Greater transparency helps identify priorities for investor engagement with firms in key commodities.
A jump in data flows from firms producing key commodities has highlighted substantial investment risks from deforestation.
In 2020, US$53.1 billion of deforestation risks were reported to disclosure platform CDP by 553 companies producing or sourcing the commodities that drive most agricultural deforestation globally. CDP reported it would cost only a total of US$6.6 billion to address these risks.
It also found a 27% annual rise in the number of firms reporting on the impact on forests of their activities across timber products, palm oil, soy, cattle products, rubber, cocoa and coffee.
The greater transparency provided by increased data flows will help investors to clearly communicate their expectations and support informed engagement discussions, said Sareh Forouzesh, Associate Director of Forests at CDP.
“Extensive work has gone into ensuring the data is as decision-relevant as possible.
“Investors can play a key role in deepening the awareness of standardised reporting among companies by including this data in their engagement and assessment,” she said.
Ambitious policies and targets
The report, titled ‘The collective effort to end deforestation’, assessed companies against 15 key performance indicators related to tackling deforestation.
These include board level oversight; setting a robust public policy on no-deforestation; ambitious targets; a robust system to control, monitor and verify compliance with related policies; and engaging suppliers on sustainable production methods.
Only 1% of reporting firms – Swedish hygiene and health company Essity, L’Oréal, Mars and Tetra Pak – demonstrated best practice, taking nearly all actions to protect forests.
Forouzesh commented: “While too few, there are companies that have adopted a comprehensive approach, have set ambitious policies and targets and are implementing these measures to effectively tackle deforestation from production of commodities in their supply chains.
“Therefore, asset owners should expect and encourage all companies in their portfolios to adopt these measures and transparently report on their progress.”
An estimated 10 million hectares of forests have been lost every year since 2015, posing increased risk of future pandemics and exacerbating climate change, according to the Food and Agriculture Organisation of the United Nations.
Companies’ risks from deforestation include increased severity of extreme weather, reputational risks and shifts in consumer preferences.
Mixed progress across supply chains
In general, firms are making more progress towards eliminating deforestation from palm oil supply chains, even outpacing companies involved in timber products. Firms have generally been slow to adopt the comprehensive progress required in cattle and soy supply chains.
“Our report clearly shows the business case for corporate action,” Forouzesh said.
According to CDP, business benefit from taking action on deforestation range from increased brand and shareholder value to improved supply chain resilience and stakeholder relations as well as market expansion and improved access to capital.
In 2020, 131 companies disclosing through CDP valued these forest-related opportunities at US$35.6 billion.
Marfrig, one of the world’s largest beef producers, recently received a US$30 million ten-year sustainability-linked loan facility to achieve a deforestation-free cattle supply chain in the Amazon and Cerrado, the report said.