The wood from the trees

9th February 2017

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Gemma Roberts

Many companies have benefited from positive media for pledging to end deforestation in their supply chains. But how are they faring on the ground? Catherine Early reports

Deforestation is an issue close to the public’s heart, with images of orangutans and blazing forests making newspaper front pages and trending on social media. As such, it has climbed up the corporate agenda with many high-profile firms committing to eliminate deforestation from their supply chains.

These pledges ramped up in 2010, when the international Consumer Goods Forum (CGF) said it would work with its members to achieve ‘zero net deforestation’ – a target it defines as accepting some forest loss through restoration elsewhere as long as no primary or natural forests are used for plantations.

The CGF’s 400 members include some of the world’s biggest retailers and manufacturers with deforestation-causing commodities – soy, palm oil, beef and timber – at the heart of their supply chains. Four years later 190 national and regional governments, businesses, NGOs and indigenous groups signed the New York Declaration on Forests (NYDF) to halve natural forest loss by 2020 and end it by 2030.

Meeting the pledges

A series of reports published by campaigners in recent months have found evidence of progress, but it has mostly been piecemeal and slow. Last summer, WWF assessed the headway retailers and manufacturers belonging to the CGF had made on sustainable sourcing. Its research highlighted that only 74 (36%) of the 256 companies it studied had made individual commitments to combat deforestation. Only 20% had quantified and timebound commitments related to forest commodities, and 28% had committed to source any commodities associated with deforestation in line with WWF-recommended standards.

Meanwhile, NGO ClimateFocus worked with organisations, including the CDP, the World Resources Institute and the Stockholm Environment Institute, to evaluate progress against the NYDF commitments. It found that most companies – 56–70% of producers, processors and traders, and 64–87% of retailers and manufacturers – had established rules about how goods were produced and sourced that were in line with their commitments.

But the study also revealed that nearly all commitments address only one commodity or a specific geography, while just 43 (10%) of the 415 firms with company-wide targets cover all the commodities they use. Almost 60% of firms that source or produce palm oil and 53% of those using timber had made commodity-specific commitments. For soy and cattle, the proportion of companies with pledges was considerably lower, at 21% and 12% respectively.

‘Although there are more and more companies claiming a zero net deforestation strategy and there are many NGOs working on the ground protecting forests and supporting local communities, the truth is that deforestation is still growing,’ says Bruno Rebelle, general manager at consultancy Transitions and formerly international programme director at Greenpeace International.

Focus of attention

The challenges are multifaceted. Even the companies working hard to solve the problem are grappling with vast supply chains, poverty of subsistence farmers, a lack of agreement on how to define and measure deforestation, and corrupt governments in some of the countries where they operate.

Only 30% of manufacturers and retailers claimed to be able to trace forest products back to the point of origin, according to the CDP’s latest data. Ignacio Gavilan, director of sustainability at the CGF, stresses the difficulty of tracing an ingredient such as soy back to the source through complex supply chains populated with intermediaries who have no awareness of the issue. ‘It is very difficult to connect the small farmer with your chocolate bar,’ he says. The forum has created working groups on different commodities to develop resources to help companies with supply chain issues.

Action on deforestation has tended to focus on specific geographical areas according to public attention and government support. But this can have unintended consequences, says Tom Bregman, project manager for the Forest 500 company rankings at the NGO Global Canopy Programme (GCP). ‘Leakage is a major issue. Where a company is working across Latin America, if they’ve stopped deforesting in one place, we need to find out if they’ve just moved it elsewhere,’ he says.

Glenn Hurowitz, senior fellow at the US-based Centre for International Policy, agrees: ‘The companies that have achieved success in reducing deforestation in the Amazon are the same ones that are driving it in the rest of Latin America. I don’t know why companies can’t find the will to replicate successes elsewhere in their operations.’

Corporate attention also varies by commodity. Gavilan says awareness of soy as a driver of deforestation is low compared with palm oil, which has received a lot of media attention: ‘It’s very difficult to convince anyone that soy is causing deforestation, especially in Brazil. This applies to the supply chain, but also consumers and decision-makers in companies. Itt just isn’t visible.’ Lack of action on beef could be due to the nature of how cattle are moved around locations. It can be hard to find out where they are and then quantify their impact, says Bregman.

Money talks

Other barriers are outside a company’s direct control, poverty being one. Rebelle says: ‘A subsistence farmer in Indonesia who clears their land for a couple of hectares of palm oil will earn a monthly revenue equivalent to the average wage in the public or private sector. It’s an obvious income, so it’s very hard to impose rules on small farmers not to deforest. Who are we to do that?’

In response, some companies have been helping farmers gain certification for products, for example through the Roundtable on Sustainable Palm Oil. Certification is expensive and farmers need financial and technical support, says Stephen Watson, head of corporate engagement in Asia at WWF. However, some firms carrying out such projects are supporting only a small number of farmers, and as such, can be no better than greenwashing, he says: ‘We need to make sure they’re going to achieve industry-wide change by rolling programmes out widely.’

Lack of government support in countries prone to deforestation is also an issue. Torn between pledges to protect the environment and those to grow the economy, many jurisdictions choose the latter. One of Rebelle’s major clients is Indonesian packaging and paper company Asia Pulp and Paper (APP), whose activities were previously vilified by campaigners, in particular Greenpeace. After customers began to distance themselves, APP announced in 2013 that it would end deforestation in its operations.

The decision was poorly received by others in the paper and pulp sector, and corruption between industrial interests and the government caused difficulties for APP, Rebelle recalls: ‘It was a radical U-turn. The rest of industry thought it was crazy and did not want to follow its example. It’s very hard for APP to be on the receiving end of criticism from NGOs for not doing enough and being criticised by government and other companies for doing too much.’

Rebelle thinks pressure from the international community for Indonesia to meet its commitments under the Paris agreement on climate change could provide the stimulus for progress. More than two-thirds of Indonesia’s carbon emissions come from deforestation, so significant reform is inevitable, he says. ‘There are more and more incentives and external conditions pushing the government, but still there are strong forces of resistance.’

Another force for change could come from the finance and investment community. The number of investors that have signed up to CDP’s forests programme has risen by one-fifth since 2015, with new signatories last year including investment banks UBS and Morgan Stanley. They bring the number of institutional investors requesting corporate deforestation data through the CDP to 365, compared with 184 in 2013. These institutional investors control assets worth around $22tn and have asked companies to disclose how they are managing the direct and indirect risks posed by deforestation. Similarly, nearly one-fifth of the 150 investors analysed in the latest Forest 500 rankings now have an investment or lending policy that promotes the protection of intact, primary, or high conservation value forests.

At a webinar hosted by the GCP and sustainability events company the Innovation Forum in December, Samuel Mary, senior sustainability research analyst at financial services company Kepler Cheuvreux said the UN Sustainable Development Goals and the Paris agreement were pushing deforestation up the agenda for investors. Disasters such as the Indonesian forest fires of 2015 had raised awareness of the physical risks associated with deforestation, he added.

During the webinar, Sylvain Augoyard, corporate social responsibility analyst at French bank BNP Paribas, said banks were increasingly asked to fill the gaps in regulation through due diligence on companies they were considering lending to, but it was not an easy task. ‘It’s hard to find the facts on the ground between what a campaign group is saying and what a company is saying,’ he said.

WWF has been encouraging pension funds, stock exchanges and financial regulators in Asia to introduce policies on deforestation as a way of minimising risk, according to Watson. Although some international banks now refuse to lend money to companies with forest commodities in their supply chain if they are not member of the Roundtable on Sustainable Palm Oil, local banks are not yet on board, he says.

Better enforcement

One idea floated recently by the Centre for International Policy to speed up the battle against deforestation and improve transparency is an industry-wide system to police the issue. This would involve major palm oil buyers jointly monitoring deforestation and excluding guilty farmers from the market. A similar system employed by buyers of soy in the Brazilian Amazon cut deforestation associated with this product from 25% to 0.25% within three years, according to Hurowitz.

Gavilan warns that such a system risked putting companies in breach of competition law or trade deals. ‘If companies discuss sourcing strategies they run the risk of creating cartels that displace others,’ he says.

However, UK retailer M&S has found a way to collaborate with other companies on palm oil sourcing without breaking competition law. It founded a forum with other retailers to identify the main palm oil operators and traders that import into the UK, such as Cargill and Wilmar. The forum asked them questions about the smallholders supplying them to discover which companies were performing well and which were not.

Aware of the risk of breaching competition law, M&S took the precaution of taking extensive legal advice in developing its policy. Sustainable development manager Fiona Wheatley says: ‘We can gather data and verify it collectively, but decisions on what to do with that have to be taken individually. As individual companies we can choose to exclude some companies from our supply chains or make them approved suppliers.’ M&S is now developing a second phase, and is working with a third party to refine its process, she says. It has introduced a scoring system that companies can tailor to their own policy priorities, by assigning different levels of importance to criteria such as working with smallholders and peatland protection.

Technological change

Companies and campaigners are ramping up use of technology to aid supply chain transparency. At the end of last year, the GCP and the Stockholm Environment Institute launched Transparency for Sustainable Economies (Trase), a tool that draws on publicly available data on production, trade and customs to reveal the flows of commodities that are driving deforestation. Starting with Brazilian soy, it will expand over the next five years to cover 70% of total production of palm oil, soy, cattle and timber.

The World Resources Institute (WRI) has various data tools to monitor deforestation risk as part of its Global Forest Watch project, a free resource that enables anyone to create custom maps, analyse trends, receive alerts about forest clearing and download data for anywhere in the world. Last year, the WRI teamed up with Proforest and consultancy Daemeter to develop the PALM Risk Tool.

This works on the assumption that, although few companies can trace their palm oil to the plantation level where deforestation takes place, most have data on the industrial mills where it is processed. Because the oil must be processed at a mill immediately after harvesting, the think tank found that deforestation risk could be gauged by automatic analysis of satellite imagery and other data within 50 km of each mill. It then ranks each mill based on past behaviour and proximity to forests, carbon-rich peat soils, fires and protected areas. It includes a global dataset of nearly 800 mills, and companies can upload their own processing facility to an interactive map.

Unilever piloted the tool and found 29 mills, about 5% of its supply chain, were at high risk of causing deforestation. A spokesperson for Unilever says the analysis provided a first indication of the potential risks and that the firm is now working on a more detailed analysis of the mills identified.

Luiz Amaral, global manager of Forest Watch Commodities at the WRI, says the aim was for companies to integrate the information into business operations and management systems so that non-sustainability professionals could use it to make day-to-day decisions. ‘There’s no more excuse to do nothing – the information is there and easy to use,’ he says.

It remains to be seen whether technology advances could provide the urgent catalyst needed to meet looming 2020 zero deforestation deadlines. Rebelle says: ‘It’s a very fragile process of transformation, but it’s going in the right direction. Hopefully it will go fast enough to reach the point of no return as soon as possible. I’m reasonably optimistic.’


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