Deforestation is the issue where investors are having the most immediate influence on shifting corporate practices to mitigate climate change. Companies are facing increased public pressure to mitigate the impacts of their supply chain on deforestation, so investor interest is only going to grow.
Q. Why is deforestation an investor concern?
A. Clearing valuable forests to grow commodity crops like palm oil or soy has a severe impact on controversial issues like climate change, food security, and biopersity loss. Companies that are linked to these issues through their supply chains therefore face key risks related to consumer perceptions, brand damage, and less resilient supply chains - all of which threaten shareholder value.
For example, consumers are increasingly concerned about the destruction of valuable, bioperse rainforests to grow palm oil. Companies purchasing the ingredient from unsustainable sources have faced high-profile public campaigns, boycotts, and loss of consumer trust. Climate change, deforestation, biopersity, consumer perceptions and reputational risks combine to make palm oil a perfect storm.
At Green Century we believe companies that act to reduce their role in deforestation could reduce key risks and enjoy competitive advantages. Businesses can really set themselves apart and create value for shareholders by demonstrating strong sustainability strategies for reducing their forest footprint.
"CDP’s forests program is an invaluable tool for facilitating this kind of disclosure, and we use CDP for informing investor engagements with companies"
Lucia von Reusner, Shareholder Advocate Green Century Capital Management
Q. How does CDP’s forests program support your investment objectives and engagement with companies?
A. Green Century works to address deforestation-related risks in several ways. Through our investment strategy we screen out companies directly engage in environmentally-damaging, large-scale, industrial agricultural production.
We also leverage our shareholder stake in the companies in which we invest to encourage more environmentally responsible sourcing strategies that reduce key risks related to deforestation.
Rigorous and reliable disclosure provides investors with the knowledge and assurance that a company is managing its forest footprint. It is critical for investors to understand how companies are managing risks, to separate leaders from laggards, and to make informed investment decisions. CDP’s forests program is an invaluable tool for facilitating this kind of disclosure, and we use CDP for informing investor engagements with companies.
Q. What is it that you are looking for companies to demonstrate?
A. As investors we look for a company to clearly define its expectations for sustainable production and to report regularly on progress in upholding those standards throughout the supply chain.
Traceability down to the level of the plantation is critical- we become very concerned when companies are not able to identify where their palm oil is coming from or verify the conditions under which it was produced. This leaves companies vulnerable to brand damage associated with sourcing from suppliers engaged in controversial practices like human rights violations or burning down tropical forests.
Certification can be a tool that companies use, but in some cases companies will need to go beyond certification to meaningfully address risks related to deforestation.
At Green Century, we have secured time-bound commitments from top palm oil consuming companies to ensure that all palm oil they purchase can be traced back to the plantation level, and independently verified as not contributing to development on carbon rich forests or peatlands.
Palm oil has been the issue that really motivated and amplified many of the conversations between investors and companies around deforestation. We are now starting to look at the other commodity focus areas of CDP’s forests program and how companies are managing those commodities.