Tree-huggers aren’t the only ones fretting over chopped wood these days. Starbucks, Marks & Spencer, Cargill, and Kraft Heinz and other publicly traded companies risked nearly US$950bn in annual turnover related to deforestation last year, according to the Carbon Disclosure Project (CDP). And things are only going to get stickier in 2018 as deforestation climbs back to the top of the corporate agenda.
More than half of the countries in the Paris Agreement pledged to act on deforestation by 2020, meaning that regulations will start rolling out this year. That, coupled with budding investor and customer interest in corporate sustainability, has shot environmental, social, and corporate governance (ESG) deforestation risk into the top five 2018 environmental risks, according to Verisk Maplecroft’s new report.
The risks are expected to be particularly dangerous for businesses across the financial, commodities, and extractive sectors. Yet, while 87% of companies reporting to the CDP recognised deforestation risks – with 32% already seeing negative impacts on their business – only 13% had plans to mitigate the threat.
Financial sector
Reputational risks will feature prominently with regards to deforestation in the financial sector. “HSBC won’t be the only investor NGOs push into dropping funding for palm oil companies involved in deforestation,” said Will Nichols, senior analyst, environment and climate change at Verisk Maplecroft.
Last summer, the bank was at the centre of controversy when NGOs accused the company of funding palm oil companies responsible for environmental destruction. In response, CEO Stuart Gulliver committed to a stricter lending policy based on “no deforestation, no peat, no exploitation,” and acknowledged the obligation for the financial sector to play a greater role.
Moreover, fossil fuels aren’t the only products at risk of becoming stranded assets – forest-risk commodities could also fail to reach end markets. Indonesian palm oil producers, to name an example, can’t develop nearly a third of the land-bank that they own because of government regulations, according to a Chain Reaction Research report.
Most countries expected to face strict forestry regulations