Green Cats 2019 Update: Scoring Palm Oil and Soy Companies on Forest Policies and Transparency

INTRODUCTION

Efforts in 2019 to reduce deforestation in tropical forest countries can be described as “one step forward and two steps back.” In the past year, there has been an increasing awareness of the problem of deforestation and corporations’ important roles in combating forest lost. Media, NGOs, investors, and civil society have all highlighted how soft commodity supply chains can lead to increased deforestation, and as a result, there is growing pressure on all actors — growers, traders, retailers — to raise ambition. Yet despite the unprecedented attention, deforestation in key markets is on the rise, with the fires raging throughout Brazil a stark reminder of the urgency of the situation. At the same time, even though corporate commitments have been adopted and expanded throughout all sectors, virtually all companies will fall short of their 2020 targets. While commitments from corporate actors are a step in the right direction, implementation has been difficult and, in some cases, practically non-existent.

Forest Heroes Update

Forest Heroes has updated its assessment of actions companies have taken in their efforts to eliminate deforestation in their soy and palm oil supply chains. We have analyzed which companies are making progress toward achieving policies to reduce their impact on deforestation. For a key summary of the findings read the report blog.

This year’s Green Cats 2019 update – Green Tigers for palm oil production and Green Jaguars for soy – includes 24 palm oil companies and 9 soy companies. The Green Cats 2019 update assesses zero-deforestation policies and companies’ approaches to transparency and traceability in their efforts — or lack thereof — to reduce deforestation, peatland destruction, and labor exploitation.

The coming years will be challenging for these companies as agricultural expansion and deforestation become a greater part of the climate change narrative. Currently, deforestation accounts for approximately 15 percent of global greenhouse gas emissions. To uphold a sustainable business model, companies will have to satisfy rising demand for their products without clearing land and exploiting labor. A majority of companies now understand that they have to tackle deforestation risks to develop a long-term sustainable business model. Corporations are sending strong signals even if they lag on implementation: Approximately 800 companies have commitments related to deforestation, and in Southeast Asian palm oil, approximately three-quarters of the market is covered by NDPE commitments. At the same time, a new survey from the Zoological Society of London (ZSL) shows the difficulty in implementation and traceability: More than two-thirds of companies surveyed had zero-deforestation commitments but only 22 percent can trace all of the raw materials to the plantations where they were grown. As deforestation remains in the spotlight and companies fall short of their targets, they are likely to see negative impacts on their public image. Reputation risk is most concerning for Fast-Moving Consumer Goods (FMCG) companies, given that they are consumer-facing. But for firms that operate further up the supply chains, such as traders and growers, reputation risk is a key variable that could significantly impact profits and share price performance.

The Role of Investors in Curbing Deforestation

Just as crucial as company commitments are the roles of financiers and investors in deforestation. Household names such as BlackRock, JPMorgan, Vanguard, State Street Global Advisors, and Dimensional, among many others, hold shares and/or provide credit to companies that are connected to palm oil-driven deforestation in Southeast Asia and land clearing from soy production in Brazil. Investors and banks, for the most part, are unprepared for assessing risks from deforestation. NGO campaigns are now targeting the finance sector to get investors and lenders to adopt time-bound, commodity-specific zero-deforestation commitments. By doing so, financiers could pressure companies to which they lend or in which they hold shares to follow sustainability commitments and cut any ties to deforestation.

It’s clear, however, that some investors already understand the risks associated with deforestation and ESG factors tied to it. A number have begun to engage with companies in an effort to hold them to account for their commitments. Investors can use their influence through engagement or threats of divestment to pressure companies to develop specific targets and reduce their overall exposure on agricultural supply chains. Some investors are already shifting the conversation on deforestation risk exposure and the fact that current trends are unsustainable. For instance, the PRI investor working group on sustainable palm oil, the PRI/Ceres working group on deforestation in Latin America, and signatories to the Cerrado Manifesto are prime examples of investor engagement on deforestation. And, in response to the Amazon fires this summer, a group of investors, 230 in total with USD 16 trillion under management, called on companies operating in the Amazon to take action to curb the fires and reverse deforestation trends in Brazil, where President Jair Bolsonaro has favored agribusiness and deregulation over environmental protection. HSBC, Rabobank, BNP Paribas, and Credit Suisse are examples of notable banks that have developed detailed commitments and engage with companies linked to deforestation. With ESG integration becoming more mainstream in the investor community, the recognition of deforestation as a climate risk in the investor community should grow. 

TABLE: PALM OIL SCORES​

COMPANY

2019 SCORE

87

87

83

80

74

73

72

72

71

70

68

67

66

61

60

59

55

48

39

26

26

11

0

0

2019 SOY FINDINGS

Soy companies are continuing to consistently lag those in palm oil. In our analysis, we found that scores of soy companies average 39, compared to the palm oil average of 56. Overall the soy industry is less transparent, and the sector has yet to develop a well-developed certification body or a process for suspensions of bad actors.

Major traders that are active in the Cerrado – which include ADM, Grupo Andre Maggi, Cargill, Bunge, LDC, COFCO, and Glencore Agriculture — have been linked to deforestation in Brazil. Even though they have zero-deforestation commitments, none have signed the Cerrado Manifesto and their focus has centered mostly on only illegal deforestation. They have come under pressure to increase transparency, particularly after the fires in Brazil gained widespread attention. NGO Mighty Earth referred to soy giant Cargill – which received a score of only 45 in our assessment — as “the worst company in the world,” due to its poor track record in tackling deforestation and other climate-related and ESG issues.

TABLE: SOY SCORES​

COMPANY

2019 SCORE

63

52

46

45

43

41

38

25

2

METHODOLOGY

The scores for each company were produced by Global Canopy as part of its Forest 500 project. They are based on the following criteria:

  • Each company’s commodity-related commitments;
  • Implementation of those commitments;
  • Monitoring and verification of progress, compliance, and controversies;
  • Other social commitments, including commitments to securing the free, prior, informed consent of affected communities for development on their land.

More details on Global Canopy’s scoring methodology are available here.