Among global companies, efforts on deforestation lag

Global efforts by companies to tackle deforestation are lagging behind climate actions, with the adoption of zero deforestation policies going at a snail’s pace, according to a recent report by London-based non-profit CDP.

The forest report found that only 13 percent out of 201 companies surveyed adopted zero net deforestation policies.

Companies that adopt a zero deforestation commitment exclude high conservation value (HCV) or land under conservation and high carbon stock (HCS) land or peatland from exploitation and require the free, prior and informed consent of local people to any land-use activity that affects them.

Adopting zero deforestation policies is a critical step in stopping global forest loss as deforestation accounts for up to 15 percent of global greenhouse gas emissions, according to CDP.

The impact of deforestation on climate change might have also been underestimated, with carbon emissions from deforestation estimated to have twice the impact on climate as emissions from other sectors.

Yet, many companies had failed to jump on the bandwagon of big companies that have adopted zero deforestation policies, like McDonald’s Corporation, the CDP report noted.

Another report by UK-based think tank Global Canopy Programme (GCP) published last year also noted the sluggish pace of zero deforestation policies’ adoption among global companies. According to the GCP report, there had only been a five percent increase in the number of companies with deforestation policies that cover all commodities in their supply chains over the past three years.

Lance Pierce, the President of CDP North America, said that the slow adoption of zero deforestation policies might be caused by a lack of understanding on the issue.

“Companies have historically been more familiar with climate change,” he said via email. “But they need to understand that a huge part of the solution in dealing with climate change will be through managing deforestation.”

Poor score for companies’ efforts in deforestation

Corporate action to halt deforestation has not yet reached a tipping point. According to the CDP report, among those companies that have committed to tackling deforestation, only six are recognized as leaders on the issue.

Since 2009, the annual forest report by CDP has looked at how companies manage and mitigate the risk associated with the sourcing or production of the four commodities most responsible for deforestation – timber products, palm oil, and soy and cattle products. These are also known as forest-risk commodities.

These commodities end up in products found in virtually all consumer goods – from hamburgers to t-shirts – and together are responsible for over a third of tropical deforestation. Based on their efforts to remove commodity-driven deforestation from their value chain, CDP gave them a score between A and D-.

This year, only six companies achieved an “A” rating and thus have been named as pioneers in tackling deforestation. They are Brambles, L’Oréal, SCA, Tetra Pak, Unilever and UPM-Kymmene.

“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,” said Morgan Gillespy, director of forests at CDP, in a statement.

Yet, this number falls way short of the number of companies receiving “A” rating in climate change, which is 117, as business is picking up the pace on climate action. According to CDP’s global analysis, more leading companies are embedding low-carbon goals into their long-term future business plans, spurred by the Paris Agreement.

Among 1,073 companies surveyed by CDP, 89 percent of them reported emissions reductions targets in 2017, and 68 percent of those are setting targets to at least 2020. The disparity between climate and forest actions is also evidenced in the level of board oversight, with many companies failing to assign their boards with responsibility for addressing deforestation.

“Our recent climate change analysis found that 86 percent of companies have board-level oversight of climate-related issues, while only 64 percent of companies have board-level oversight of deforestation,” CDP’s Pierce said.

Board-level responsibility on deforestation differs significantly by region.

Companies in Europe, the Middle East and Africa are the most likely to have board-level oversight of deforestation (84 percent report doing so), compared with Asia Pacific (72 percent), Latin America (55 percent) and North America (35 percent).

Deforestation risks overlooked

All of these disparities suggest that companies are overlooking the risks deforestation poses to their business.

Companies that directly or indirectly cause deforestation by producing or consuming unsustainable forest-risk commodities are faced with physical, regulatory and reputational risk.

87 percent of surveyed companies have identified at least one risk related to forest-risk commodities that has the potential to cause a substantive change in operations, revenues or costs. These risks are not distant: 32 percent of companies have already experienced at least one impact on their business.

For instance, Empresas CMPC, a Chilean pulp and paper company, reports that fires affecting large swaths of forests in its home market cost it $41 million in 2016. But it’s not all doom and gloom. More and more companies are becoming aware of the risks associated with not tackling deforestation.

“Three-quarters [73 percent] of companies responding to the forests program report some kind of commitment to ‘reduce or remove’ deforestation from their supply chains, which is promising and means they are recognizing the issue and moving in the right direction,” Pierce said.

However, Pierce notes that the majority of companies are not yet being bold enough in committing to zero deforestation policies.

And companies that are looking to adopt and implement zero deforestation policies find challenges, such as a lack of robust policy structure or missing compliance mechanisms in production countries.  Incomplete technology, systems needed to fully implement certification, traceability and monitoring, and the high cost and lack of economic incentives for procuring sustainable product are also barriers.

Looking ahead

With the sluggish performance by companies involved in forest commodities, Pierce said that more companies need to understand the financial risks deforestation posed to their business.

“Often companies only take action when a peer in their sector is hit,” he said, noting that investors should also step up by understanding the risks to their portfolios and engaging with companies to encourage greater transparency on deforestation.

“They should use CDP data to understand risk and identify opportunity within the portfolio, specifically focusing on risk assessment, governance, policies and standards, and implementation,” Pierce said. “If companies do not wish to engage, investors should be prepared to file shareholder resolutions, or join with other investors in tabling resolutions.”

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