Ecuador was the first country in the world to include the Rights of Nature in its constitution.

Those rights have now survived their first substantive judicial test, after the Constitutional Court on 1 December voted to revoke environmental permits for mining in a highly bio-sensitive cloud forest, Los Cedros, located in the northern province of Imbabura – home to the giant Cascabel copper prospect, one of the most lucrative globally.

Almost 10,000 hectares of Los Cedros are included in a concession for the Magdalena River gold project, a joint venture between the Canadian mining company Cornerstone Capital Resources and the state mining company, ENAMI.

Indigenous communities argue that the government acted illegally by awarding these concessions without their knowledge and/or proper consent; and acted without respect for the country’s ‘Protective Forests’ and indigenous territories.

The submission on behalf of Los Cedros sought application of the Rights of Nature for Protective Forests and surrounding communities, as per Articles 71–74 of the 2008 Constitution. 

The Ecuadorean government had argued (rather narrowly) that the Rights of Nature did not apply to Protective Forests as they are not specifically mentioned in the constitution; or included in the national system of protected areas.

The legal team for Los Cedros countered that the Rights of Nature cited under Constitutional Article 71 are universal rights, granted by the Constitution to all of Ecuador, and are not limited to specific areas. On 1 December, the Constitutional Court agreed with the applicants, ruling that the Rights of Nature did apply.

Moreover, the Court made clear that the Rights of Nature are applicable across the country, and not just to protected areas. As such, these rights must be taken into account “when authorising, restricting or regulating… extractive activities”, the court stated

In a separate ruling issued on 24 November, the Court also ruled in favour of an indigenous group, Yasunidos, which since 2014 has argued that the state failed to adequately consult ahead of a (highly controversial) decision to develop some 1 billion barrels of oil located deep inside the Yasuní national park, a remote and largely-undisturbed Amazon ecosystem.

Together, these two rulings will set uncomfortable legal precedent for the government; the national oil and mining companies (PetroEcuador and ENAMI) and the almost entirely foreign-owned companies looking to develop industrial mining in the Andean country.

At minimum, the sector faces higher financing and development costs, intensified reputational risks, and potentially weaker foreign investor interest moving forward. The local mining chamber admitted as such in a statement critical of the ruling, warning the sector was now seriously threatened by legal uncertainty. The chamber accused the court of overstepping its remit and of ignoring contract rights awarded by the state.

Beyond this, the broader extractives supply chain is under growing scrutiny. Following the court ruling in favour of Yasunidos, a new report from NGOs Amazon Watch and Stand.earth claims that fully two thirds (66%) of the oil extracted from Yasuní and the wider Amazon ends up in the US (70 million barrels in 2020), the vast majority going to California (56 million barrels).

The report claims that on average one 1 in every 7 tanks of gas, diesel or jet fuel pumped in southern California in 2020 came from Amazon rainforest zones.

Earlier this year, Switzerland’s Credit Suisse, France’s BNP Paribas, and the Netherlands’ ING Group said they would cease trade financing for oil exports from the Ecuadorian Amazon, after a pressure campaign from climate activists.

This followed an August 2020 name-and-shame report report (again from Amazon Watch and Stand.earth), identifying 19 European banks involved in financing USD10 billion of oil trade to the US from Ecuador’s biodiverse and indigenous community-dominated Amazon headwaters region.

The top six banks on the list, accounting for 85% of the total financing all had existing policies in place in support of human rights, sustainability and climate change.

Given the high reputational risk, and the challenges involved in validating the crude oil supply chain, these three big European players added their names to the growing list of Western institutions (such as Bank of America) either limiting their exposure to, or withdrawing altogether from, trade financing for fossil fuels.

Ecuador accounts for 93% of the oil exported from the Amazon (Peru and Colombia the remaining 7%) and so is front and centre of this issue.

With pressure equally mounting on financial institutions for links to other Amazon supply chains (notably beef, soya and forestry products), important markers are being set down. While the Amazon is perhaps the most high-profile example, this growing pressure on corporates and the financial sector is extending globally. Shell on 3 December quit the North Sea Cambo oil project off the coast of Scotland, citing economic reasons, but also under pressure also from climate activism.

Yet, a recent report in the FT suggested that European investment groups who in June 2020 had threatened to divest from Brazil over soaring Amazon deforestation have not done so (with two exceptions, Nordea and Robeco), opting instead for continued engagement with the Brazilian government. UK and European food retailers (including the likes of supermarket giant Tesco) are taking a similar stance of engagement over divestment.

In our view, regulators will likely have the final say. The UK’s new (November 2021) Environment Act contains a “comply or explain” mandate on deforestation for UK businesses importing forest-risk commodities (yet to be defined).

The EU is likewise considering legislation requiring suppliers to prove that products including beef, soy, coffee, cocoa, and palm oil have not contributed to deforestation.

And finally, the EU’s SFDR will oblige the financial sector to take closer account of ESG risk at both corporate and sovereign level.

For developing countries like Ecuador, dollarised and highly-indebted post pandemic, judicial rulings and regulatory moves in favour of Mother Nature (or ‘Pachamama’ in Andean cultures) are all very well, but they create a huge economic and social development dilemma, and one that was not resolved at COP26.