Deforestation in supply chains poses massive financial risk to companies and would cost a fraction of that to address it; CDP/AFi study finds US$80B forest-related risk for 211 disclosing companies, only 13% have good practice no-deforestation policies

LONDON , June 8, 2022 (press release) –

Firms in industries such as timber, cattle and palm oil are off track to meet deforestation commitments made at COP26, finds joint CDP, AFI study

• Deforestation poses a massive financial risk to companies. 211 disclosing companies identified over US$79.2 billion of forest-related risks; the cost of responding to identified risks was US$6.7 billion.
• Only 36% of disclosing companies (245/675) have public company-wide no-deforestation or no-ecosystem conversion policies. Only 13% of companies have commitments to no-deforestation/no-conversion that are aligned with good practice.
• The majority of companies do not have sufficient traceability (77%) or monitoring systems (74%) throughout their supply chains to implement commitments made or assess progress against them.

New research released today from the Accountability Framework initiative (AFi) and CDP shows that companies cannot afford any more delay in tackling deforestation across supply chains, with forest-related risks identified at almost $80 billion by 211 disclosing companies.

The report calls for rapid company action at a time when more than 100 world leaders and 30 of the world’s largest financial institutions pledged at COP26 to halt and reverse deforestation and destruction of other ecosystems, which account for at least 11% of annual GHG emissions created by human activity.

This report, ‘From commitments to action at scale: critical steps to achieve deforestation free supply chains’ assesses company disclosures to understand how they are working to mitigate risks within their supply chain, using data from CDP’s 2021 forests questionnaire, which is aligned with the AFi’s Core Principles and the Task Force on Climate-related Financial Disclosures (TCFD). It includes disclosures from 675 companies that produce or source at least one of the seven commodities responsible for most commodity-related deforestation: timber products (491 companies disclosing), palm oil (233), cattle products (126), soy (154), rubber (51), cocoa (54) and coffee (27).

The report found that disclosing companies are taking some positive steps:

• 76% of companies (512) report having a traceability system for at least one commodity
• Two-thirds of companies (444) report that they are engaging with direct suppliers to manage and mitigate deforestation risks.
• Half of all traders, manufacturers or retailers (194/390) disclose that they are working with their indirect suppliers to manage and mitigate deforestation risks

However, the report found that companies lack clear targets and milestones that are vital in driving corporate systems towards long-term sustainable sourcing of commodities.

Current company action is not going far enough, as companies must increase scale (actions must be expanded across the whole company), scope (companies must act across all commodities, regions, and ecosystems), and rigor (implementation must be driving measurable impact) needed to halt deforestation.

• Only 36% of disclosing companies (245/675) have public company-wide no-deforestation or no-conversion policies. Only 13% of companies have commitments to no-deforestation/no-conversion that are well-aligned with good practice.
• Only 26% of companies report having a monitoring system to assess compliance with no-deforestation/no-conversion policies.
• 38% of companies (257) report having no information about origins for at least half of their commodity volumes, and 28% (191) report having no traceability system for at least one commodity that they source.
• Just 46 companies (7%) report that at least 90% of one of their commodities is certified by a certification scheme that provides assurance of no-deforestation/no-conversion.
• Only 19 companies have a target of sourcing 100% no-deforestation commodities through the use of certification and report making progress towards this target or having achieved it.
• Only a quarter of companies report providing technical or financial assistance to direct suppliers (25%) or smallholders (22%), and a third report having processes to manage supplier non-compliance.

The report calls for rapid progress from companies and further engagement throughout supply chains to scale and strengthen action not to end deforestation and eliminate land sector emissions in line with Science-Based Targets and meet nature and biodiversity goals.

Progress made by companies demonstrates that a deforestation-free future is possible, but requires companies to make significant adjustments to their business practices. In this report, examples of company good practice are drawn from company CDP disclosures, with the aim to provide a pathway to help companies take action.

What can companies do:

• Use the Accountability Framework to understand and implement best practices for setting and achieving no-deforestation and no-conversion goals.
• Disclose progress regularly and comprehensively through the CDP Forests questionnaire which is aligned with the Accountability Framework’s Core Principles.
• Join CDP’s Supply Chain program to support informed supplier engagement.

On 25^th May CDP and AFi will be co-hosting a webinar. Companies can register now to learn more about the joint report’s disclosure analysis and recommendations for achieving deforestation-free supply chains.

Thomas Maddox, Global Director, Forests, CDP, said:

“The importance of forests cannot be underestimated. Billions of people rely on forests and they play a crucial role in climate mitigation and adaptation. Yet deforestation continues almost unchecked. Last year, a further 11 million hectares of tropical forest were lost. [1] Large scale production of agricultural commodities is the primary driver. But societal acceptance is shifting, generating significant business risks for all involved. Companies are starting to respond, but they are far from where they need to be. We need more investors to demand the eradication of deforestation from their portfolios. We need more companies to commit to, and deliver, deforestation-free supply chains. And we need them all to join CDP to drive change and track progress..

Jeff Milder, Director, Global Policy & Coalitions at Rainforest Alliance(also Director of the Accountability Framework initiative)

"As this report highlights, attention around eliminating commodity-driven deforestation has rightly shifted beyond commitments to focus on action. While we find major gaps in areas such as traceability, supplier engagement, and monitoring, the progress achieved by leading companies shows us that transforming business to address deforestation risk is well within reach. The bar is not set too high: by scaling up the adoption of known solutions we can go far toward reaching it on an industry-wide basis".

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