McKinsey’s ‘Bad Influence’ Over Rainforest Nations Around the World

As two former McKinsey executives face accusations of insider trading in the US, the report raises further questions about the consultancy giant, examining the damaging influence of McKinsey’s advice on rainforest nations’ forest protection plans. McKinsey is the market leader in advising national governments on Reducing Emissions from Deforestation and Degradation (REDD+) programmes[1], yet its advice has played a key role in distorting this process to a point where donor money could be used to subsidise the expansion of the logging industry.

“Greenpeace’s report shows the destructive and perverse effects that the McKinsey approach will have when applied to REDD+. Key problems with McKinsey’s REDD + work included that it does not lead to a reduction of deforestation, provides an incentive for rainforest governments to over estimate future levels of deforestation, omits important costs and barely acknowledges governance issues in rainforest countries”, said Sarah  Shoraka, Greenpeace Forest Campaigner.

As an example Guyana’s plan, written with input from McKinsey, allows logging to increase to 20 times its current rate [10] and the Democratic Republic of Congo (DRC) plan proposes at least an additional 10 million hectares given as logging concessions.[9]

The basis for Greenpeace’s report comes from a new study done by University College London’s prestigious Energy Institute. The study shows the inherent flaws of the Marginal carbon Abatement Cost (MAC) curve, used across the world to rank the cost effectiveness of carbon abatement measures including measures to reduce emissions from deforestation and forest degradation (REDD+). 

The Greenpeace report also shows how McKinsey’s approach offers an incentive to governments to artificially increase predicted deforestation rates so that later ‘reductions’ can secure more compensation. Such inflated projections will ultimately come at the expense of taxpayers from donor countries and the environment.

McKinsey’s cost curve overestimates the benefits of the logging industry and underplays or entirely ignores the costs of biodiversity loss and social upheaval. In some cases reports on which  McKinsey advised make  recommendations based on wholly inadequate data. In the DRC study, for example, a table is given showing confidence in individual emissions factors. The table reveals that illegal logging and fuel wood factors have been reached despite there being ‘no exact data available’. It is unclear what assumptions have been made or analysis done in the absence of this data [18].

Rainforest nations are currently working to develop proposals for REDD schemes with  $3.5 billion^[i] of funding agreed at Copenhagen. McKinsey received $300,000 for its work in the DRC paid for by a Multi-Donor Trust Fund overseen by the World Bank and funded by the UK, France, Belgium, Germany, Luxembourg and the EU.[ii] Norway directly funded McKinsey’s work in Indonesia .[iii]

If properly administered, the fund should radically reduce emissions from deforestation, which currently account for up to a fifth of global greenhouse gas emissions.