Industry

US$80 Billion at Risk as Firms’ Deforestation Efforts Fall Short

“Major gaps” in traceability, supplier engagement and monitoring highlighted in analysis of disclosures to CDP.

Investors and companies have been warned to urgently improve their forest-related reporting, due diligence and policies after an analysis of disclosures identified almost US$80 billion of enterprise value at risk.

An analysis of voluntary submissions by 675 companies to environmental disclosure platform CDP found that 211 businesses had reported forest-related risks of US$79.2 billion across their operations and supply chains.

The research, conducted by CDP and the Accountability Framework initiative (AFi), revealed a mixed picture, with many companies lacking targets, needing to increase scale, scope, and rigour of their approach to curb deforestation impacts.

“To help increase scrutiny and support for firms on this front, investors can undertake an initial assessment of exposure to high impact sectors and companies, accounting for both direct and indirect exposure to forest risk commodities,” said Thomas Maddox, Global Director, Forest and Land, CDP.

More than 140 governments pledged to implement policies to halt and reverse forest loss by 2030 at COP26, but the overall pace of deforestation has not yet slowed notably, with Brazil reporting last month its worst monthly losses since 2016.

Some companies were found to have taken positive steps, with 76% reporting they had a traceability system in place for at least one commodity, and 66% evidencing engagement with suppliers to mitigate deforestation risk. Up to 50% of traders, manufacturers and retailers revealed they were working with indirect suppliers on this.

But the disclosures revealed that many firms were not yet taking a comprehensive approach, with targets and milestones covering their global operations. Just 36% of companies had company-wide no-deforestation and no-conversion policies in place, with as few as 13% demonstrating policies and commitments aligned with best practice.

A total of 26% of companies said they were monitoring compliance with zero deforestation policies, while 38% said they had no information regarding the source of 50% of their commodities.

Up to 28% said they lacked a traceability system for at least one commodity source. Just 19 companies in total said they were targeting 100% zero-deforestation commodities, through use of certification, and report making progress towards this target or having achieved it.

Focus on action

“Attention around eliminating commodity-driven deforestation has rightly shifted beyond commitments to focus on action,” said Jeff Milder, Director of Global Policy & Coalitions at Rainforest Alliance, and Director of the AFi, which coordinates collaborative efforts to build and scale up ethical supply chains for agricultural and forestry products.

“While we find major gaps in areas such as traceability, supplier engagement, and monitoring, the progress achieved by leading companies shows us that transforming business to address deforestation risk is well within reach. The bar is not set too high: by scaling up the adoption of known solutions we can go far toward reaching it on an industry-wide basis.”

Companies must engage throughout supply chains to strengthen action to end deforestation and eliminate land emissions in line with science-based targets, the report said.

While progress had been made, “significant adjustments to business practices” were required to dent deforestation emissions and harmful impacts to ecosystems.

CDP’s Maddox said investors should create resources and capacity within investment teams to integrate deforestation assessments as relevant, using standardised and comparable data on investee companies and their peers to drive both direct and collaborative.

When engaging with investee firms, he added, investors should challenge them on their inclusion of forest-related issues in risk assessments, their processes for tracking the origin of sourced commodities and the compliance of suppliers with its policies, as well as its use of time bound and quantifiable targets in place to improve its performance.

“These questions are important to ensure companies are implementing restoration or conservation activities to remedy the environmental harms caused by deforestation or conversion,” said Maddox. “Responses will demonstrate to investors that companies are committed and proactive towards forests stewardship and sustainable practices.”

 

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