SUPPLY CHANGE

 

December 21, 2017

Dear Colleagues,

Looking back on this year, deforestation risks loomed large, prompting many different companies and groups to take action.

The country with the world’s largest remaining intact rainforests, Brazil, made drastic cuts to its annual funding for the agency tasked with enforcing forest protections. This year also saw an uptick in deforestation, triggering lower annual payments for performance (than in recent years) made by the Norwegian government to the Brazilian government for forest protection. Also, new research by the non-profit IMAZON helped provide clarity about which companies are most involved in the largest cause of deforestation in the Amazon (and in Brazil)—cattle ranching. The authors found that 99 companies owned the slaughterhouses that processed 93% of cattle raised in the Amazon. They also forecasted which areas will have the highest deforestation risk in 2016 to 2018. This information can inform priority setting around which companies most need to reform to improve land use outcomes. As of December 19, 2017, Supply Change tracks 51 companies with commitments to reduce deforestation from cattle supply chains including prominent traders like JBS, Marfrig, and Minerva, which operate some of the slaughterhouses investigated in the study. Other companies (out of the 51 Supply Change tracks) buy cattle products from these companies (among others) to sell to end consumers, like McDonald’s and Carrefour. Yet according to IMAZON many of the 99 companies operating these slaughterhouses have not yet made a commitment.

This begs the question—what is the business case for these companies and their buyers to establish a commitment?

 

A business case

In its latest report, CDP determined that 272 publicly traded companies were dependent on up to $941 billion of revenue from commodities linked to deforestation. Of these 272 companies, 87% identified risks from deforestation, and 32% had already experienced effects from those risks. For example, in March JBS experienced serious reputational and regulatory problems after selling cattle products associated with illegally deforested land in Brazil. Conversely, investing in sustainable production can have many reputational, regulatory, and operational advantages for companies. According to recent research published in the Harvard Business Review, ranchers implementing sustainable intensification (low/no deforestation) in Brazil achieved higher productivity and profitability and lowered their cost of production. Researchers also found that meatpackers like JBS and Marfrig benefited from higher margins (from selling premium products), reduced cost of capital, and better employee retention, while retailers like McDonald’s and Carrefour benefited from reduced reputational risks.

 

External pressure inspires action

Commodity producers, as well as governments overseeing commodity producing regions at risk for deforestation, are experiencing growing international pressure for reform. In April, the European Union (EU) parliament passed a resolution urging member countries to tighten import requirements for commodities associated with deforestation, and Norway’s parliament soon followed in June with a similar decision. Despite a backlash from the governments of the largest palm oil producer countries, Indonesia and Malaysia, the EU did not back down. In a recent response, its Delegation to Malaysia emphasized that the resolution was non-binding and that the EU was committed to constructive collaboration to ensure palm oil production is sustainable and continues to be an important feature of their economy. At the same time, plans are in motion for the Malaysian and Indonesian governments to strengthen their own national certifications to meet this increasing scrutiny.

Yet, planning and monitoring may be getting easier for governments and businesses as support for these efforts increases and as more proven tools and approaches become available. Several green groups released the Sustainable Landscapes Rating Tool to help rapidly evaluate how well political jurisdictions can support sustainable landscapes, which balance agriculture and environmental protection. For example, the Malaysian state of Sabah (producer of around 10% of palm oil globally) is embarking on a new strategy where all palm oil production will be certified sustainable by 2025 in accordance with the Roundtable on Sustainable Palm Oil (RSPO). The motivation for this shift came as officials realized that for the state to remain economically competitive with other palm oil producing regions (e.g., in Africa and South America), it would have to compete based on governance (quality) rather than on size of land available for production (quantity). Previous reporting by Ecosystem Marketplace also detailed the pathway for a “green municipality” in Brazil to transition away from widespread deforestation to sustainable production.

Meanwhile, new tools and approaches are being developed to help companies to improve their performance with addressing deforestation risks. For example, companies like Danone, Ferrero Trading Group, and Tetra Pak are piloting Quantis’s Land Use Change Guidance, which provides step-by-step guidance for measuring and tracking progress toward reducing emissions from deforestation. Investors now also have access to increasingly sophisticated tools to verify corporate performance around deforestation such as Ceres’ new Engage the Chain tool.

 

Looking ahead

Toward the end of the year, the Supply Change team collaborated with Ceres to develop tools for investors in the Ceres’ Climate Investor Network on Climate Risk and Sustainability to engage with companies on improving management of deforestation risks in commodity supply chains, so stay tuned for articles on that collaboration. Finally, a coalition of governments, companies, and nonprofit members of the Tropical Forest Alliance 2020 established ten key priorities for removing tropical deforestation from commodity supply chains. These plans are intended to help lead action in 2018 and beyond.

More stories about changing supply chains are summarized below, so keep reading!

- The Supply Change team

 

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Recent News

Follow the leaks

New research suggests that the Cerrado Manifesto won’t save the Cerrado biome from being destroyed. Back in late October, 23 large multinational companies issued a statement in support of the Cerrado Manifesto—pledging to stop the destruction of forests and native vegetation in the Cerrado biome from commodity production. The group of environmental non-profits that drafted the manifesto called for governments to strengthen legal protections (i.e., the Forest Code) and to create protected areas. Also, the groups called on the public and private sectors to generate incentives and financial mechanisms to reward land stewardship. But researchers point out that the Cerrado is almost entirely privately owned and it would not be feasible for the government to buy back this land in its current economic state.
Read more from Phys.org

 

Chocolate on top

As promised, after half of a year of collaboration, large chocolate companies like Mars, Nestle and Mondelez joined Ivorian and Ghanaian governments in publishing a joint action plan detailing how the members of the Cocoa and Forests Initiative will stop deforestation associated with cocoa production. Corporate signatories will commit to avoiding new land conversion for cocoa after 2017 and to tracing all their supply back to the farm by 2020. Beginning next year, companies will be obliged to monitor and report on their progress toward their commitments annually (Supply Change already tracks commitments related to other forest-risk commodities—soy, palm, timber & pulp, and cattle—for many of these same companies).
Read more from Confectionary News

 

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Monthly Insights from the Supply Change Desk

Each month, the Supply Change team reviews hundreds of corporate commitments to reduce deforestation in commodity supply chains. Monthly Insights shines a spotlight on companies that deserve recognition for their diligence or innovation at crafting, implementing, or reporting upon their commitments. Insights on corporate innovation fall into three key areas:

 

Ambition

By researching hundreds of companies, Supply Change sometimes discovers corporate ambitions that push into new frontiers. Some of these high commitment standards include Stella McCartney’s commitment to use vegan leather and not pass the added cost on to customers and US paper manufacturer Verso’s commitment to only source wood that can be regenerated.

 Other companies established commitments covering overlooked geographies, biomes, and commodity derivatives. For example, COFCO Agri, an agricultural giant and the only Chinese company with a commitment, was alone in its ambition to avoid procuring soy linked to destroying the Brazilian Cerrado. At the same time, the UK retailer Marks and Spencer (M&S) was one of the only companies with a commitment to detail its support for soy growers in Paraguay (another overlooked geography threatened by deforestation). Similarly, the US personal care giant, Colgate Palmolive, was the only company found to have made a cattle commitment specifically targeting tallow. Finally, sophisticated satellite monitoring systems and partnerships  have been shown to help companies like JBS, Marfrig, and Minerva verify compliance and realize zero deforestation commitments. But as previously mentioned, even these systems have room for improvement given the scandals faced by JBS.

 

Transparency

Companies have demonstrated leadership by providing specific details about commitment coverage, supplier engagement, and land use impacts, which can help outside groups to verify their sustainability progress. Ownership complexity can make it difficult to understand which business segments are covered by a commitment, yet the British manufacturer PZ Cussons explicitly outlines how its palm oil commitment applies to its two joint ventures, explains how its commitment aligns with that of its venture partner, Wilmar, and identifies recourse for non-compliant suppliers. Companies like the leather tannery Couro Do Norte have begun regularly sharing lists of their suppliers; and Bel Group, a major French cheese manufacturer, even discloses the number of protected and certified hectares of land its soy meal suppliers have in Mato Grosso, Brazil.

Supply Change finds that a number of companies such as Kellogg Company, Mondi, and Musim Mas have doubled down on transparency and shared detailed information on challenges experienced with their suppliers. Meanwhile M&S provides detailed information on financial support provided to soy farmers in Paraguay. Other companies like palm oil producers New Britain Palm Oil and IndoAgri Foods have taken initiative and recorded their greenhouse gas emissions associated with land clearance. In reporting on progress toward their overall commitments, other companies like Adecoagro have consistently reported certified volumes and hectares of soy production over the last five years.

 

Strategy

Actions speak louder than words and some companies have shown their creativity and leadership in their pursuit of sustainable commodity production. Despite never purchasing the big four commodities directly, a number of manufacturers have gone to great lengths to meet their commitments. For example, Colruyt Group is employing a variety of strategies for making their soy more sustainable, including: reducing use, sourcing locally, pioneering alternatives, buying offset credits, supporting farmers, and linking their efforts to the Sustainable Development Goals.

Meanwhile many companies are pursuing exclusively sourcing physically certified/compliant commodities by screening out problematic suppliers. For example, Ferrero Trading Group fundamentally reorganized its procurement strategy by cutting ties with all non-compliant suppliers and securing physically certified supply for 50% of its entire palm oil volume (90,000 tons), while the publishing mogul, Pearson, worked with its competitors to create the PREPS (Publishers Database for Responsible Environmental Paper Sourcing) database, which it uses to screen suppliers for their compliance with its wood-based fiber commitment. Some companies like Clariant company have gone even further by forming a partnership spanning the entire commodity supply chain. The company teamed up with agri-trader Wilmar, cosmetics manufacturer L’Oreal, and a local social enterprise Wild Asia to certify 500 smallholders in Sabah under the RSPO scheme and promote the sale of their palm oil.

Supply-Change.org
 

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