Make like a tree: deforestation creates ‘stranded asset’ risk

Nov 21, 2017
Up to $941 bn of turnover in listed companies is dependent on commodities linked to deforestation, says CDP report

Almost nine out of 10 companies (87 percent) acknowledge that they are exposed to ‘forest-risk’ commodities including timber, palm oil, cattle and soy – with almost a third (32 percent) saying they have already seen the impact of these risks, such as reduction or disruption of supply, increased costs, or reputational damage, according to a new study from environmental disclosure advocates CDP. 

Despite the potential $941 bn in revenues at risk – a number that has increased from $906 bn last year – companies are not doing enough to disclose or tackle the issue. Almost four out of five (77 percent) of the companies surveyed fail to disclose how their firms are affected, says CDP, while more than a third (36 percent) do not assign their boards responsibility for addressing deforestation – a figure that rises to 65 percent in North America. 

Investors are becoming increasingly alert to the possibility of these ‘stranded assets’, however. The number of investor signatories to CDP’s forests program has climbed from 184 in 2013 to 380 in 2017, says the organization. Despite the growing concern, CDP says that of the 838 companies approached on behalf of investors this year, less than a quarter responded to the information request, ‘leaving investors in the dark about the deforestation risks they may face in the remaining 77 percent of companies’.

Now CDP works with forest-scoring organization South Pole Group to rate companies on a scale of A to -D, with Brambles, L’Oréal, SCA, Tetra Pak, Unilever and UPM-Kymmene named as pioneers in tackling deforestation as part of the CDP A List 2017. McDonald’s and Asia Pulp & Paper also get a mention in the press announcement as part of a group of just 13 percent of firms to have made a ‘time-bound comprehensive commitment to zero (net) deforestation’.

Reflecting the importance of aligning green credentials with financials, Mika Mikkola, vice president of IR at Finnish paper firm UPM, explains that his company’s philosophy is about the long term. ‘Most of our businesses today and in the future are based on efficient use of sustainably sourced renewable forest biomass,’ he says. ‘Taking care of the forests is therefore crucial for our long-term value creation.’

Calling on investors to ‘ramp up their engagement’ and demand greater levels of disclosure on the issue, Morgan Gillespy, forests director at CDP, adds: ‘The six companies on 2017’s Forests A List are showing real leadership with board-level oversight of the issue and commitments such as zero deforestation, but investors require much greater levels of measurement and reporting from companies around the world on their deforestation risk.’

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