Three reasons why tackling deforestation is a business priority in 2022 and how to prepare

By Jeff Milder, AFi

This was first published on The Consumer Goods Forum’s blog.

With new regulations, investor pressure, and disclosure requirements coming online, deforestation is a challenge that consumer goods companies can no longer afford to ignore. Fortunately, there is a clear path that can help all companies prepare.

For some consumer brands, deforestation linked to palm oil, cocoa, beef, wood fibre, and other commodities has posed reputational risk and been a focus of sustainability initiatives for years. The 21 members of The Consumer Goods Forum’s own Forest Positive Coalition of Action continue to advance this work in important new directions.

Yet, hundreds of other consumer goods companies and their suppliers have made little progress to address the risk that deforestation poses to their business. In case there were any doubts about the business relevance of this issue, three developments over the past six months have put these to rest:

The most recent UN climate conference, COP26, highlighted the role of forests and agriculture in ways we have not seen before. As climate becomes everyone’s responsibility, companies with significant Scope 3 emissions from soft commodities in their supply chains must account for and mitigate these climate impacts. Eliminating commodity-driven deforestation is often the first, best, and fastest route to reducing Scope 3 emissions.

Last year, the Science Based Targets initiative (SBTi) began requiring Scope 3 targets for companies with at least 40% of their total emissions from supply chains. In terms of accounting, the Task Force for Climate-related Financial Disclosure (TCFD) supports this same threshold for disclosure of Scope 3 emissions in annual reports. This guidance will apply for most consumer goods companies, for which supply chain agriculture and land-use change alone can account for half or more of total emissions.

As the leading international accounting standard, IFRS, looks to build new sustainability standards based on TCFD recommendations, reporting on Scope 3 emissions may soon become an international reporting requirement, with national laws such as US SEC disclosure requirements likely following suit.

While investor initiatives to shift finance toward net-zero emissions have been gathering steam for years, deforestation gained new prominence in these efforts in 2021. COP26 saw over 30 major financial institutions announce their intentions to eliminate the leading sources of commodity-driven deforestation from their portfolios. Investor expectations to decarbonize the food and beverage sector are already well-defined and provide the basis for investor action on deforestation. Such action is certain to ramp up as investors work to meet their portfolio-level emissions reductions goals.

Long the focus of voluntary initiatives, the issue of environmental and human rights harms linked to commodity supply chains was cemented in 2021 as a priority for regulation. Germany’s new Supply Chain Due Diligence Act was followed in November by the EU’s landmark regulatory proposal to prohibit imports of key products linked to recent deforestation, with similar laws in development in the UK and US. While the details of companies’ due diligence obligations under these proposed laws remain to be worked out, 2021 made the public policy direction of travel fully clear.

Leading companies have been working for years to mitigate deforestation risk in their supply chains. Rather than feel daunted, those who are newer to the game or have less capacity to work on sustainability issues can take advantage of the clear guidelines, action steps and implementation tools already tested and available. These are standardised at a global, cross-commodity level in the Accountability Framework and also well-reflected in the CGF Forest Positive Coalition’s new commodity roadmaps.

With these tools in hand, here are four items for every company’s punch list:

Recent developments present a new business environment for regulatory compliance, competitive positioning, and reporting in relation to deforestation. Fortunately, there are a few straightforward things companies can do to address all these mandates at once. Companies that do so proactively will be positioned to thrive as society pushes toward a net-zero and forest-positive future.

Jeff Milder is Director of the Accountability Framework initiative.