Many corporations have found competitive advantages through implementing environmental sustainability measures at both their direct operations and supply chains. Fueled by substantial encouragement from governments, NGOs and global institutional investors (through consortiums such as CDP and UN PRI), companies managing greenhouse gas emissions are pursuing a variety of business benefits, including improved bottom line economic and environmental performance, increased investor and customer interest, regulatory compliance, brand differentiation, risk management, new business opportunities, and adherence to stakeholder interests.
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In an effort to broaden the scope of climate change mitigation opportunities beyond that of fuel and electricity consumption, we are more recently witnessing a collective head-first dive from companies and their stakeholders into identifying how forest risk commodities, mainly palm oil, soy, cattle and wood products, contribute to climate change and fit within corporate environmental sustainability materiality metrics.
The business link between climate change and forest risk commodities
Studies show that approximately 15 per cent of all greenhouse gas emissions are caused by deforestation and degradation in the tropics and subtropics. According to a recent Forest Trends report, “nearly half (49 per cent) of all recent tropical deforestation is the result of illegal clearing for commercial agriculture… and around half of this illegal destruction was driven by overseas demand for agricultural commodities including palm oil, beef, soy, and wood products.”
Corporations and their stakeholders have become more sophisticated in their understanding of where they have impact and influence on mitigating climate change within business operations and value chains. As a result, sustainable supply chain management of forest risk commodities is increasingly receiving more of the spotlight as a solution.
Gail Klintworth, Unilever’s former Chief Sustainability Officer, puts it this way in her commentary in the CDP 2013 Global Forests report: “Deforestation…makes a significant contribution to global climate change, which has huge risks for our business – from the impact of droughts and flooding on our agricultural supply chains to the way water scarcity affects our consumers. Combating deforestation through sustainably grown crops is one of the most significant ways we can help prevent climate change and biodiversity loss, while also providing benefits for farmers and our consumers.”
Investors can have a strong influence on businesses to address the climate impacts of agricultural commodities. CDP’s forests program, which requests information on corporate deforestation risk, now has 240 individual investor signatories representing US $15 trillion in assets. In the US, a record number of shareholder resolutions in the 2014 proxy season led 20 international corporations to commit to reduce greenhouse gas emissions or sustainably source palm oil. One case in particular, the Norwegian pension fund, Norges Bank, with assets worth $260 billion, has divested from both timber and palm oil companies that did not meet their standards.
NGOs have also had a significant impact. In addition to the CDP forests program, companies are being ranked on the transparency and performance of their forest risk commodities efforts by a growing number of other leading NGOs, including WWF, Union of Concerned Scientists’ Palm Oil Scorecard, Greenpeace’s Tiger Challenge and Forest Heroes’ Green Tigers palm oil ranking. High-profile campaigns against major brands have played no small role in spurring corporate commitments on deforestation.
On the global stage, at last month’s UN Climate Summit, in alignment with global efforts to limit temperature increase to 2oC, more than 150 governments, companies, civil societies and Indigenous Peoples endorsed the New York Declaration on Forests. The Declaration pledges to cut the loss of forests in half by 2020 and, for the first time, to end it a decade later in 2030, collectively cutting between 4.5 and 8.8 billion metric tons of greenhouse gases per year. Crucially, this includes a “private-sector goal of eliminating deforestation from the production of agricultural commodities such as palm oil, soy, paper and beef products by no later than 2020, recognizing that many companies have even more ambitious targets.”
Taking advantage of an opportunity
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Corporations and their stakeholders have become more sophisticated in their understanding of where they have impact and influence on mitigating climate change within business operations and value chains. As a result, sustainable supply chain management of forest risk commodities is increasingly receiving more of the spotlight as a solution.
A significant number of companies have made commitments to achieving zero or zero-net deforestation and other related targets. These companies represent all segments of the value chain from producers, traders, consumer goods companies to global financiers. Over the last year, suppliers of more than 55 percent of the world’s palm oil have committed to produce or trade 100 per cent deforestation-free palm oil. And while most commitments to date have been for palm oil, some companies are expanding their commitments to other commodities as well, including soy, beef, and pulp and paper.
On the pathway towards meeting these commitments, businesses have an opportunity to achieve in-tandem business and environmental benefits. This is very aptly described in a letter by Aida Greenbury, Managing Director Sustainability, Asia Pulp & Paper: “Pioneering a new business model in a country such as Indonesia is of course not without its challenges. But the bigger picture, and my hope, is that the economic success of companies operating zero deforestation businesses, will demonstrate to others that it is possible to operate profitably, without having a detrimental impact on the landscape.”
Companies are recognizing that it is important to be transparent and report publicly on their forest risks and on progress towards meeting their commitments. According to CDP, participation in the CDP forests program almost quadrupled between 2009 and 2013, with the number of countries in which participating companies are registered increasing by almost 50 per cent.
What is the value of these commitments?
Companies across the world are beginning to recognize the value of addressing forest risks. A large and growing number have made significant commitments on eradicating deforestation from their direct operations or value chains.
A number of organizations are working to effectively map and track such commitments, including The Tropical Forest Alliance 2020, and the roundtables for palm oil (RSPO), soy (RTRS) and cattle (GRSB). These are commendable initiatives, and very valuable sources of insight, which aim to answer several key contextual questions that remain if we are to understand the true value of corporate commitments:
- What volume of forest-risk commodities are now under commitment?
- How are companies and their suppliers performing against their promises?
- Which key players are not at the table?
- Will supply be able to meet demand for sustainable commodities?
- And how are rankings on forest risk commitments being integrated with overall corporate climate change management plans?
As deforestation becomes increasingly important and continues to climb the climate change agenda, corporate sustainability leaders will be working diligently to answer the above questions. As much as progress has been made in the past year, more is required and more is yet to come.
Stephen Donofrio is Principal & Founder of Greenpoint Innovations LLC. This post was originally published on the Corporate Citizenship Briefing blog.
