There is growing corporate ambition to address commodity-driven deforestation and human rights abuses in global supply chains. Still, gaps remain between commitments and results for the “big five” forest-risk commodities: cattle, soy, timber and pulp, palm oil, and cocoa. Full findings and trends in corporate no-deforestation and nature-positive commitments post 2020 can be found in our Supply Change team’s new report, Corporate Implementation, Impacts, and Reporting on No-Deforestation & “Nature Positive” Post 2020.
Here are 10 things companies and investors can do to close these gaps and reduce financial and reputational risks associated with these commodities:
1. Utilize Available Resources
The Accountability Framework, Science Based Targets Initiative, and GHG Protocol all provide guidance, definitions, and best practices for addressing deforestation, climate change, and human rights risks in forest-risk supply chains.
2. Demonstrate Effective Traceability Systems
Increased traceability ensures the origins of forest-risk commodities are known. This is not only beneficial for a company’s reputation, but financially beneficial as well. Investors need companies to clearly define the objectives and scope of their activities to demonstrate compliance for their given forest-risk supply chain. This enables them to soundly assess forest-related risks within their portfolios. Companies are encouraged to follow the Accountability Framework by publicly disclosing their methods and identifying any remaining challenges in their forest-risk supply chains.
3. Implement Rigorous Supply Chain Management and Risk Assessment Approaches
Through rigorous approaches, companies can minimize the risk that deforestation is embedded in their supply chains and measure progress towards commitment targets. The role of investors is to encourage companies in their portfolio to adopt approaches such as robust risk assessments, traceability and supply chain mapping exercises, supply chain management and monitoring policies, and regular reporting on their activities. The Accountability Framework offers best practices for both companies and their investors.
4. Establish Credible Monitoring and Verification Systems
Investors rely on this key information to determine the rigor of companies’ deforestation and supply chain management policies, their environmental and social performance, and the impact of their forest-related policies. Investors must consider whether the companies in their portfolio are using methods that align with industry best practices. The Accountability Framework recommends a monitoring strategy which aligns with positive social and environmental outcomes, as well as coordinating and publicly disclosing efforts.
5. Institute Non-Compliance Policies
Non-compliance policies and processes at all levels of operations can inform decisions for engaging with suppliers, and it can resolve instances of land conversion and human rights abuses. Companies should publicly report their strategies for engaging with suppliers in the case of non-compliance to ensure transparency for both investors and customers.
6. Establish Effective Grievance Mechanisms
Companies should facilitate pathways for assessing grievances as well as provide adequate contact information for raising negative impacts regarding the environment and human rights. This is crucial for companies to monitor their own operations and for investors to identify and remediate risks in their agricultural supply chains. Companies can also strengthen existing grievance mechanisms by collaborating with industry bodies, designing commodity-specific processes, and engaging multi-stakeholder initiatives to establish best practices for their forest-risk supply chains.
7. Release Consistent Reporting, Ideally Annually
By reporting regularly, companies can consistently demonstrate due diligence and progress towards commitments, reassuring investors of their sustainability performance, risk management strategies, and opportunities for growth. Investors can play a part by encouraging companies to publish information about their achievements on a regular basis and guiding them towards available tools and resources to improve disclosure practices.
8. Some Reporting is Better Than None
Even if companies are currently unable to provide quantitative reporting, they should still publicly disclose any achievements made towards their commitments to demonstrate transparency to investors and other interested parties. Companies should also be candid about any barriers to fulfilling their commitments and the steps required to overcome them.
9. Increase Calculation and Reporting of Scope 3 Emissions
About 90% of a company’s carbon footprint comes from Scope 3 emissions, yet less than half of companies report data on these emissions, leaving a major gap in understanding and reporting climate impacts associated with land-use change. Encouragement from investors, monitoring supplier compliance at all operations levels, and publicly reporting supplier non-compliance strategies are all useful strategies to drive greater transparency in this area.
10. Regular Corporate Disclosures on Greenhouse Gas Emissions
It is essential for companies to publish annual data that demonstrates progress on climate commitments. This can illustrate quantitative progress to investors and increase a company’s ability to minimize financial and reputational risks connected to climate change. Investors have an important role to play in driving a trend of increased engagement by expecting such disclosure and directing companies towards resources like CDP and the GHG Protocol. Companies demonstrating ambitious action and transparency on their climate and sustainability commitments can position themselves as more attractive to investors and their long-term financial wellbeing.