Asset owners urged by CDP to hold consumer goods groups accountable in the fight to end deforestation.
According to CDP’s new ‘Zeroing-in on Deforestation’ report, commitments to net zero deforestation in the consumer goods sector “are unlikely to be met” unless supply chain management of deforestation risks and opportunities are drastically improved.
With 80% of global deforestation caused by agricultural and forestry sectors, it is a matter of urgency that issues surrounding transparency and regulation are addressed, international environmental nonprofit CDP stated.
“Forest risk commodities (FRC) supply chains are complex and it is difficult to attribute deforestation to individual commodity producers,” CDP added. “By assessing companies’ deforestation risk management, we highlight that the worst performing companies are more likely to be exposed to deforestation within their supply chains.”
The report focuses on 29 of the largest and highest impact companies monopolising the four sectors causing most damage to forests – palm oil, timber, soy and cattle traders and producers – some of which may be owned by investors and asset owners directly.
It measures the extent to which firms in the consumer goods sector are “managing risks and seeking opportunities to tackle deforestation within their supply chains” through analysing transition risks and opportunities and existing governance and strategies built into company plans.
For the companies studied, just 68% of total timber supply and 47% of land managed to cultivate palm oil can claim to meet deforestation standards set by the Forest Stewardship Council (FSC) or Programme for the Endorsement of Forest Certification (PEFC). Palm oil companies are making incremental improvements, noted the report, with 50% of assessed companies engaging in multi-stakeholder partnerships to tackle illegal deforestation.
Soy and cattle producers included in CDP’s sample operate within the Amazon biome, which has the highest rate of tree loss in Brazil. Firms active in the region include UK company Glencore Agriculture, Minerva Foods and meat processor giant JBS. Both industries are of particular concern, with cattle calculated to be 400-times more land intensive than palm oil and soy eight-times.
All soy companies included in the study appear to have “some level” of certified production, but CDP reveals “only four companies report the total percentage certified”. There are no existing third-party deforestation certification standards for cattle producing companies.
Eight out of 10 soy and cattle companies covered are committed to zero deforestation (no forest areas cleared or converted) and two to net-zero deforestation (clearance or conversion allowed in one area as long as an equal area is replanted elsewhere). These pledges were made on a wide scale in 2017 before the United Nations, with a promise to half deforestation by 2020 and to halt it altogether by 2030. But the CDP report highlights a disconnect between these companies and their supply chains, meaning it is more difficult to identify the areas where tree loss is still occurring.
With this in mind, CDP argues “certification alone is not enough”. Companies need to implement comprehensive sustainable education and financing to promote ethical and environmentally-focused policy commitments to end deforestation.
Investors have an important part to play in ascertaining poorer performing companies develop a clearer strategy on how they plan to address deforestation going forward.
“Investors should also carefully examine any net zero deforestation targets being set by companies as based on our assessment of the supply chain. There are significant challenges to these being met, particularly in the cattle and soy supply chains,” Carole Ferguson, head of investor research at CDP told ESG Investor.
“It is clear from this report that deforestation is still continuing as a result of the use of these high forest risk commodities. As such, investors and asset owners should be questioning both these primary producers and the consumer goods companies on how they plan to achieve their deforestation commitments,” added Ling Sin Fai Lam, senior analyst at CDP and co-author of ‘Zeroing-in on Deforestation’.
This research follows on from CDP’s 2019 ‘Investor Research on Consumer Goods Companies and Deforestation’ report.