LONDON — Industry commitments to end deforestation by 2020 are now impossible, according to a new report from environmental non-profit CDP.
Just eight companies are engaged in comprehensive forest and land use management practices, according to the report. No company has achieved 100% palm oil traceability, and certified volumes account for just 20% of global palm oil production.
Consumer-facing companies are particularly exposed to reputational and financial risks from Forest Risk Commodities (F.R.C.s), including palm oil, soybean, cattle and paper, which are linked to deforestation. They also face operational risks from supply chain disruptions caused by climate change. Nearly 90% of the world’s palm oil production is concentrated in Southeast Asia in low-lying land vulnerable to coastal flooding, for example. This could lead to further deforestation inland, price volatility or high price differentials between certified and non-certified products, the report warned.
“When it comes to deforestation and consumer goods, the go-to is palm oil,” said Carole Ferguson, head of investor research at CDP. “Revenue exposure due to palm oil can be significant. Forty-five per cent of companies reported revenue dependencies of at least 20% on palm oil. But leading global consumer goods companies need to look closer at all the hidden risks they are running across their supply chains and scratch below the surface.”
The report examined 22 companies facing financial and operational risk related to F.R.C.s, ranking them based on exposure and response.
Danone, Nestle, Unilever, Kellogg Co., Mars and PepsiCo were singled out as leaders in the sector for product innovation and farm-level sustainability efforts. The report also highlighted developments in plant-based foods, which bring consumer goods manufacturers closer to the field.
McDonald’s also earned top marks for pursuing new opportunities for sustainable production and consumption. This includes active engagement with suppliers, CDP said.
“Smallholders manage 80% of the farmland in sub-Saharan Africa and Asia, and we are seeing companies actively looking at transformative innovations to shorten the supply chain, working directly on smallholder initiatives,” said Ling Sin Fai Lam, senior research analyst at CDP and author of the report. “With increasing pressure to feed a growing population and protect the planet, companies and their customers are looking beyond their headquarters to the field.”
McDonald’s scored significantly higher than Yum! Brands and Restaurant Brands International, two of the lowest ranking companies. Both were singled out for being highly exposed to physical risks linked to deforestation and climate change.
CDP’s ranking considered several factors. Mondelez International was the least exposed to physical risks but had weak F.R.C. disclosure. Unilever also ranked low on disclosure but earned the No. 4 spot overall due to its strong sustainability platform and investments in new initiatives. Campbell Soup Co. and Kraft Heinz Co. both had strong disclosure but failed to identify potential risk-mitigating opportunities, the report said.
Tyson Foods was the lowest ranked company. Its board-level expertise and risk management policies, targets, implementation and reporting were among the lowest ranking, while its physical risk was high.
“As we approach our planetary boundaries much more needs to be done upstream,” Ms. Ferguson said. “These companies are well placed in the value chain to act and fast.”
The report cautioned that substituting F.R.C.s with other raw materials does little to mitigate risk. Substituting palm oil with other types of vegetable oil in the face of consumer pressure, for example, could lead to further deforestation elsewhere in the food system.
CDP said companies need to look for ways to eliminate deforestation from their supply chains through a combination of traceability, certification and engagement with all aspects of the supply chain.
“This report shows consumer goods companies’ responsibility does not stop at transparency and certification,” Ms. Lam said.