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Mickey Ds, L’Oreal Combine Purchasing Power to Nix Supply Chain Risk from Deforestation

Eight major corporations including McDonald’s and L’Oreal have joined the newly-expanded supply chain platform of CDP – the non-profit that drives companies and governments to reduce their greenhouse gas emissions, safeguard water resources and protect forests – to request information from their key suppliers on how they are managing the risks linked to deforestation. The companies say they are combining their purchasing power to achieve deforestation-free commodity supply chains.

Deforestation is responsible for 10% to 15% of global greenhouse gas emissions, according to CDP. Companies disclosing to CDP revealed that nearly 25% of their revenues depend on the four commodities responsible for most tropical forest loss: cattle, timber, palm oil and soy. Deforestation therefore represents a significant business risk, with 2016 CDP analysis revealing that as much as $906 billion in annual turnover could be at stake.

Companies are increasingly working to combat the potential business risk resulting from important commodities becoming difficult to source because of shortages. Ikea, for example, recently acquired a 15% minority stake in a plastic recycling plant, Morssinkhof Rymoplast, in the Netherlands, with an investment that will help Ikea secure recycled material if tougher regulations requiring producers to include a certain percentage of recycled plastic in their products lead to a material shortage.

General Motors is helping to reduce its risk related to the sourcing and long-term availability of one of its key commodities by working within the industry to source only sustainable natural rubber in its tires. The business case helped drive the change, GM’s senior VP of global purchasing and supply chain Steve Kiefer told Environmental Leader. By working with its supply base to source sustainable tires in a strategic way, “we can ensure volume meets growing global demand through improved yields,” he says. The initiative would also eventually ensure net-zero deforestation and the building of stronger communities.

Dexter Galvin, head of supply chain at CDP, says many companies with “at risk” supply chains are increasingly looking at this type of vertical integration model.

 

The other companies that have joined the supply chain platform of CDP on supply chain risks linked to deforestation include McDonald’s Latin American franchise Arcos Dorados, Swiss fragrance and flavor company Firmenich, Brazilian meatpacker JBS, Brazilian paper producer Klabin and Canadian restaurant group Restaurant Brands International.

 

An increasing number of companies are making commitments on action towards deforestation-free supply chains. For example, 400 members of the Consumer Goods Forum, representing $3.9 trillion in revenue, have pledged to achieve zero net deforestation in supply chains by 2020, according to CDP.

Galvin pointed out that, with such a large proportion of company revenues attached to commodities in their supply chain that are driving deforestation, it is now a “critical business issue.”

Martin Chilcott, founder of 2degrees, the world’s largest community for sustainable business, says that 80% of the costs and impact on natural capital is incurred in any organization’s value chain. Success is determined by an organization’s ability to “unlock the value chain and adopt a collaborative approach to making business more sustainable.”

 


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