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3 strategies for following through on deforestation commitments

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[GreenBiz publishes a range of perspectives on the transition to a clean economy. The views expressed in this article do not necessarily reflect the position of GreenBiz.]

There is considerable — and well-deserved — attention being paid to the year 2025. 

Only two years away, this is the year when many major companies committed to ending deforestation and the conversion of other natural ecosystems, such as grasslands, to agriculture and other commercial uses. Among them are 14 of the largest agricultural traders and processors, including Bunge, Cargill and JBS, which committed to take key actions to eliminate deforestation and conversion caused by the production of agricultural commodities that they source by the end of that year.

These ambitious 2025 commitments are crucial to the success of the Paris Agreement goals by reducing the 11 percent of global greenhouse gas emissions caused by deforestation and conversion — while addressing the global crisis of nature and biodiversity loss. 

With time running short, companies would do well to learn from the mistakes of those that did not achieve their 2020 commitments to eliminate deforestation from the supply chain. Every single one of the 400 companies pledging to do this failed, largely because commitments did not translate to implementation. Few companies established sufficient transparency in their supply chains to detect deforestation, and even fewer developed adequate systems reform or removed suppliers who continued to deforest.

Missing these targets is as bad for business as it is for the planet — in addition to the systemic risks of climate and biodiversity loss, more investors are recognizing that deforestation creates material financial risks for companies that do not clean up their supply chains. This includes potentially losing key markets in the European Union if companies cannot comply with new regulations banning the importation of products linked to deforestation. Investors are holding companies accountable for their commitments to mitigate those risks within their portfolios.

Late last year, over 35 financial institutions that manage more than $8.9 trillion committed to eliminating agricultural commodity-driven deforestation from their investment and lending portfolios by 2025. And the 84 investor members of Ceres Land Use and Climate Working Group — with over $43 trillion in assets under management —continue to engage food and agricultural companies on their deforestation commitments, implementation, and disclosures.

As 2025 quickly approaches, the focus is on not only what companies say they will do, but what they are doing to address risks stemming from deforestation and land conversion in their supply chains that impact their business, their investors and the communities they serve. 

Here are three components of effective corporate strategies for addressing deforestation and conversion that will interest investors as they evaluate risks in their portfolios. 

1. Making time-bound commitments

Commitments are a critical first step for companies acting on their deforestation-based risks. Yet, a recent study by Global Canopy found that 40 percent of companies and financial institutions most exposed to tropical deforestation risks have no commitment in place. That’s why investors are pushing companies to both set commitments and specifically commit to a no-deforestation and no-conversion target by the end of 2025. And they expect these commitments to be robust and cover all commodities associated with deforestation. They also should cover the conversion of natural non-forest ecosystems, which helps ensure the protection of biodiversity-rich areas such as Brazil’s Cerrado, where massive amounts of carbon are stored.  

2. Creating action plans that can be implemented

If we learned anything from what happened with the 2020 pledges, commitments without actionable plans do not deliver results or reduce the financial risks associated with deforestation. Investors want to see that companies have concrete plans to eliminate deforestation from their supply chains. This means including elements in your plans such as:

  • Traceability of the supply chain as an important prerequisite to understanding and addressing deforestation and conversion within the supply chain.
  • Effective monitoring and verification systems to ensure that all commodities sourced follow the company’s no-deforestation and no-conversion policy.
  • A non-compliance protocol so that if deforestation or conversion is found within the supply chain, there is a remediation plan to bring the supplier back into compliance, ideally within one year. 
  • A grievance mechanism, that is also a crucial component of corporate human rights due diligence and can protect companies from reputational and litigation risks.
  • Financial incentives for suppliers and producers to adhere to no-deforestation policies.
3. Disclosing progress

Investors need corporate public disclosure to assess the risk within their portfolios and ensure that the companies they are invested in are appropriately addressing those risks. Few companies are disclosing quantitative progress toward eliminating deforestation and conversion from their commodity supply chains, making it difficult for investors to analyze and mitigate risks in their portfolios. To measure real, goal-orientated progress, companies need to disclose the volume or percentage of their commodity supply that is verified as deforestation- and conversion-free, along with the percentage of suppliers who adhere to a no-deforestation and no-conversion policy. 

Well-executed corporate commitments have real results. Deforestation in Indonesia has been significantly reduced thanks in part to the efforts of multinational consumer product companies to eliminate deforestation from their palm oil supply chains

With the stakes for climate and nature rising each passing year, the challenge is to expand the success illustrated in the Indonesian palm oil supply chain to commodity supply chains globally. Investors will be carefully tracking corporate efforts to eliminate deforestation and conversion by 2025. 

The onus is on companies to meet the moment — for the good of our planet and stability of the global economy.

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3 strategies for following through on deforestation commitments Reviewed by RP on April 20, 2023 Rating: 5

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