Ethical Corporation is now Reuters Events - LEARN MORE
While Danone, Nestlé, L’Oréal and Unilever are leaders, big brands are failing to respond to increasing deforestation with anything like the urgency needed, warns CDP’s Ling Sin Fai Lam
As the climate crisis heats up, the world’s forests have emerged as the frontline in the battle. Across the globe, 7 million hectares of forest are lost each year, while deforestation in the Amazon is at its highest level in a decade, losing trees at a rate of about two football fields per minute. Businesses are beginning to recognise that there are significant opportunities for agriculture and forestry to contribute to forest protection, but many are failing to respond with the urgency needed.
If deforestation is to be tackled, it’s the consumer goods industry that will need to lead the charge. The sector is particularly exposed to “soft commodities” linked to deforestation, so-called forest risk commodities (FRCs) such as palm oil, soybeans and cattle as well as paper and pulp products. However, our new research indicates that despite ample opportunities for more sustainable agricultural production, there’s a long road to travel as the 2020 industry-wide zero net deforestation commitment will not be met.
Analyses of 22 major consumer goods companies in our No Wood for the Trees report, published last week, sheds light on the growing vulnerability the industry faces through its links to deforestation. The report found that Danone, Nestlé, L’Oréal and Unilever are leading the pack, due to robust governance of deforestation risk and investment into transition opportunities. At the bottom are Restaurant Brands International (owners of Burger King), Tyson Foods and Kraft Heinz, which have all reported exposure to land-intensive cattle and perform weakly on forest commodity risk disclosure.
Nearly half of the consumer goods companies assessed report revenue dependencies of at least 20% on palm oil
Soft commodities are a cause and casualty of deforestation and climate change, and increasingly unstable weather patterns are already impacting agricultural production and price volatility. For instance, roughly 90% of global palm oil production is concentrated in Southeast Asia, much of which is in low-lying land exposed to coastal flooding, which could jeopardise global supply and result in further deforestation inland.
Nearly half of the consumer goods companies assessed report revenue dependencies of at least 20% on palm oil, but volumes of certified sustainable palm oil still only account for 20% of global production, highlighting a tremendous risk to the global supply chain.
And disclosure is even worse for exposure to cattle and soy, with cattle as much as 400 times and soybean oil 8.2 times more land-intensive than palm oil.
The consumer goods industry’s close proximity to the consumer makes the sector highly susceptible to reputational risks from commodities linked to deforestation. As ethical consumptions soars, a greater demand for transparent sourcing is emerging. Eight of the companies analysed are responding to this trend by deploying comprehensive forest and land-use management practices such as regenerative agriculture and soil management. This highlights how less-active companies might improve their supply chain engagement.
Food manufacturers also have problems on their plate stemming from their indirect exposure to soymeal, which feeds the animals used in many of their products, and insufficient labelling of animal derivatives.
Food manufacturers are increasingly investing in alternative meat innovations, which can use less land and pose less of a deforestation risk than traditional meat products. The alternative meat market is expanding rapidly and creating food products that are both sustainably produced and healthier options for consumers.
The consumer goods industry needs to take a major leap forward in strengthening traceability and labelling of products
With industry commitments for zero-net deforestation by next year now impossible to achieve, it’s clear that business as usual cannot continue. Yet with every challenge comes an opportunity, and leading companies are turning risk into reward through a combination of traceability, certification, product innovation and engaging their supply chains to mainstream sustainable agricultural practices to gain a competitive advantage on their peers.
For multinational companies change must start at the top. Robust governance of deforestation-related risks needs to be firmly embedded, while sector-wide, the consumer goods industry needs to take a major leap forward in strengthening traceability and labelling of products. Currently, none of the 22 companies assessed, even the leaders, have reported complete traceability of palm oil and cattle to the plantation or farm of origin, and this must change.
Finally, multi-stakeholder engagement is also needed to bring goods manufacturers closer to the field. Unilever is an example of a company focused on helping catalyse transformative change at the landscape, or jurisdictional, level across the tropics; providing payments to producers for protecting existing forests and helping to regenerate forests and improve the sustainability of agricultural production where deforestation has already occurred.
Adopting these action points is not only the right thing to do for firms, it also is good for business. The role of palm oil, soy, timber and cattle in driving deforestation across carbon-rich tropical forests is material to companies exposed to these commodities. That’s why it’s critical that companies get on the front foot and put in place robust governance and strategy while also identifying risks and opportunities posed by deforestation and climate changes.
The Paris Agreement goals are still achievable, but not if the world’s carbon sinks continue to be destroyed. Businesses, in partnership with governments and NGOs, have an integral role to play in protecting and enhancing the world’s forests which are essential to agricultural production. For the consumer goods sector it’s an opportunity to safeguard profits and the environment.
Ling Sin Fai Lam is senior analyst at CDP