Business community ‘largely unaware’ of deforestation risks

Businesses are threatening shareholder value because they remain largely unaware of the deforestation risks in their own supply chains, according to a new report.

On behalf of 184 investors with US$13tr (£8tr) in assets, the CDP asked 786 companies to disclose their exposure to deforestation risks through their use of palm oil, soy, biofuels, timber and cattle products, commodities responsible for most deforestation.

Published today, the report, The commodity crunch: value at risk from deforestation, found that of the 139 companies that responded few are yet to recognise supply and price volatility as a risk and believe that customers assert no risk to their business from climate change.

Despite a 39% increase in respondents this year, compared to 2012, results of the report showed that investors are concerned by incomplete risk assessments and poor articulation of security of supply and price volatility as operational risks in securing these commodities.

It also found that there has been a lack of action from businesses to build capacity along their supply chains to deliver sustainable commodities and a lack of understanding of climate change risk.

CDP’s CEO Paul Simpson says: “Many companies do not understand the full complexity of deforestation risks in their supply chain. But if no action is taken on this, there will be many more supply chain disasters like the ‘horse meat’ scandal to undermine shareholder value”.

Adviser to Unilever’s CEO Paul Polman on post-2015, and representing the Tropical Forest Alliance 2020, Gavin Neath says: “Deforestation does not need to happen. We can meet even the most optimistic estimates of future demand for palm and soy and beef, without chopping down another tree.

“The facts are absolutely clear on that. More and more companies are coming to realize this and are taking the necessary action to eliminate deforestation from their value chains,” he adds.

Of the 786 companies called on, 139 companies spanning a range of industry sectors and 26 different countries participated in the program.

Companies who disclosed in 2012 improved their score by an average of 27% in 2013 and since 2009, company responses have contained a greater level of detail each year, the report states.

Although responses highlighted the deforestation related risks to investors, the report found that businesses showed a better understanding of risks and opportunities and provided more information on implementing actions to reduce their potential contribution to deforestation.

Deforestation rates have been decreasing in recent years, however, recent reports show that deforestation has doubled in Brazil since 2011 and peatland forest fires in Indonesia caused record breaking smogs in Singapore and Malaysia in June this year.

Leigh Stringer

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