Chinese standard tries to kickstart a sustainable rubber revolution | News | Eco-Business

“Deforestation, soil erosion, land disputes, biodiversity loss, pollution from agricultural chemicals, labour rights issues…” In an office in Chaoyangmen, Beijing, Sun Lihui counts off the environmental and social issues arising from the natural rubber industry, tracing them back to the horrendous rule of Leopold II, King of Belgium, in the rubber-rich Congo of the late 19th century.

But despite all the known issues, when, in 2014, Sun started research for a due diligence guide for China’s overseas investments in rubber plantations and processing plants, he was surprised to find no standards to refer to, either in Chinese or English.

Sun is head of the development department at the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters. The CCCMC was founded in 1988 and represents over 6,000 Chinese firms producing everything from ore to construction materials, petroleum and chemical feedstocks (and was spun off from its supervising body, the Ministry of Commerce, in 2020).

In 2017, under Sun’s leadership, this government-backed industry association produced “Guidance for Sustainable Natural Rubber” – the world’s first social and environmental sustainability standard for the natural rubber industry.

This is about promoting industry reform and ensuring everyone knows about sustainability. There are a lot of ways to bring about reform, it doesn’t matter whose standard is applied.

Sun Lihui, development department director, China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters

The Guidance is part of China’s first efforts to establish global sustainability standards for commodities, and has drawn attention from both the world’s rubber industry and NGOs. The story of its formation, as this article recounts, demonstrates its authors’ belief that sustainability standards can and should drive real supply chain transformation.

The comprehensive document includes practices that may be quite cutting-edge for Chinese firms, including on best practices for engaging with affected communities and protecting workers’ rights, and on protecting biodiversity through fulfilling the zero-deforestation principle and ecosystem-friendly techniques.

Although it has not yet been widely adopted, and the pandemic has hampered its roll-out, Sun is confident the Guidance has given a subtle push to sustainability efforts in the industry.

Research-based international development

This may be a document on environmental and social sustainability, but the CCCMC initially started writing it to help Chinese firms investing in the natural rubber sector overseas to identify, avoid and manage risks, in order to protect their profits.

Three factors have been pushing Chinese firms to invest in overseas rubber.

First, China is the world’s biggest consumer of natural rubber, accounting for 37 per cent of global use, but can only produce domestically a small fraction of what it needs due to lack of suitable land. Since 2002, state-owned enterprises, such as the Guangdong-based Guangken and Hainan-based Haiken groups, have therefore been investing in overseas rubber plantations and processing plants.

Second, at about the same time, the Chinese government started encouraging Chinese firms to invest in rubber planting in Laos and Myanmar, to encourage farmers there to move away from opium poppy planting.

Finally, half of the raw natural rubber China uses goes into tyres: it is the world’s biggest tyre maker, exporting 40 per cent of its output. However, low prices have meant anti-dumping and anti-subsidy investigations and tariffs in the EU and US. That has pushed some Chinese tyre makers to set up factories in Southeast Asia to get around those barriers. Their investments have also funded plantations and processing plants to provide the raw material they need.

Sun Lihui says the CCCMC first got involved because of the pricing issues, trying to take a whole-lifecycle view of tyre production to ensure prices were not unreasonably low. “At the time, we were looking at sustainability issues mainly in terms of investment risk, not because we were worried sustainability itself would become a barrier to trade,” he said.

But when China’s large-scale rubber plantations attracted criticism from international media and NGOs over deforestation and other issues, the association decided to take a look. “We found that no work had been done in China on natural rubber sustainability.”

Around the same time, Zhang Junzuo started to look at the same problem. She is head of the China–UK Collaboration on International Forest Investment and Trade (InFIT). That project was created in 2014 by China’s State Forestry Administration and Ministry of Commerce alongside the UK’s Department for International Development. Designed to reduce the impact of China’s international trade on forests, from the start InFIT set-up a sub-project on natural rubber, and Zhang needed a local organisation to run it.

A tour of industry associations, research bodies and NGOs in the sector, in both Yunnan and Beijing, showed her that information was too scattered: “The growers don’t understand processing, the processors don’t understand growing, and the people who understand CSR [corporate social responsibility] don’t understand rubber.” In the end, an official with the Ministry of Commerce suggested she speak to the CCCMC. And there, she found Sun Lihui.

At the time, they both wanted to produce due diligence guidelines for Chinese firms making large investments in rubber plantations and processing overseas. The CCCMC had just produced CSR guidelines for Chinese mining firms investing overseas as part of the Sino-German CSR Project, aiming to help Chinese miners act responsibly on labour rights, environmental issues and the avoidance of conflict minerals. Zhang recalls what Sun told her when they spoke on the phone: “Writing guidelines is fine, but you can’t leave it there.”

To help ensure their guidelines didn’t just get left on the shelf, Sun Lihui put together a cross-disciplinary team: plant scientists from the Chinese Academy of Sciences’ Kunming Institute of Botany and the Chinese Academy of Tropical Agricultural Sciences; industry experts from the Beijing Rubber Industry Research and Design Institute and the Hainan Rubber Group; CSR specialists from Syntao and the China National Textile and Apparel Council; and specialists from Global Witness and Proforest, international NGOs working on sustainable commodity production.

Since 2014, Global Witness has been working with the CCCMC, then part of the Ministry of Commerce, on due diligence for conflict minerals, under a partnership between the ministry and the OECD.

“The biggest problem at the time was that people who knew about natural rubber didn’t know about CSR, and nobody who understood CSR knew anything about natural rubber. Our project put those two groups together to learn about each other’s fields,” explained Sun Lihui.

The process was one of “bottom-up development” said team member Xu Jianchu, who is a professor at the Kunming Institute of Botany and chief scientist at the World Agroforestry Centre. “It wasn’t a case of sitting a bunch of experts down in Beijing and making all the decisions. We researched different players along the supply chain, gathered a wide range of case studies, considered all the risks, all the rights and responsibilities,” he explained. The team spent two years travelling the world.

They produced country reports on the natural rubber industry in Thailand, Myanmar, Laos and Cambodia, as well as several studies into the global natural rubber value chain and the overseas investments made by Chinese natural rubber firms. They realised that not only was there no existing sustainability guide for natural rubber they could refer to, there wasn’t even any systematic research into the sector. So they decided to remove the word “China” from the title of their document and simply produce “Guidance for Sustainable Natural Rubber” to be applied worldwide.

Based on their research, and with reference to documents such as the UN’s 2030 Sustainable Development Agenda, the Convention on Biological Diversity, the UN Guiding Principles on Business and Human Rights, and the ISO 26000 Guidance on Social Responsibility, the team started to draft a framework for their guide. It was not an easy process, and the framework was restarted from scratch three times. At one point they realised they had been focusing only on live operations already up and running, and good risk-management practices required them to include pre-investment risk assessment and avoidance procedures.

The 40-page document contains plenty of content that is, for Chinese firms, quite new and advanced. It stresses that companies should, when planning a project, obtain “free, prior and informed consent” from affected communities. It reminds firms to pay attention to land rights and respect the customary land tenure of local communities (rather than only rights formalised in official documents), and to avoid causing forced displacements.

Companies should also “support the forming of unions in line with the law”, and provide employees with fair remuneration and decent working conditions, taking into account and being supportive of their families and their social roles.

The Guidance also reminds of the economic risks of investment and the sensitivity of natural rubber prices to fluctuations on the financial markets. It notes the uncertainties arising from the delay between planting and production, which requires a cautious approach to investment to avoid losses, environmental damage and impacts on the livelihoods of cooperating farmers. It also points out investments should create jobs and help develop the local economy – particularly of smallholder farms.

On the environment, the Guidance requires firms to work to principles of biodiversity protection and zero-deforestation, with no plantations in areas of high conservation value or high carbon stock. It also encourages firms to consider intercropping, mixed cropping and relay cropping, or agroforestry, and for land clearance methods to suit the local conditions and soil type, in order to minimise pests and diseases, reduce soil erosion, and protect biodiversity.

“There’s nothing else like this in the sector. We did countless research to make sure we understood the characteristics of the industry. We didn’t just scribble down a few ideas,” said Sun Lihui.

The Guidance is designed to be used by companies writing their own sustainability policies or doing supply chain due diligence, or for reference by regulators or financial institutions. But 40 pages of principles to follow doesn’t tell people what they should actually do on the ground.

So, the team then came up with a 100-page Implementation Manual, explaining the key points of the guidance, as well as a set of electronic forms referred to as “assessment tools”, which turns the Guidance into 254 quantified indices. Firms can use those to assess their own performance and see where improvements are needed.

A road less travelled

The Guidance isn’t specific to China, but has particular importance for a country that is fourth worldwide in terms of area of rubber plantations, fifth in terms of production, first in consumption, and produces 60 per cent of the world’s tyres. In 2016, as the Guidance was taking shape, Sun took the team on a tour of rubber and tyre makers in China, trying to encourage them to use the Guidance to set up their own sustainability policies and implement due diligence on environmental and social responsibility.

The results were disappointing. “There was no pressure on them. They couldn’t compare to the best, but were still better than the worst, and they saw no need to do anything. They might think the Guidance was great, but didn’t act on it,” said Sun.

He was also in close contact with international tyre makers: Michelin, Pirelli, Goodyear and Continental. So far, only Pirelli has taken up the offer and used the Guidance to update its own sustainable natural rubber policy and implementation manual. He thinks Pirelli got on board as it is Chinese-owned: ChemChina took a controlling stake in the company in 2015, and that makes the company’s executives more receptive to Chinese initiatives.

In October 2017, the Guidance was officially published and made available to the industry worldwide. The following month, CSR Europe, the continent’s biggest CSR network, invited Sun Lihui to participate in the launch of its Sustainable Natural Rubber Platform in Paris, urging leading natural rubber growers, processors and traders, as well as tyre and vehicle makers, to work together to create an international organisation promoting sustainable rubber.

At the time, CSR Europe wanted to use its Drive Sustainability alliance, formed of nine carmakers including BMW and Ford, to work on rubber sustainability. The initiative described the CCCMC as a natural partner as it was the developer of “the first comprehensive and risk-led guidance for the natural rubber sector.”

Originally, Sun Lihui planned to follow the same route used in other sectors: get the major tyre and car makers together and use those downstream rubber users to drive change along the value chain as a whole. With that aim in mind, he went to speak to the Tyre Industry Project (TIP), a sustainability network formed by 11 of the biggest tyre makers, operating under the auspices of the World Business Council For Sustainable Development.

But Sun says one of the project’s officials told him they didn’t want to share a natural rubber sustainability platform with CSR Europe, as tyre makers did not see themselves as “suppliers” to the vehicle industry. Sun saw this as firms at different points of the supply chain having different interests. Tyre makers don’t want to come under sustainability pressure from carmakers – they want to be in charge of the sustainability standards themselves.

Later events seemed to confirm this view. A year after the meeting in Paris, the TIP launched its own Global Platform for Sustainable Natural Rubber (GPSNR), with all 11 TIP members on board as founders, alongside some natural rubber growers, producers and traders, NGOs and three carmakers.

Zhang Junzuo said that international NGOs couldn’t understand why two sustainable rubber platforms were needed, and were worried it would confuse businesses and hamper the spread of sustainability. But in the following two years, the GPSNR was in close contact with the CCCMC, exploring a possible partnership.

Its status as author of the Guidance for Sustainable Natural Rubber, and its influence within the Chinese tyre industry, made the CCCMC an attractive partner for the GPSNR as it tried to set up a membership-based sustainability platform. And both the GPSNR and the Guidance had received funding from the UK’s Department for International Development, which had said it hoped to see GPSNR and CCCMC work together.

In 2020, the two parties drafted a memorandum of understanding (MoU), but it was never signed. The CCCMC felt GPSNR was not serious enough about cooperation. But GPSNR chair Stefano Savi said the organisation was just getting started, and that the secretariat was overworked and lacked capacity, so it opted to pause the process. He also dismissed the notion that the GPSNR is a product of competition between tyre and carmakers.

He pointed out that many carmakers that are signed up to CSR Europe’s Drive Sustainability alliance are also GPSNR members, as, indeed, is Drive Sustainability itself. He said he hoped to continue cooperation with the CCCMC this year.

Regardless, after all these twists and turns, InFIT and the CCCMC ended their cooperation with CSR Europe, to avoid the two platforms competing with each other. They decided to “let the Guidance make its own way.”

This meant that the CCCMC had, for the time being, given up on the idea of setting up an international membership body along the lines of the Roundtable on Sustainable Palm Oil or Roundtable on Responsible Soy. It also meant promotion of the Guidance shifted further up the supply chain.

The first thing they did was cooperate with Singapore-headquartered Halcyon Agri, the world’s biggest producer of natural rubber. In 2020, the CCCMC commissioned international non-profit Proforest to assess the sustainability policies, processes and methods in Halcyon’s huge Sudcam rubber plantation in the south of Cameroon. The CCCMC also took the opportunity to see how suitable the Guidance and implementation tools were for the rubber firms, in order to make further improvements.

According to a 2018 Greenpeace Africa report, between 2011 and 2018 Sudcam was responsible for “the most devastating new forest clearance for industrial agriculture in the Congo basin”, as well as issues with infringement of land rights and forced relocations. As part of its response to that criticism, Halcyon followed up on the Proforest assessment by producing an action plan to improve sustainability. Meanwhile, after benchmarking it against Halcyon’s own HeveaPro standard, Proforest suggested improvements to the Guidance.

Mooi See Tor, Proforest’s deputy regional director for Southeast Asia, said that Proforest Africa had helped Halcyon improve its internal governance and so obtain Forest Sustainability Council certification, and that the Guidance could act as a link in that process by improving corporate due diligence. Zhang Junzuo said that CCCMC is in touch with Halcyon about applying the Guidance across the group’s operations, not just in Cameroon.

Meanwhile, they are also looking at smallholders. Talking with representatives from Southeast Asia at the 2019 Global Rubber Conference showed Sun Lihui and Zhang Junzuo that they should work with the smallholders of the Mekong basin, in particular those in Laos, Cambodia and Myanmar, three countries which came late to rubber-growing.

The Mekong nations are the main source of raw natural rubber for the Chinese industry, with 80–90 per cent coming from smallholders. Growing techniques in those three countries lag behind Thailand and Vietnam. This causes a range of environmental issues and reduces the quality of the product they supply, which in turn makes it harder for the Chinese buyers to improve the quality of their tyres.

In 2021, the CCCMC launched an initiative promoting sustainability in natural rubber value chains in the Mekong region, with industry associations from Laos, Cambodia and Myanmar invited to participate.

In a MoU, the CCCMC and the Myanmar Rubber Planters and Producers Association agreed to produce a sustainable agriculture and production standard for smallholders; and to improve sustainability of natural rubber growing by issuing an implementation guide, setting up demonstration farms and offering training.

Sun Lihui explained the purpose of the guide, currently being written: “We want to divide sustainability issues into different technical areas – for example, simple and practical improvements for harvesting rubber, selecting saplings and reducing chemical use – rather than talking about overarching principles.”

With support from InFIT, the CCCMC has commissioned eight experts, including Xu Jianchu of Kunming Institute of Botany, to produce the guide. However, the Covid-19 pandemic has delayed meetings with local partners and field study.

Sun said that the CCCMC hopes to raise awareness among more industry associations in the region and help build capacity both with the associations and their members. The CCCMC could also help develop local standards and build local sustainable development networks.

“For us, this is about promoting industry reform and ensuring everyone knows about sustainability. It doesn’t matter if they’re using our Guidance or not, because we’ve got things started. The Guidance is now circulating in a range of languages. We’d love to see dozens of standards worldwide, all originating from our work. There are a lot of ways to bring about reform, it doesn’t matter whose standard is applied,” he said.

Upstream empowerment

“We do both standards and capacity building. It would be good if some organisation started doing certification, but I don’t want to see everyone trying to get certified just for the sake of it.” This was Sun Lihui’s response when asked if he wanted to see the Guidance shift from being a tool for companies to use in-house and within their supply chains, to use in third-party certification.

“The point of certification is to identify problems, and the point of identifying problems is to solve them,” he said. He thinks certification without capacity building won’t solve problems, and may even make things worse. When working in Africa on conflict minerals such as cobalt and tin, he visited many Chinese upstream firms.

He found many had certification, but couldn’t explain what the certification actually was about. They had completed the process in response to requests from buyers, but it hadn’t added to their capacities. “Big brands set very high standards to maintain their advantages, but on the ground, among the small and medium-sized enterprises, nobody understands those standards. You can use the standards to assess them, but there’s little they actually do in response,” he said.

He thinks the problem is a power imbalance between the top and bottom of the supply chain. “What should happen is that the upstream firms tell their downstream partners about a problem and, rather than being criticised, get help. It shouldn’t be a case of punishments or being cut out. That makes it a game of cat-and-mouse, rather than a strategic partnership.”

He thinks sustainability standards often reflect those unequal relationships: “In the past, standards were usually developed by downstream firms to shift responsibility for risk management. It was treating the symptoms, not the disease. In contrast, our work is based on what is needed upstream. There’s no place those firms can shift risk to, all they can do is mitigate those risks and build capacity.”

Liang Xiaohui, chief economist at China National Textile and Apparel Council, is a well-known expert on corporate social responsibility and sustainability standards in China. He has been working on the Guidance since the start in 2014. He agrees that voluntary sustainability standards are often produced by big downstream firms in response to consumer pressure, then passed on up the supply chain.

Only in high-tech sectors, such as microchips, do you see powerful upstream producers imposing sustainability requirements lower down the chain. In the raw materials sector, it is very rare to see cases like the CCCMC’s Guidance, produced to build capacity in upstream firms and not promoted by downstream companies.

Downstream benefits

Liang Xiaohui said that the CCCMC will build on the Guidance, which is aimed at growers and processors, to produce “supply chain guidance” for firms further along the value chain, such as Chinese rubber traders and firms using natural rubber as a raw material. As part of that, he has just completed a voluminous report offering an overview of China’s natural rubber supply chains.

Although Chinese firms weren’t keen on implementing the Guidance, he is still confident for the future. He thinks the structure of the industry lends itself to promoting sustainability standards: 50–70 per cent of the natural rubber used in China goes into tyre making, and upstream investments tend to involve a few major projects, rather than many small ones.

That makes it easier to focus on the bigger players. Getting major state-owned companies like Haiken, Guangken and Yunnan Rubber on board will resolve most of the supply-end issues. The remaining smaller firms can be tackled over time.

And while the downstream firms might not have realised it yet, due diligence on sustainability is in their own commercial interests. Hou Fengxia, deputy secretary general of the China Rubber Industry Association (CRIA), said that China relies on imports for over 85 per cent of its natural rubber, while tyre-makers tend to be small operations – there are over 300 of them.

That gives them little pricing power when negotiating with their customers. Many focus on buying up cheap raw materials, rather than adding value or innovating – and as a result have ended up targeted by EU and US anti-dumping measures. So, the CRIA has long recommended its members avoid simply snapping up cheap rubber.

Buying cheap increases the risk of anti-dumping measures and means the raw materials used are of lower quality. Hou explained that the stability and uniformity of natural rubber is a key determinant of tyre quality, so big international tyre brands maintain long-term partnerships with their raw material suppliers. But Chinese firms often buy from the cheapest sources, meaning stability and uniformity are not guaranteed, with knock-on effects on tyre quality.

Competition on price can even cause supply chains to break down. Hou pointed out that natural rubber prices have been low for years, and many Southeast Asian smallholders are quitting or replacing their trees with more profitable alternatives such as oil palms. Rubber harvesting is hard physical work, and younger farmers will find alternative work if they can’t make a decent income. Ultimately, the firms buying cheap may find there isn’t any rubber for them to buy.

The CRIA has therefore been recommending firms take environmental and human rights issues into account when managing their supply chains, to improve the stability and quality of their supplies while avoiding harmful competition on price. And the Guidance provides a ready-made set of tools.

In 2019, the CRIA worked with the CCCMC on promoting the Guidance to CRIA members, to increase their awareness and capacities in sustainability due diligence. She thinks that, as the world’s largest consumer of natural rubber, China’s efforts on its sustainability will have a huge impact.

However, the process is only just getting started. It remains to be seen how the Guidance and its unique theory of change transforms the industry, and the environment and communities where natural rubber is produced.

This article was originally published on China Dialogue under a Creative Commons licence.

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