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forests

Is Your Company Managing This $906 Billion Revenue Risk?

forestsGlobal companies — including Cargill, Kraft Heinz Company and Starbucks — report as much as $906 billion total annual turnover could be at risk because of deforestation, according to a CDP study.

The report, Revenue at risk: Why addressing deforestation is critical to business success, analyzes data disclosed by 187 companies this year on their deforestation risk management strategies submitted to CDP.

It found that on average about a quarter (24 percent) of major companies’ revenues depend upon four deforestation-linked commodities: cattle products, palm oil, soy and timber products.

Despite this, fewer than half (42 percent) of companies have evaluated how the availability or quality of these commodities will impact their growth strategy over the next five or more years.

CDP says this suggests that companies are overlooking potential business risks linked to deforestation. Risks include impacts arising from the physical effects of climate change on the quality, availability and prices of commodities; tightening regulation; and brand damage from increasing media and civil society scrutiny of commodity-sourcing practices.

Eight-one percent of agricultural producers say they have experienced deforestation-linked impacts in the past five years that have led to substantive changes to their business. For example, Marfrig Global Foods says drought conditions have resulted in higher operating costs and reduced beef production in the Brazilian industry. And Wilmar International reports impacts on brand value as customers increasingly demand sustainable products that are traceable and deforestation-free.

Across the four commodities, 72 percent of reporting companies say they are confident that they will be able to source these supplies securely and sustainably in the future. The report says this confidence may be misplaced because not only do the majority of companies not evaluate the supply or quality of deforestation-linked commodities over the next five or more years, but:

  • Fewer than half (44 percent) of manufacturers and retailers with procurement standards monitor compliance with these standards and audit suppliers across commodities;
  • Only one in five assess deforestation-risks beyond a six-year horizon across commodities; and
  • On average, only 30 percent can trace these commodities back to the point of origin.

Companies are seeing benefits in scaling-up their forest-protection efforts, the report says. Unilever and Marks & Spencer are working to prioritize commodity sourcing from areas that are pursuing comprehensive forest-climate programs. Unilever say this will allow it to improve supply chain security and make monitoring and verifying environmental impacts more straightforward. German consumer goods giant Henkel AG is training key smallholders to improve livelihoods and ensure sufficient volumes of sustainable palm oil are available on the market. And Colgate-Palmolive, which is working with suppliers on responsible sourcing practices, also identifies opportunities to increase the capacity of sustainable commodity markets.

The CDP study follows a report published last month as part of a multi-year effort to track progress on the 10 goals laid out in the New York Declaration on Forests, a 2014 pledge by 190 governments, multi-national companies, indigenous groups and NGOs to halve natural forest loss by 2020 and end it by 2030.

It analyzed 600 companies engaged in the production of the “big four” commodities responsible for 40 percent of deforestation: palm oil, wood, cattle and soy. If found that 415 companies have made more than 700 supply chain commitments — but these address mostly palm oil (59 percent) and timber (53 percent). Twenty-one percent focus on soy. And for cattle, the primary driver of deforestation, only 12 percent of companies have made commitments.

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