Why Addressing Deforestation Makes Good Business Sense
Deforestation can be detrimental to businesses. According to CDP’s 2016 report Revenue at Risk: Why Addressing Deforestation Is Critical to Business Success, 81 percent of agricultural companies and 45 percent of food and staples retailing firms “[reported] impacts related to deforestation that have generated a substantive change in operations, revenues or expenditure over the past five years.” The report added that 68 percent of producers, processors and traders, as well as 65 percent of manufacturers and retailers, claimed that deforestation-related risks will affect their business in the next six years.
If left unaddressed, deforestation will have serious effects on businesses. Deforestation can lead to resource depletion, which can impede the generation of products and services. Deforestation can also aggravate the effects of natural disasters such as hurricanes, floods and heatwaves. Further, stakeholder confidence is known to decrease for companies whose operations contribute to deforestation, as stakeholders are more inclined to patronize a sustainable firm.
Deforestation in Supply Chains
If businesses are to effectively address deforestation, they must first check if their supply chains are contributing to the problem. CDP claims that almost 24 percent of global companies are dependent on the following deforestation-linked commodities:
- Timber – For the average company, approximately 39 percent of business income is directly or indirectly dependent on timber products. High demand for timber products, however, can result in illegal logging. The World Bank reports that illegal logging costs the global market USD10 billion each year. Governments lose an additional USD5 billion in revenues to the practice annually.
- Palm oil – A vegetable oil that is used in almost every consumer product, palm oil production is a major deforestation driver. The World Wildlife Fund for Nature claims “[the] equivalent of 300 football fields of rainforest is destroyed every hour to [build] palm oil plantations.” In addition, 40 percent of deforestation in Indonesia is the result of palm oil plantations.
- Soy – Soy is a legume commonly used for animal feed. The world’s growing demand for meat is a main factor behind the rise in global soybean cultivation. Global food demand is expected to increase by up to 98 percent by 2050. To keep up with such high food demand, animal feed production must increase as well. An upsurge in animal feed production translates to a growth in the demand for its ingredients, including soy. In 2016, China’s soy importation was projected to surge to 87 million metric tons (from 79-80 million tons in 2015).
The rising demand for soy can intensify deforestation. Annually, South America loses almost 4 million hectares of its forests mainly to soy-dependent livestock farming. Such massive deforestation leads to resource depletion, biodiversity loss, soil erosion and contamination of water reserves.
- Beef – Cattle ranching is responsible for about 80 percent of deforestation in the Amazon River countries, with global beef consumption expected to grow from 1.48 billion pounds in 2016 to 130.96 billion pounds in 2017. This trend is likely to exacerbate deforestation. Beef production is a resource-intensive industry; vast tracts of land have to be cleared for cattle grazing. Ranches use animal feeds, antibiotics and fertilizers that also contribute to deforestation. An increase in beef production could intensify deforestation.
The continued dependence of businesses on deforestation-linked commodities can result in several other sustainability issues aside from deforestation:
- Climate change – Forests serve as carbon sinks: they absorb carbon from the atmosphere, cooling the planet. Without forests, the planet’s temperature can rise to the point of causing droughts and heatwaves.
- Land-related conflicts – Demand for deforestation-linked commodities can drive large agricultural and meat companies to search for more land to plant on or for cattle to graze. Some of these businesses may resort to land grabbing or illegally obtaining land owned by small farmers or indigenous groups. Land grabbing can lead to poverty, unemployment, hunger and social displacement, which can lead to social chaos or potentially armed conflict.
- Water pollution – Cutting down trees can lead to soil erosion. Without tree roots to hold soil together, it can easily be swept into freshwater bodies. The accumulation of soil and sediment in freshwater bodies can eventually threaten biodiversity and render water unfit for drinking. The use of chemical fertilizers, antibiotics and pesticides can also contribute to water pollution, as they can seep into groundwater. Given the direct and indirect effects of water pollution on public health and on livestock, disruptions to productivity and corporate profitability could occur in these situations.
What Can Businesses Do?
Steps businesses can take to eliminate deforestation-linked commodities include:
- Achieve full supply chain transparency – Businesses must fully specify the materials that they use on their products, as well as where these materials came from. When a business discloses its supply chain publicly, it is communicating that it values the sustainability of its supply chain, which can lead to increased support from its customers and stakeholders
Companies must likewise require their suppliers to disclose their supply chains. A lack of awareness regarding supply chains can promote risks that are detrimental to businesses. If companies have transparency into their suppliers’ supply chains, they can help eliminate deforestation-linked commodities from their operations before a lawsuit or an environmental scandal breaks out.
- Prioritize the elimination of deforestation-linked commodities from supply chains – The commitment of business executives is crucial to the elimination of deforestation-linked commodities from supply chains. They must make it clear to suppliers, partners, employees and consumers that they are working towards making their supply chains more sustainable. They need corporate support to implement sustainability measures such as supplier audits and the use of technology solutions that monitor forest activity in real time.
Japanese consumer and chemical products company Kao Corporation is an example of a business that prioritizes the elimination of deforestation-linked commodities from its supply chains. In its Kao Sustainability Data Book 2017, the company promised “zero deforestation at the source in [its] procurement of raw materials including palm oil and paper.” This promise was backed up with concrete targets and specific steps on how they will be achieved.
Kao Corporation’s mid- to long-term sustainable and responsible procurement targets include acquiring pulp, palm oil and paper from sustainable sources by 2020. The firm likewise disclosed the specific initiatives it has implemented to ensure that it is buying only sustainable versions of these commodities. At the end of 2015, Kao Corporation finished confirming the traceability of the mills that supply it with palm oil and palm kernel oil. The company also reported that “[combined] with purchases of certified products, [99 percent] of [its] paper and pulp purchases were traceable as of the end of 2016.” As a result, Kao Corporation earned high marks in the Forest 500 in 2016.
- Forge partnerships with other stakeholders – No single company, no matter how large or profitable, can eliminate deforestation-linked commodities from supply chains by itself. It needs the cooperation of other stakeholders so that it can develop effective and far-reaching solutions. Multi-stakeholder partnerships allow businesses, civil society and governments to pool their resources and manpower to create innovations that can effectively eliminate deforestation-linked commodities from supply chains.
The Tropical Forest Alliance 2020 is a multi-stakeholder partnership that aims to “[reduce] tropical deforestation related to key global commodities by 2020, starting with soy, beef, palm oil, and paper and pulp.” It brings together governments, civil society organizations and the private sector to share information and ideas on tropical forest conservation and sustainable commodity production. The Tropical Forest Alliance 2020’s partners include McDonald’s, Marks & Spencer, the United Nations Development Program, the World Wildlife Fund for Nature, and the governments of the US, the UK, the Netherlands and Indonesia.
Eliminating Deforestation-Linked Commodities from Supply Chains: An Effective Way for Businesses to Address Deforestation
Consumers can be quite discerning of businesses’ commitment to sustainability. Greenwashing has resulted in more educated consumers, who may not be easily won over by eco-friendly events and unverified ‘green’ labeling. Eliminating deforestation-linked commodities from supply chains, on the other hand, sends a clear and sincere message for companies that are serious about addressing the issue. By focusing on the root cause of deforestation—dependence on deforestation-linked commodities—businesses have the opportunity to save trees on a larger scale. Consumers reward brands that they feel invested in with support and loyalty.
ADEC Innovations is a leading provider of ESG solutions, with expertise in delivering fully-integrated consulting, software and data management services including successfully supporting companies who respond to CDP’s Forests Disclosure. We help organizations improve their performance by helping them monitor, account for and report on the social and environmental impacts of their supply chains.