Is Deforestation and Conversion Free (DCF) the bottom line for commodity reporting?
CDP’s forests questionnaire has been tracking companies’ progress on eliminating deforestation from agricultural and forestry supply chains for over a decade. As monitoring and reporting on forest-related impacts have evolved, stakeholders are increasingly looking to understand the outcomes of corporate policies intended to manage and reduce deforestation risk.
Over the last two years, consensus around reporting has landed on quantitative metrics that account for the volumes of commodity production that are free from natural ecosystem conversion, including deforestation. This allows for a consistent, quantifiable and more transparent approach to evaluating progress against targets and commitments.
Due diligence in production and sourcing
Companies should assess and report the proportion of volumes in their operations and supply chains that can be considered as deforestation- and conversion-free (DCF). The DCF designation signifies that materials did not originate from production units where conversion from forests or other natural ecosystems occurred after a specified cut-off date.
DCF status can be assessed through various due diligence pathways, including full traceability and direct monitoring of production units, tracing supplies to sourcing areas that have negligible ecosystem conversion since the cut-off date, or using aligned certification schemes. DCF volumes should always be reported in relation to the full volume of each commodity that the company produced or sourced in the reporting period.
Who’s interested in DCF status?
By comprehensively and transparently reporting DCF claims through CDP, companies will be able to demonstrate progress to their stakeholders and prepare to meet regulatory changes.
As the recommended target date of 2025 for zero deforestation and conversion approaches, there is demand from the finance community and companies trading in forest commodities to understand where progress on DCF has been made and where gaps need to be addressed in production and due diligence, especially in light of regulatory change.
Since the adoption of the European Union’s Deforestation Regulation, companies will need to meet more stringent requirements if they wish to trade in the European market. Following CDP’s forests disclosure framework and progressing through scoring bands can prepare companies to meet these regulatory changes or demonstrate where they have already been met. CDP data will also be of interest to the regulators and policy makers in regions where deforestation, biodiversity and land-use policy is evolving.
Achieving and transparently reporting on DCF volumes will be fundamental to global reporting initiatives. Elements of the Science Based Targets initiative Forests Land and Agriculture (SBTi FLAG) methodology as well the expected Science Based Targets Network (SBTN) Land Hub both require deforestation and conversion targets to be set and achieved to meet greenhouse gas emissions reductions and natural land management targets.
How is CDP supporting reporting and action on DCF?
In 2022, CDP asked companies to disclose DCF information in an exploratory question. Of 810 companies that disclosed on a commodity, 383 (47%) reported that at least some of their volumes were DCF, with a further 165 (20%) planning on doing so within two years. More than 300 of those companies claimed that over 80% of their sourcing was free from deforestation or conversion since their specific cut-off dates.
From 2023, CDP is asking companies to disclose the DCF status of their commodities in questions 1.5a and 1.5b. Reporting will be in line with the principles and guidance of the Accountability Framework and consistent with industry working groups such as the Consumer Goods Forum.
The change in 2023 requires companies to provide a breakdown of the volumes known to be DCF and verified by mapping, certification or other verification. For volumes that cannot be shown to be DCF, companies are asked to provide best-available information about product origins. In total this should account for 100% of the volumes that have been produced or sourced by the company during the reporting year.
CDP will score DCF breakdowns for the completeness of response in relation to the total volumes produced or sourced. In 2023 companies will be assessed based on their transparency regarding DCF performance, rather than their progress toward fulfilment of DCF targets. In future the questions are expected to be scored for progress against a company’s commitments and consensus-based land targets.
CDP will publish its findings from the 2023 disclosure in collaboration with the Accountability Framework initiative.
Where can companies find more information?
The Accountability Framework initiative has detailed guidance on assessing and disclosing progress toward DCF supply chains. CDP has also prepared a technical note to support companies in implementing and reporting on DCF commitments and their DCF volume status.
Where next for DCF?
Being able to report on the breakdown of conversion-free sourcing is important for managing land-use impacts and making claims against commitments. It’s a useful indicator for companies to measure their own progress and identify next steps. This reporting is useful too for investors and purchasers to evaluate progress quickly and easily against commitments and decide where finance and procurement should flow.
For companies that can already source 100% DCF volumes, these metrics may be a definitive indicator for reporting on their work to eliminate natural ecosystem conversion. However, the majority of companies are not there yet, so other indicators still need to be used to get a full picture of a company’s transition to conversion-free. In future, expect DCF to be complemented with metrics that track restoration, quality of managed lands, supplier engagement and sourcing landscapes.