In 2014, a year before the Paris agreement, governments, businesses and civil society made a commitment to protect our forests by adopting the voluntary but ambitious goals laid out in the New York Declaration that seek to halve the rate of natural forest loss by 2020 (estimated at 13 million hectares annually), stop natural forest loss by 2030 and restore damaged forests.
More than 1.6 billion people depend on forests for their livelihood. Forests are huge repositories of food, water, medicines and biodiversity. They also play a crucial role in carbon sequestration and could be reducing global CO2 emissions by 20%. They therefore contribute to the achievement of many of the 17 Sustainable Development Goals (SDGs) defined by the United Nations for 2030: climate action (SDG 13), eliminating poverty (1) and hunger (2), and life on land (15). This last goal comes with nine different targets linked to the fight against deforestation and desertification and the protection of biodiversity, with target 15.2 corresponding exactly to the objectives of the declaration.
The New York Declaration was therefore a pivotal moment in the fight against deforestation, just as the Paris Agreement formed a turning point in combating global warming.
The role of the agri-food sector in deforestation
Forty per cent of deforestation worldwide can be ascribed to four commodity-based activities most at risk– palm oil, wood- and paper-based products, soy, and cattle farming – with business risk to the companies involved estimated at USD 906 billion. A third of deforestation is related to the agri-food sector. Highly exposed and conscious of its impact as a producer and leading consumer of the commodities concerned, much of the agri-food sector pursues a stated goal of zero net deforestation arising from the supply of relevant commodities by 2020. The issue for us as an investor is first to understand the risks involved, and then to evaluate how the sector's businesses are managing them to achieve their zero deforestation objective, focusing our analysis on the four commodity activities at greatest risk.
What are these risks?
They are, first, financial, related to the potential rise in cost (or even shortages) of supply; regulatory in the case of procurement from illegal sources; and above all image-related risks, because NGOs, consumers and investors are loudly demanding transparency and forest protection, which can lead to significant losses of market share. The famous boycott of Kit Kat (a flagship Nestlé product containing palm oil), organised by Greenpeace in 2010, is a textbook example: accused of contributing to deforestation and the destruction of orangutan habitat, Nestlé quickly dissociated itself from the incriminated supplier to protect its reputation. Facing the need to improve practices in the sector, in 2004 the World Wildlife Fund (WWF) and companies such as Unilever created a palm oil certification system, the Roundtable on Sustainable Palm Oil (RSPO), of which BNP Paribas is a member. The sector has come a long way in the face of growing public awareness, with the majority of agri-food companies today declaring a goal of exclusive RSPO supply by 2020. However, many NGO reports have shown that some producers certified in South-East Asia do not take their commitments seriously, and that certification criteria will have to be stricter. We therefore encourage companies to adopt multicriteria policies for protecting forests and peatland, to apply high standards to all subcontractors and guarantee the traceability of their palm oil back to the plantation.
Companies have also become aware over the past several years of the need to avoid using illegal wood: they have adopted goals to promote sustainable wood and paper in their supply chain, using certified sources1 that are widely available today, similar to RSPO for palm oil. Credibility is therefore vital for these certifications and will have to be based on a strengthened system of audits in the field.
Paradoxically, agri-food companies are still struggling to assess the scope of the issue for soy and especially for cattle farming. These commodity activities contribute the most strongly to deforestation, to the tune of 480 000 and 2.7 million hectares, respectively. There is little or no transparency or mapping of the supply from areas at risk (such as the Cerrado in Brazil, where expanding cattle pastures pose a continuous threat to forests), few to no traceability objectives or field-monitoring goals, and few shared standards (except soy, for which sustainable labels exist2 but volumes of which are still far from sufficient). The Soy Moratorium in 2008 helped to considerably reduce deforestation due to soy farming in the Brazilian Amazon region; however, future needs for soy (of which a European consumes 61 kg per year, mainly indirectly as feed for farmed animals or fish) and for new arable land for cattle farming will continue to increase deforestation risks. For cattle farming alone, the revenue of listed companies that is derived from deforestation is estimated at USD 137 billion.
Companies' commitment to procure certified sustainable commodities is essential to offering guarantees to investors, and must be accompanied by audits and monitoring of suppliers, such as those using satellite data, to ensure the best possible traceability. Too few businesses have yet mapped out their supply, particularly for soy and cattle farming. We also encourage companies to adopt policies that address both environmental and social issues. We salute initiatives that aim to improve transparency around the criteria taken into consideration or the volumes related to the at-risk commodity activities: this allows us to hone our comparative analysis of businesses and to target our dialogue to maximise our impact. Lastly, we understand that although they may not necessarily have the resources to do battle on every front, if they focus their attention solely on beef without addressing soy, how can we be certain that our investments are in line with the New York Declaration?
Written on 26 May 2017
- Forest Stewardship Code (FSC) and Program for Endorsement of Forest Certification (PEFC) are the two main international certification schemes
- RTRS (Roundtable on Responsible Soy) or ProTerra certifications