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:
Development 1: deforestation rises to a top climate priority
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.
Development 2: investors are looking at your forest footprint
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.
Development 3: due diligence is now serious
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.
How to prepare
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:
- Understand the supply chain: Action, compliance, and disclosure on deforestation all begin with an understanding of deforestation risks and impacts in the supply chain. First steps include supply chain mapping complemented by area-level deforestation risk assessment, using tools such as Trase and Global Forest Watch.
- Set policies & targets: Clear company policies are a core investor expectation and an important element of credible due diligence systems. Avoid silos from the outset by including both deforestation and associated human rights issues in your policy (e.g., using this guide) and by linking your deforestation policy to your Science Based Target for emissions reductions. This can be done using the SBTi’s forthcoming Forest, Land and Agriculture Sector guidance, which aligns with the Accountability Framework in requiring no-deforestation targets in addition to emissions targets.
- Control & engage: To meet no-deforestation targets, companies downstream in the supply chain have several options for traceability and supplier management. Companies that seek a consumer-facing label or wish to address deforestation in tandem with other sustainability issues may favour certification, while others utilize area-based sourcing or conduct direct traceability and control back to source. Especially for companies that purchase large volumes or have sustained relationships with suppliers, engagement with these suppliers to support and address the drivers of deforestation in sourcing origins is essential, as highlighted in the CGF roadmaps.
- Get going on disclosure: As the Forest Positive Coalition demonstrated with its first Annual Report last September, transparency is key to driving impact against deforestation. If you haven’t already, start using disclosure platforms such as CDP that address both climate and forests. Both CDP’s forests questionnaire and the Global Reporting Initiative’s forthcoming Agriculture, Aquaculture, and Fishing Sector Standard are aligned with the Accountability Framework and enable companies to report progress on deforestation according to this well-recognized roadmap. And use of the GHG Protocol’s forthcoming Land Sector and Removals Guidance will allow companies to quantify Scope 1 and Scope 3 emissions from land use change in alignment with the Accountability Framework’s best practices for monitoring and reporting on deforestation.
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.
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