Investor interest in deforestation supply chain risks increasing

Investors are increasingly concerned about the security and ethics within companies’ supply chains, with requests for corporate information through CDP’s forests programme more than doubling in 2013.

CDP’s forests programme acts on behalf of investors to collect information from companies on the operational, reputational and regulatory risks and opportunities resulting from their exposure to deforestation.

Some 139 companies, from 786 requests, with a market capitalisation of $3 trillion (£1.86 trillion), responded to investor calls for transparency and accountability on the issue.

Concerns that investors raised included incomplete assessment risks, a lack of action to build capacity along supply chains to deliver sustainable commodities, a lack of understanding about climate change risk and a lack of knowledge about the security of supply and price volatility.

In CDP’s report, the example of the Government Pension Fund of Norway divesting from palm oil companies is used. Last year, the fund introduced a deforestation policy and over the last 12 months has divested from 23 palm oil companies because “their long-term business model was deemed unsustainable”.

Deforestation is primarily driven by global demand for agriculture commodities; land is often cleared to produce beef, soy, palm oil and biofuels. CDP describes these commodities as the “building blocks of millions of products traded globally”.

International pressure is mounting to retain forests as a value resource. As a result, companies that are dependent on forest commodities, and their shareholders, are at risk from losing the value that access to artificially low-cost resources from recently deforested land brings, said CDP.

Paul Simpson, CDP chief executive, said, “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.”

Three key challenges were found to be facing businesses when trying to source sustainable commodities. The lack of traceability in global commodity supply chains, challenges with certification and regulatory uncertainty were all highlighted.

Further reading:

We are a long way from achieving stability in supply chains

‘Pioneering event’ aims to improve supply chain transparency

Video: tackling complexity in multi-tier supply chains

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