A new report by CDP has revealed the extent to which deforestation threatens the global economy — and the numbers are staggering. According to From Risk to Revenue: The Investment Opportunity in Addressing Corporate Deforestation, 87 percent of companies identify at least one risk related to the production or consumption of forest-risk commodities (FCRs) including timber, palm oil, cattle and soy, while nearly a third are already experiencing impacts from these risks, such as a reduction or disruption of supply, increased costs or reputational damage.
The report calculates that up to $941 billion of turnover in publicly listed companies is dependent on commodities linked to deforestation (up from $906 billion in 2016). However, more than one in three of the 201 companies surveyed (65 percent of which are in North America) do not assign their boards with responsibility for addressing deforestation. What’s more, only 13 percent have followed the lead of companies such as McDonald’s and Asia Pulp & Paper and made a time-bound, comprehensive commitment to zero deforestation, a critical step in stopping global forest loss, which is responsible for up to 15 percent of global greenhouse gas emissions.
Inaction has considerable consequences for investors, who stand to lose millions if companies continue to deploy unsustainable production practices. This has led to an increase in the number of investor signatories backing CDP’s forest program (184 in 2013 to 380 in 2017). Yet, despite this demand, less than a quarter of the 838 companies approached on behalf of investors this year responded to their information request, leaving investors in the dark about the deforestation risks they may face in the remaining 77 percent of companies.
Investors need this information not only to assess risks, but also potential opportunities. With almost three-quarters of responding companies reporting a commitment to reduce or remove deforestation from their supply chains, there is clearly a large and growing market for deforestation-free commodities. The Tropical Forest Alliance 2020 suggest the investment opportunity will roughly total $200 billion annually for deforestation-free investment and financing by 2020, a hidden gold mine for investors looking for new opportunities.
“Deforestation poses a number of material concerns to investors, including restricted market access, competitive disadvantage and reputational damage. To counter this risk, investors must demand rigorous disclosure from companies. Using CDP to assess company exposure to forest risk commodities and how policies and procedures are being implemented, we have worked with over 20 companies to support deforestation-free supply chains. While this progress is worth celebrating, much more work remains to ensure sustainable supply chains and protect investors and companies from risk,” said Leslie Samuelrich, President at Green Century Capital.
A handful companies are already looking forward to the future, such as Brambles, L’Oréal, SCA, Tetra Pak, Unilever and UPM-Kymmene, all of which achieved top marks on this year’s CDP A-List for tackling deforestation.
As the only company to score A’s across all four forest-risk commodities, as well as on water and climate change, Unilever has proven that best-practice on deforestation can go hand-in-hand with long-term profitability. The company aims to source all its agricultural materials from 100 percent sustainable origins by 2020 and as 21-30 percent of the company’s revenue is dependent on cattle products, that commodity is critical.
“With deforestation accounting for around 15 percent of global emissions and putting almost a trillion dollars of listed equity turnover at risk, protecting forests has become a prerequisite for both a stable climate and a stable economy,” said Morgan Gillespy, Director of Forests at CDP. “The six companies on 2017’s Forests A-List are showing real leadership with board-level oversight of the issue and commitments such as zero deforestation, but investors require much greater levels of measurement and reporting from companies around the world on their deforestation risk We call on investors to ramp up their engagement and demand greater levels of disclosure from companies.”
Investors are uniquely positioned to increase this kind of corporate action by engaging with the companies to improve disclosure and performance and by shifting capital away from high-risk, unsustainable companies. In the report, CDP calls investors to action on a four-stage roadmap to engage with companies to identify and act upon deforestation-related risks and opportunities; activity which will ultimately protect and benefit their portfolios.