The Naked Bank

Bill Oddie (the naturalist and funny one in the Goodies) has produced a spoof documentary, Bankwatch, in association with Global Witness, on HSBC’s support for major logging and oil palm companies in Sarawak Malaysia, and in those other countries in which these companies operate, from which the bank has trousered nearly £100m offering “financial services”:

[Global Witnesses] investigations uncovered multiple instances of HSBC’s clients acting unethically and illegally. This included clearing proposed national parks, destroying world-renowned peat forests, abusing local indigenous communities, and clearing habitat of the critically endangered orangutan.

Bill Oddie’s BankWatch

The only surprise is that this is still a surprise. The value of HSBC is zero without forests, water catchments and other natural resources- the earth’s endowment. The crash of 2007 was in part a flash of realisation that the ethic of the market economy, and any pretense of sustainable, equitable and efficient growth, is bankrupt.

Forest Monitor

Dr. Alan Grainger, from the University of Leeds, has questioned whether the popular assertions about deforestation are valid. He acknowledges that deforestation is occurring, but examining FAO time-series data he has found a number of errors and inconsistencies, but no long-term net decline in tropical forest area. His findings are mirrored by recent satellite data. He calls for an international effort to monitor tropical forest trends through the establishment of an independent body. Strengthening national forest agencies is essential, but the difficulties are less about the statistics than interpreting the data and trends. Querying deforestation is not new: James Fairhead and Melissa Leach have been the forefront of those comparing international perspectives, orthodoxies, forestry & conservation programmes with local narratives. In “Reframing Deforestation: Global analysis and local realities: studies in West Africa” (Routledge, 1998), they write:

the extent of forest loss during the twentieth century has been vastly exaggerated. Much so-called deforestation either took place much earlier, or has not taken place at all since the areas in question have not carried in historical times…much of the forest that has been lost during the twentieth century, and indeed much of that remains, covered land which had been populated and farmed…on the northern margins, it has on the contrary sometimes been people, their settlement and land use which has been responsible for the development of forest vegetation where it was previously lacking.

Similarly, there has been increasing understanding of the importance of forest regrowth in Central and Latin America since the mid-1990s, and that in many regions secondary forests are an integral part of land use systems.

These are important insights that will determine the success of efforts to reduce deforestation. First, whose voice counts in deciding areas to be supported and the form that support will take, and second how these processes will be monitored and supervised?


Some of the practical difficulties can be seen in Liberia. The first map shows the extent of present forest cover. The new forest law gives an unprecedented institutional role to communities and civil society in the management of the country’s forests. Communities must be consulted about all forest land use decisions. 30% of forest lands are to be set aside in protected areas with financing from a share (10%) of stumpage and forest product fees. Communities also share revenues from commercial forestry, with 30% of land rental fees distributed to directly affected communities and another 30% shared between all 15 counties. Forest management contracts are subject to an annual financial audit and rolling 5-yearly performance checks. But rebuilding both the state forestry department and ensuring that civil society groups are equipped to support communities is a long-term process, not least in a country emerging from civil conflict.


The second map – – based on satellite imagery — shows an interpretation of land use change with the darker areas indicating forest loss. But land use change needs to be verified at the local level to indicate for example whether the change is occurring as a part of bush fallow cultivation, or land clearance. The flux in land tenure adds to these difficulties. See the Liberia Forest Initiative for reports. As reported by Rights & Resources many initial carbon trading schemes have shown little community ownership and benefit.There is no template to fit the differing forest characteristics and political institutions of tropical countries, but common standards (most probably drawn from forest certification and EITI experience) are needed, in order the monitoring and evaluation required for financial intermediaries.

Since much of the financing for carbon trading will come from private investors, the experience of the recent financial market instability may prove salutary if the corrections and new regulatory institutions are put in place. The extent of the debacle is widely recognised.

Globalization, thy name is Wall Street bailout…less than two decades after the collapse of the Soviet Union and the West’s gleeful jig dancing on the grave of communism, state capitalism is suddenly threatening the autonomy of the global “free” market. Wall Street’s elite banks, long time freedom fighters for deregulation and scorners of all government intervention in the marketplace, are now begging, cup in hand, for aid from a gallery of regimes that includes some of the most authoritarian and undemocratic governments on the planet…Perhaps it would be more accurate to say freer markets lost the day. The root of Wall Street’s woes leads back directly to their own strategic missteps, greed, speculation-run-amok, and lack of appropriate supervision.The brightest minds in finance had exactly what they wanted, a play ground where the monitors were looking the other way, and they blew it.

Similar points are made in The Independent. The FT reminds us that the US banking system has enjoyed four bailouts in the past three decades, namely the crises over developing country debt, saving and loans, commercial property in early 90s, and today’s sub-prime and securitised credit mess. This amounts to “a history of privatising gains and socialising losses.” (See for example: the US$66 billion staff pay costs of the big US investment banks).

There are inherent difficulties in the regulation and supervision of an industry which is driven by spectacular profits. But a more robust system will need to be in place if there is to be confidence in carbon trading as a financial transaction as well as a means to prevent forest loss. How far should regulation go: “The question the authorities need to ask themselves is simple: if a specific [financial] institution fell into substantial difficulty would they have to intervene?” only answers the first part of the question. How to monitor forest governance is the second part. If tropical forests have global public good properties then putting in place institutions – at local, national & international levels – for monitoring and verifying forest condition and international public and private financial transfers, including supporting civil society, in poor countries is a prerequisite.

Market uncertainties

The issue of deforestation was assiduously left out during the negotiations for the Kyoto agreement, not least because the difficulties were clearly recognised. Now the Bali climate change conference seems set to include deforestation. A draft agreement states that it will address “enhanced action on mitigation of climate change including consideration of … policy approaches and positive incentives to reduce emissions from deforestation in developing counties.”

Avoided deforestation has become a buzz word du jour. It is estimated that deforestation accounts for 20% of current emissions, and that the carbon emission trading market is worth about US$30 billion at present. Including carbon credits for avoided deforestation as part of emissions reductions schemes seems a win-win solution. However the graph below illustrates the challenges ahead.


This shows the relationship between forest cover and governance in 2005 for 40 developing countries accounting for about 750 million hectares of primary forest taken from FAO data. The governance score is taken from the indicators compiled by the World Bank: the scores range from -2.5 to +2.5 with the higher values indicating a more positive governance outcome. There are six broad categories: voice and accountability, political stability, government effectiveness, rule of law, regulatory quality and control of corruption. The latter is used here, although frankly the results hardly change with any of the others. Brazil is the outlying spot on the far right. The Democratic Republic of Congo in Central Africa should be in the centre of the chart in terms of forest area, but there is no comparable primary forest data, and with a corruption score of -1.39 (which is also its best score) it would lie on the bottom.



Transferring large amounts of funding to the least well-run countries, mostly small economies, such as these encompassing the bulk of the tropical and sub-tropical forests – often with a substantial proportion of their land area under forest (as shown in the lower graph) has not proved successful to date in terms of development or poverty reduction. Paul Collier in his recent book “The Bottom Billion” has written: “A reasonable estimate is that over the past thirty years [aid] has added one percentage point to the annual growth rate of the bottom billion… Aid has been a holding operation preventing things from falling apart.”

In an earlier post I made an argument for a market-based approach, with the market pricing carbon according to risk for individual countries so providing an incentive for governments to introduce governance reforms themselves, supported by bilateral and multilateral aid programmes.