Beats | July 16, 2019

Forest risk: Losses – and opportunities – mount in corporate supply chains

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

ImpactAlpha, July 16 – Global corporations including Walmart, Estee Lauder and IKEA are putting their brands and supply chains at risk by failing to disclose deforestation risks. Alternatively, addressing “forest risk” presents a $27 billion opportunity – and that’s just for the minority of companies currently investing in sustainability across their supply chains.

A new report by environmental non-profit CDP (previously Carbon Disclosure Project), found that less than 25% of companies track the financial impact of deforestation on their businesses. Those that did calculated potential losses of $30.4 billion.

“The low level of reporting on this data point suggests that this figure is significantly under-reported—and that companies are perhaps unaware of the potential cost of forest risk,” CDP’s The Money Trees report states.

CDP solicited 1,500 global companies for their deforestation commitments and impact disclosures, as requested from investors and other third party organizations, in four key forest-related commodities: cattle, timber, soy and palm oil. Only 306 responded, while an additional 364 companies have declined disclosures for at least three consecutive years. “The silence is deafening when it comes to the corporate response to deforestation,” CDP’s Morgan Gillespy said.

  • Non-commitments. Less than 25% of companies have made “zero deforestation” commitments for each commodity group, which may discourage other types of action, like supplier engagement, supply traceability or third party certifications. 
  • Reputation risk. “Companies are already telling us reputational risk is the top risk they see from deforestation,” Gillespy said. Investors increasingly “demand this information to understand their exposure to risk related to these highly scrutinized commodities and expect companies to understand their financial exposure as well.” 
  • Leaders. French cosmetics company L’Oréal is taking the issue head on. The firm has developed a Sustainable Palm Index to assess suppliers’ commitments and achievements in fighting deforestation. Empresas CMPC, a Chilean pulp and paper company, is concerned with forest fire risk. The company has invested in its capabilities to predict, detect and combat fires with a fleet of 20 aircraft and 1000 firefighters, as well as software and sensors for the simulation and analysis of fire propagation.
  • Laggards. Three percent of companies don’t know if they “produce, use or sell materials or products that contain one of the four forest risk commodities” while an additional 11%, including Associated British Foods, The Kraft Heinz Company and Avon, don’t report commodity-linked revenue.