When Accounting Tricks Undermine Sustainability Claims

In an era where companies are scrambling to market their products as “sustainable,” accounting techniques sometimes override environmental impacts. Take, for example, “mass balance” accounting, which often lacks a link between the claim and the outcome.

Mass balance is an accounting method for certified products that allows for mixing conventional and sustainable materials. Under mass balance, an equivalent mass of product — regardless of whether it contains the certified product or ingredient — can be sold as sustainable as long as it does not exceed the total amount of certified product.

For example, a crop like soy might be grown with an improved practice like cover cropping. A mill might purchase 2 tons of soy from this certified farm. Under mass balance, that mill is allowed to mix the certified soy with conventional soy and sell up to 2 tons of the resulting mix as certified, even if any individual sold bushel might contain no certified soy. In this case, the claim is connected to the improved outcome because the certification induced the farm to start cover cropping.

This is seen as an efficient way to allow new, potentially expensive certifications to cover the cost of these new activities without needing to segregate the supply chain.

However, mass balance is ineffective and misleading when trying to avoid other destructive practices. Deforestation- and conversion-free agricultural production is a perfect example of the latter case, where mass balance is an inappropriate tool.

A mass balance approach rewards a small subset of producers who are already undertaking the “good” practices, meaning they have not recently cleared habitats for cropland. However, this reward is sometimes given to farmers who either had no habitat on their land to clear or who had no intention of clearing it. But it provides no mechanism to incentivize farmers who already cleared land to restore it. Without knowing whether a particular farmer is thinking of clearing his land, the method relies on luck to find a farmer who is considering clearing land and incentivizing him not to do so.

In other words, mass balance trades the “good” behavior of a farmer who did not cut down any trees (even if he did not, perhaps, have any trees to cut down!) for the “bad” behavior of a farmer who did, without any mechanism to discourage the latter. In this scenario, buyers are paying a premium and marketing a deforestation- and conversion-free (DCF) product even if the state of the world is not improving. (Nor is the buyer’s actual product deforestation-free.) 

Consider another example: Currently in Brazil, over 92% of soy produced is already grown on land that is deforestation- and conversion-free since 2020 — the commonly agreed deadline to stop sourcing from destroyed habitats¹. But while "only" about 2% of the soy grown each year is implicated in ongoing conversion², because of the huge soy acreage in Brazil, this area is bigger than the US state of Delaware; this ongoing loss of habitat is one of the leading drivers of climate change and biodiversity loss. Using mass balance, if buyers certified a random 10% of Brazilian soy as DCF (which would be a huge investment and feat!) and, in the best case scenario, the certification was sufficient to stop those farms that were considering converting habitat from doing so, we’d still expect 1.8% of total soy to drive ongoing and devastating habitat loss — not a big decrease from 2%.

Instead, we need to halt habitat loss by creating market barriers to products coming from these recently cleared habitats and incentivize that destructive 2% to move production to abandoned agricultural land if they must expand.

So, all in all, if products from deforestation- and conversion-free farms are mixed with products from recently deforested land without any control in the first point of aggregation of that commodity, a DCF claim is misleading, because farmers haven’t been discouraged from clearing native vegetation.

On the other hand, if these first aggregators of commodities implement robust origin-control mechanisms and block products coming from recently converted lands, they send a signal to the market to dissuade farmers from clearing habitats. Finally, they are delivering products to the market that are really deforestation- and conversion-free, not mixed with products contaminated by the direct destruction of our beautiful planet. Reducing deforestation and conversion is the ultimate goal, and half-measures won't get us there. Urgent action toward concerted accountability and traceability is the only path forward.

[1] https://accountability-framework.org/news-events/news/afi-updates-its-operational-guidance-on-cutoff-dates/

[2] Based on MapBiomas data for soy acreage, forest, savannah and other ecosystem extent using a modified PAS-2050-1 methodology for attributing habitat loss to commodities using a 5 year (instead of 20 year) look-back.