A new report reveals that 87% of companies identify at least one risk related to the production or consumption of forest-risk commodities (FRCs) including timber, palm oil, cattle and soy, while nearly a third (32%) are already experiencing impacts from these risks, such as a reduction or disruption of supply, increased costs, or reputational damage.
The report 'From risk to revenue: the investment opportunity in addressing corporate deforestation', by the non-profit global environmental disclosure platform CDP, calculates that up to US$941 billion of turnover in publicly listed companies is dependent on commodities linked to deforestation (rising from up to US$906 billion last year). Yet despite the revenues at risk, more than one in three (36%) of the 201 companies surveyed (and 65% of those in North America) do not assign their boards with responsibility for addressing deforestation. Furthermore, only 13% have followed the lead of companies such as McDonald's and Asia Pulp & Paper and made a time-bound comprehensive commitment to zero (net) deforestation, a critical step in stopping global forest-loss, responsible for up to 15% of global greenhouse gas emissions.
With inaction on unsustainable production of forest-risk commodities leading to potentially millions of dollars of investments becoming 'stranded assets' , investors are increasingly concerned about the impact deforestation could have on their portfolios, demonstrated by the growth in the number of investor signatories backing CDP's forests program (184 in 2013 to 380 in 2017). However, despite this demand, less than a quarter (23%) 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% of companies.
A handful of companies are forging ahead. Working with forests scoring partner South Pole Group, CDP assesses every company disclosing to the forest program on their efforts to remove commodity-driven deforestation from their value chains, awarding them a score between A and D-. This year, Brambles, L'Oréal, SCA, Tetra Pak, Unilever, and UPM-Kymmene achieved the top score and have been named as pioneers in tackling deforestation as part of the CDP A List 2017.
Florian Reber, Senior Manager, Land Use & Sustainable Supply Chains at South Pole Group said: “The 2017 CDP Global Forest Report clearly illustrates the scale and systemic nature of market risks related to deforestation and unsustainable land use. It is encouraging to see the leadership of those companies that are moving towards deforestation-free supply chains, and investors asking for forest-risk related information. Together with public policy and market incentives, those voluntary actions are important enablers of the necessary transition towards climate-resilient and low-carbon growth. At South Pole Group, we also see a clear need for equipping mainstream investment professionals with innovative tools to integrate financial risks related to deforestation - as well as the benefits of good practices - into the financial valuation of assets and liabilities."