses need a standardized reporting framework, against which to report; and

• Third, the private sector needs land tenure technical experts to conduct analysis of challenges and assistance to develop cost-effective and appropriate solutions.

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First Step to Helping the Private Sector

• As the Private sector has struggled with application of the VGGT some donors have responded with VGGT Operational Guides for the Private sector

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Mandatory Compliance of the VGGT for the Private Sector-Unlikely

• If mandatory:

• Large push back from some states (however, some promising developments in the US with the White House National Action Plan on Responsible Business Conduct), but we could see…

• Mandatory rules/reporting could be applied on a state-by-state basis for the country of origin for the company (possible rules coming from EU/European states on procurement of public goods, or amending financial regulations for reporting on transparency in transactions).

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If Voluntary Application? A Model Exists for Better Reporting• A good model already exists in the

environment sector, and particularly for GHG, via ESG indicators

• Number of organizations already using ESG indicators to measure non-financial performance, and …

• ESG indicators line up with UN Global Compact, Principles for Responsible Investment, and in some respects with UN CFS RAI.

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Up-Take in Reporting on ESG Indicators

• The number of companies reporting on ESG indicators in the S & P 500 grew from 20% in 2010 to 53% in 2014; while indices in Europe show closer to 80 and 90% of companies reporting on ESG indicators for climate change.

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20%

53%

0%

10%

20%

30%

40%

50%

60%

2010 2014

S&P 500 Companies Reporting on ESG Indicators

A Market Exists for Non-Financial Data

• Companies reporting on ESG indicators tend to have stock prices that out perform peers. Share price of ESG leaders grow higher than that of ESG laggards.

• Investment firms such as Societe Generale use ESG performance data to make buy, sell and hold ratings for investors.

• Others using ESG data to make investment decisions: Bloomberg and Thomson Reuters.

• ESG indicators are reported on by hundreds of companies, in most of the world’s financial exchanges, valued in the trillions of dollars.

• Activist investors, green and retirement funds with billions of dollars in investments track ESG indicators and make investment decisions on the basis of a company’s scores.

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There are Weaknesses

• While financial data is publically disclosed, in many ways verifiable, ESG data is largely self-reported.

• ESG indicators do not include a measure for land or land governance.

• To be effective we need to develop a new set of ESG indicators, drawing on work in progress for the Sustainable Development Goals.

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GRI Sustainability Reporting

Possible Outcome?

• With a set of land governance ESG indicators, the private sector would have a better idea of what the target is, and would be motivated to report given that if one company does not, another will, and that could influence investor decisions (see Coke and Pepsi).

• More importantly, indicators, particularly modeled on the SDGs could be a powerful tool for promoting gender specific targets that help promote women’s economic empowerment, and, ultimately have a bigger impact on household food security.

• We can do more….here are three more possible tools

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Tools for Cost Benefit Analysis

• The private sector needs better cost/benefit analysis for investments in weak tenure environments. Some private firms report using application-based tools, using quantitative algorithms for measuring investment risk and reward.

• These tools could be modified to include quantitative measures for tenure challenges and further, to help companies determine where the highest need is for intervention in existing supply chains.

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Roundtable for Sustainable Land-A 90 Day ChallengeThe private sector needs a Roundtable for Sustainable Land, that would:

• Allow one body to develop a more harmonized standard for “sustainable land investments,” as compared to diverse language spread out across several existing Roundtables, (and emerging in different guidance) and…

• It could facilitate the development of a certification standard for sustainable land investments.

• At a minimum, a Roundtable could lead development of appropriate ESG indicators, and recommend a standard for better methodologies in assessing land risk in private investments.

• This can be done in 90 days, if we commit to it….

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Market to Market

• Foster business-to-business solutions, linking big data with mapping tools to understand who is located where and which rights they hold—reducing the need to revise institutions or employ limited dollars in old technologies and techniques.

• We are already moving in this direction with new tenure mapping and recording tools—USAID’s MAST (Mobile Application to Secure Tenure) project, implemented by Cloudburst, in Tanzania.

• Combined with a cloud-based data management system to store geospatial and demographic information, MAST can lower costs and time involved in registering land rights and, importantly, make the process more transparent and accessible.

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Solutions for Land, Housing, and Health ● www.cloudburstgroup.com

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