SUPPLY CHANGE

 

July 2, 2018

Dear Colleagues,

The World Resources Institute released the latest global deforestation data, and it’s not looking good. A total of 15.8 million hectares of tropical forests disappeared in 2017; a high only surpassed by deforestation in 2016. With many companies committing to reduce or eliminate deforestation in their commodity supply chains by 2020 (Forest Trends Supply Change Initiative has tracked 248 such companies), environmentalists are concerned companies aren’t following through or moving fast enough to complete their commitments.

Supply Change finds that certification is the most popular method companies rely on for implementing their commitments. For example, 81% of palm oil commitments, 68% of timber commitments, and 65% of soy commitments depend on the Roundtable on Sustainable Palm Oil (RSPO), Forest Stewardship Council (for wood), and Round Table on Responsible Soy certifications respectively. Despite each certification having requirements for protecting forests, their effectiveness in reducing commodity-driven deforestation remains in question (see February newsletter introduction for research on the RSPO).

Being able to trace commodities back to the source is a prerequisite for verifying results. That’s why many environmental groups have started to ratchet up the pressure on companies to investigate and disclose more information about where their commodities (particularly palm oil) come from. For example, in the run up to publishing a disparaging report on commitment implementation, Greenpeace urged the 16 leading brands under review to publicly release the names of their source palm oil mills and the mills’ producer groups, so that their efforts would incorporated in its assessment. Half of the 16 companies investigated for the report disclosed this information in time and others, like Ferrero, published soon thereafter.

Supply Change has also started to track traceability progress in more detail. In February, Ceres and Supply Change joined forces to identify trends and leading practices for goal-setting and disclosure around commodity traceability. From this research, we developed a tool tailored for a network of philanthropic investors to use in behind-the-scenes engagements with companies to encourage them to set/strengthen traceability goals and share their traceability data.  

Supply Change monitors all of the companies assessed by Greenpeace, and found companies divulged varying levels of detail about the palm oil mills from which they source. Nestle, for example, provided a one-page list of supplier and parent company names for November 2017. Mars went further by disclosing the country location and the name of company operating mills (sometimes a different name than the mill) for 2016. Finally, Unilever’s 24-page list of the palm oil mills for 2017 noted whether the mill was RSPO certified and the specific mill location (country, province, district, and geographic coordinates).  

The differences in the level of detail companies share about their sourcing locations (e.g. frequency of reporting, geographic location, and age of data) can impact how accurately and efficiently third parties can verify commodity sources and supplier compliance in a given time period. This can also dictate how well disclosures are received. In an effort to streamline these metrics, and provide clearer guidance to these companies, a coalition of environmental groups developed Reporting Guidance for Responsible Palm to help companies figure out what to disclose.

Collecting this type of information can be time consuming, which is why companies often turn to others for help. Behind the scenes, Unilever notes that its disclosure was made possible by the use of the RSPO’s PalmTrace platform and its collaboration with its suppliers and UTZ (now Rainforest Alliance). These relationships are increasingly important for commitment implementation, which is why Supply Change has begun tracking partnerships and collaborations centering around commodity traceability and sustainability.

It’s clear that there still a long way to go before companies can confidently say that they are tackling deforestation in their supply chains. In particular, traceability and transparency are key to provide consumer and investor confidence in commitment progress and to recognize and manage deforestation risks.

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

- The Supply Change team

 

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Recent News

Getting the “bads” out of goods

Voluntary corporate sustainability commitments will not be enough to stop commodity-driven deforestation associated with palm oil, cattle, soy, and cocoa, according to a new study by Forest Trends and Fern. The authors analyzed actions taken to address other global “bads” fueled by international trade like illegal timber production, conflict diamonds, slavery in supply chains, and ozone depleting substances in consumer products. Drawing from these case studies, the authors developed a model that identified four key stages needed to transform these “bads” to “goods”. The authors also included lessons learned for sustainable commodity commitments, based on these case studies.
Learn more from the report

 

In the interest of ESG

The business case for sustainability is often complex and indirect: natural capital accounting and long-term supply insecurity don’t translate well into business communities fixated on quarterly earnings. The Oversea-Chinese Banking Corp (OCBC), however, has a solution to this problem. The bank made a $200 million loan to Wilmar International, and pegged the interest rate to the agribusiness’s Environmental, Social, and Governance (ESG) performance. An independent sustainability ratings firm, Systainalytics, will determine Wilmar’s performance based on OCBC requirements. Outside research led by Profundo suggests that its ranking could range between 10 and 60 basis points and ultimately have a material impact on Wilmar’s future cost of capital. This lending model could provide the missing link between long term sustainability concerns and corporate bottom lines.
Learn more at Chain Reaction Research

 

Trumped up deforestation

An unforeseen side effect of a trade war between the United States and China could be a rise in deforestation in the Amazon. As the world’s largest importer of soybeans, China’s tariffs on US-grown soybeans could be driving Chinese companies to turn to other soybean producing regions like the Amazon, where soybean production has been heavily associated with deforestation. This may help explain why analysis of satellite imagery of the Amazon in the spring (since President Trump announced the tariffs) shows an uptick in deforestation when compared with the same time last year.
Learn more at Mongabay.com

 

Stronger together

Last week, the Consumer Goods Forum announced the launch of a new initiative for manufacturers and retailers to work together to meet their commitments to source deforestation-free soy. This “Soy Buyers Coalition” will help coalition members connect with producers in key soy producing regions of Brazil. Rather than cutting and running from producers operating in areas with high risk of commodity-driven deforestation, this group intends to use its collective influence to push producers toward long-term sustainable production. The coalition, with support from the sustainability tracking group, TRASE, is in the midst of mapping and assessing risk in key sourcing areas.
Read more at the Consumer Goods Forum

 

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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.

 

Let me see your HCV

Systems that exclude certain concessional land from development, such as High Conservation Value (HCV) designated areas, are gaining traction—especially among palm and timber producers. Supply Change data shows that over 200 companies have publicly declared their support for this system. However, the level of detail disclosed varies, according to research on the 50 largest palm producers. Unlike many firms, Asia Pacific Resources International Limited has identified its methodology for HCV assessments and published the results (login required) to back up its claims. Additionally, this forestry firm has established “ring plantations” around the periphery of its concessions with the intent to create “a buffer zone that helps to conserve the core conservation forest area making illegal logging and human encroachment less likely.”
Learn more on Asia Pacific Resources International Limited’s profile

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