Some of the world’s largest companies are making progress in disclosing and addressing deforestation risk within their commodity supply chains, but much work is left to be done to shift to more sustainable practices, argues a new report from the Climate Disclosure Project.
The report is based on responses from 162 companies that have a combined marked capitalization of $3.2 trillion. It looks specifically at four commodities — cattle products, palm oil, timber products and soy — that account for more than a third of tropical deforestation globally.
The Climate Disclosure Project (CDP) says that while a number of companies have established zero deforestation policies in recent months, those commitments are only the first step in actually eliminating deforestation from their supply chains. Implementation requires a combination of engagement with suppliers, certification, and traceability mechanisms, according to the report.
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Climate change and its drivers, such as deforestation, must therefore take centre stage for companies to ensure that investment decisions taken today will be relevant and value creative in the future
Freddie Woolfe, Associate Director of Corporate Engagement of Hermes Investment Management
The report notes that even among companies that have made commitments, there are “a number of inconsistencies concerning corporate action on this journey, both across commodities and supply chains.” For example, the timber and palm oil sectors are further ahead of the cattle and soy sectors is setting targets and moving forward on implementation.
Some companies are already taking those steps. The report points to initiatives from Wilmar, Asia Pulp & Paper, Cargill and Unilever as examples of firms “[moving] from commitment to action.”
CDP argues there is good reason for doing so — respondents to its survey indicate there is a strong business case for eliminating deforestation from their supply chains.
“Companies see opportunities in tackling deforestation,” said CDP in a statement.
“While many companies have yet to realize a comprehensive strategy for tackling deforestation, CDP’s forest data shows nearly 90 per cent of businesses identify opportunities with the sustainable sourcing of at least one forest-risk commodity. British Airways for example reports that increasing consumer awareness of environmental issues means acting to minimize deforestation could offer it competitive advantage.”
CDP adds that businesses which aren’t addressing deforestation, run the risk of falling lagging behind their competitors.
Freddie Woolfe, Associate Director of Corporate Engagement of Hermes Investment Management, spelled out some of those risks.
“We need companies to be aware of and prepared for regulatory changes to tackle unsustainable practices. For instance, a clamp-down on illegal deforestation or a sudden policy change on permits or licenses means that companies will face significant risks to security of supply and input costs if they are not appropriately prepared. In addition, regulation that forces companies to internalize costs that they have previously been externalizing, for example through trading schemes, means that unprepared companies will be exposed to increased margin and competition pressure. Both of these present potential material impacts on business operations and corporate strategy,” Woolfe wrote in the report.
“As long-term investors, climate-related effects will structurally and systematically affect the markets in which we invest and therefore the underlying value of our portfolios over time. Climate change and its drivers, such as deforestation, must therefore take centre stage for companies to ensure that investment decisions taken today will be relevant and value creative in the future.”
“There is also reputational risk companies should address. Consumers and companies alike are becoming more and more aware of the damage caused by unsustainable practices and are choosing products which are sourced or produced in a sustainable way to reflect this. This is fueled by activist NGOs and negative press coverage which further create risk to the top line.”
CDP noted that a number of companies did not respond to requests for disclosure. Notable non-respondents included IKEA, Amazon.com, Archer Daniels Midland, Chipotle, Yum! Brands, and most of the oil majors and airline giants.
CITATION: Climate Disclosure Project. Deforestation-free supply chains: From commitments to action. CDP Global Forests Report 2014. November 2014
