Deforestation could cost businesses up to $80b New Study States

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(Kuala Lumpur, May, 2022) — New research released today from the Accountability Framework initiative (AFi) and CDP shows that companies cannot afford any more delay in tackling deforestation across supply chains, with forest-related risks identified at almost $80 billion by 211 disclosing companies.

The report calls for rapid company action at a time when more than 100 world leaders and 30 of the world’s largest financial institutions pledged at COP26 to halt and reverse deforestation and destruction of other ecosystems, which account for at least 11% of annual GHG emissions created by human activity.

ASEAN has demonstrated its strong commitment by supporting the development of global climate agenda.

In fact, in November last year, several Southeast Asian countries have participated in the recent Glasgow Leader’s declaration to commit in working collectively to halt and reverse forest loss and land degradation by 2030. Countries participating include Indonesia, Singapore, Malaysia, Brunei Darussalam, Vietnam and the Philippines.

Lost forest

Thomas Maddox, Global Director, Forests, CDP, says that, the importance of forests cannot be underestimated. Billions of people rely on forests and they play a crucial role in climate mitigation and adaptation.

“Yet deforestation continues almost unchecked. Last year, a further 11 million hectares of tropical forest were lost. 1 Large scale production of agricultural commodities is the primary driver. But societal acceptance is shifting, generating significant business risks for all involved.

“Companies are starting to respond, but they are far from where they need to be. We need more investors to demand the eradication of deforestation from their portfolios. We need more companies to commit to, and deliver, deforestation-free supply chains. And we need them all to join CDP to drive change and track progress.”

Deforestation free supply chain

This report, ‘From commitments to action at scale: critical steps to achieve deforestation free supply chains’ assesses company disclosures to understand how they are working to mitigate risks within their supply chain, using data from CDP’s 2021 forests questionnaire, which is aligned with the AFi’s Core Principles and the Task Force on Climate-related Financial Disclosures (TCFD).

It includes disclosures from 675 companies that produce or source at least one of the seven commodities responsible for most commodity-related deforestation: timber products (491 companies disclosing), palm oil (233), cattle products (126), soy (154), rubber (51), cocoa (54) and coffee (27).

The report also highlights the performance of companies that produce or source forest-risk commodities from SEA (269 of the 675 total disclosing companies analyzed in this report). These companies disclose more widespread adoption of some important elements, when compared to global peers.

According to the 2021 report from World Resources Institute (WRI), Malaysia experienced a decline in primary forest loss for the fourth year in a row.

Thus far, the Malaysian government is optimistic that it would be able to achieve its Nationally Determined Contributions (NDC) of reducing carbon intensity by 45% until 2030. However, more actions are needed to ensure that the country is able to achieve its goals.

Positive steps

The report found that globally, disclosing companies are taking some positive steps:

  1. 76% of companies (512) report having a traceability system for at least one commodity
  2. Two-thirds of companies (444) report that they are engaging with direct suppliers to manage and mitigate deforestation risks.Compared with 80% of companies from SEA
  3. Half of all traders, manufacturers or retailers (194/390) disclose that they are working with their indirect suppliers to manage and mitigate deforestation risks compare with 56% from SEA

John Leung, Director, Southeast Asia and Oceania, CDP, says it is great to see the progress being made by companies in Southeast Asia.

“However this report demonstrates whilst meaningful action is being taken, companies still need to go a lot further and faster to ensure pledges made by across Southeast Asia at COP26 will be met.

“We know that bio- diversity and protecting forests are vital to ensure we reach a net-zero and nature positive future. This report sets at a clear pathway for how companies can ensure that happens.

Meanwhile, the report found that globally companies lack clear targets and milestones that are vital in driving corporate systems towards long-term sustainable sourcing of commodities.

Current company action is not going far enough, as companies must increase scale (actions must be expanded across the whole company), scope (companies must act across all commodities, regions, and ecosystems), and rigor (implementation must be driving measurable impact) needed to halt deforestation.

Key points

  1. Only 36% of disclosing companies (245/675) have public company-wide no-deforestation or no-conversion policies. Only 13% of companies have commitments to no-deforestation/no-conversion that are well-aligned with good practice.
  2. Only 26% of companies report having a monitoring system to assess compliance with no-deforestation/no-conversion policies.
  3. 38% of companies (257) report having no information about origins for at least half of their commodity volumes, and 28% (191) report having no traceability system for at least one commodity that they source.
  4. Just 46 companies (7%) report that at least 90% of one of their commodities is certified by a certification scheme that provides assurance of no-deforestation/no-conversion.
  5. Only 19 companies have a target of sourcing 100% no-deforestation commodities through the use of certification and report making progress towards this target or having achieved it.
  6. Only a quarter of companies report providing technical or financial assistance to direct suppliers (25%) or smallholders (22%), and a third report having processes to manage supplier non-compliance.

Transforming business

Jeff Milder, Director, Accountability Framework initiative Backbone Team says, “As this report highlights, attention around eliminating commodity-driven deforestation has rightly shifted beyond commitments to focus on action.

“While we find major gaps in areas such as traceability, supplier engagement, and monitoring, the progress achieved by leading companies shows us that transforming business to address deforestation risk is well within reach. The bar is not set too high: by scaling up the adoption of known solutions we can go far toward reaching it on an industry-wide basis.”

Even though companies from SEA were taking more meaningful actions when compared to their global peers, companies are still demonstrating notable implantation gaps:

  1. Only 2% of companies have robust no-deforestation/no conversion commitments that cover 100% supply
  2. Only 23% can trace more than 90% of one commodity to municipality or equivalent level
  3. and supplier engagement, while more prevalent than the global average, is far from widespread, for example only 25% of companies disclosed that they are providing small holders with technical or financial assistance and only 33% for direct suppliers.

The report calls for rapid progress from companies and further engagement throughout supply chains to scale and strengthen action not to end deforestation and eliminate land sector emissions in line with Science Based Targets and meet nature and biodiversity goals.

Progress made by companies demonstrates that a deforestation-free future is possible, but requires companies to make significant adjustments to their business practices. In this report, examples of company good practice are drawn from company CDP disclosures, with the aim to provide a pathway to help companies take action.

What can companies do:

  1. Use the Accountability Framework to understand and implement best practices for setting and achieving no-deforestation and no-conversion goals
  2. Disclose progress regularly and comprehensively through the CDP Forests questionnaire which is aligned with the Accountability Framework’s Core Principles
  3. Join CDP’s Supply Chain program to support informed supplier engagement.

PS: Please stop felling trees. Before holding an axe to cut down a single tree, cities and villages, townships and households should consider again. – @WorldFuture

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Kazi Mahmood

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