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5 Reasons why companies can't afford to keep driving deforestation
The production of these forest-risk commodities can contribute to habitat loss, greenhouse gas emissions and social conflict - resulting in direct and supply chain exposures for traders and customers alike.
Companies too are slowly, but surely, moving to recognize deforestation-risk as a business priority. CDP's forests program asks companies on an annual basis to detail information about their efforts to undertand, assess and manage deforestation-related business risks.
This year we had responses from over 200 companies, up from 180 in 2015, including Archer Daniels Midland, Bunge, and Cargill (who make up three of the four so-called ABCD global commodity trading giants), the three largest slaughterhouses in Brazil and big-name brands from Nestle to Starbucks.
Our role at CDP is to hold up the mirror for the private sector so we can reflect back to the market data that will guide decision-making. To that end, we analyzed the wealth of data from this year's disclosures with one overarching question in mind: Will companies whose business activities continue to drive deforestation be commercially viable in the future?
CDP's data suggest that no, companies can no longer afford to keep buying and selling products that continue to contribute to the destruction of the word's forests. here are five reasons why:
1)Revenue is at risk
CDP's data shows that a substantial share of annual corporate turnover is dependent on commodities responsible for deforestation. Companis report that, on average nearly a quarter of cpmpany revenues (24%) depend upon the four agricultural commodities they reported on. We estimate that up to US $906 billion in annual turnover could be at risk for publicly listed companies. Companies rely on this income to drive future growth. However, by falling to address deforestation-risks within their supply chains, companies will be leaving a significant tranche of their revenue at risk from supply chain stock.
2)Impacts can ripple through supply chains
Supply chains are like rows of dominoes: If unsustainable commodities enter the top of a supply chain, the effects can cascade throughout. As Associated British Foods Plc notes in its disclosure to CDP, "In the commodity world, segreated supply chains are physically challenging and become commercially challenging when the next supply chain player has a slow awerness of the issues at play."
Conversely, faulues downstream in terms of weak procurement or lax standards can have ripple effects higher up the supply chain, by removing Incentives for producers, processors and traders to ensure the sustainability of their operations or immediate suppliers.
3)Investors are putting companies under the spotlight
A growing number of investors want to know what companies are doing to address deforestation within the supply chain, in order to reduce risk in their protfolios. This year, 365 investors, over a fifth more than in 2015, with a total of $22 trillion in assets asked companies to disclose this information via CDP.
Through shareholder resolutions, investors are also calling for reporting on deforestation management practices. In 2016, global commodity traders ADM and Bunge have disclosed through CDP's forests program after two were filed against them by the Investor network on Climate Change a year ago.
Investors also continue to drop companies linked to deforestation. Earlier in march, Norway's Goverment Pension Fund Global, the world's largest sovereign wealth fund, divested from 11 companies over deforestation concerns.
And don't expect investor action to slow down: Our We Mean Business coalition partners Ceres have joined forces with the UN principals for Responsible Investment to help mobilize institutional Investor action on this critical financial challenge. This new investor group seeks to engage with food and timber companies in particular to ensure they are eliminating deforestation.
The Global Canopy Programme's new Forest 500 results also provide evidence that Investor policies are moving to recognize deforestation risk. Nearly a quarter of financial Insitutions in its sample of forests powerbrokers have policies that apply to one or more forest-risk commodities. Overall , the Forest 500 report concludes that strong policies from a small number of leading financial Insititutions are yet to be matched by their peers and client/Investee companies. This is certainly one part of the wider challenge that must be addressed if the private secor is to get itsc act together in time to end deforestation.
4) Deforestation risk within commodity supply chains is real, and the lack of its management is influencing the perceptions customers have of global companies. Sourcing from suppliers breaching agreements to halt deforestation or having illgal material entering supply chains can damage brand value through knock-on reputational Impacts, manifesting themselves as consumer boycotts, community opposition, and increased regulator scrutiny.
5)Companies who fail to embrace sustainability risk being left behind
In the last 18 month, two crucial International agreements have sketched out the framework for a global economy that is move enviromentally and socially sustainable: The Sustainable Development Goals and the Paris Agreement. As a result, business has an increasingly crucial role to play in addressing the sustainability challenges the world faces to allign with these initiatives.
Companies that do not take action will not be able to seize on the opportunities that producing or sourcing sustainable commoditites represents.
The business case for action on deforestation is clearer than ever. Where will you stand- on the side of the leaders or the laggards?