Last week the Forest Footprint Disclosure (FFD) revealed its fourth annual report. Each year FFD asks the world’s largest companies to disclose their impact on forests based on their use of five commodities: soy, palm oil, timber and pulp, cattle products, and biofuels. This year’s report is based on the replies of 100 companies and provides an interesting outlook on how companies address these “forest risk commodities,” as well as some broader lessons on the relationships between business and the environment.
Now, I know that important reports are released almost every week nowadays and it’s really difficult to follow all of them. Still, given the extremely important role forests play in most of the major issues we deal with – from climate change and biodiversity loss to water scarcity and food security, this report is invaluable. So if you have time now to review just one report – please look into this one. It’s not even that long – 33 pages.
The report has some good news, from an increase of 15 percent in the number of participants comparing to last year to receiving reports for the first time from multi-nationals such as Colgate-Palmolive, Groupe Danone, Gucci and HJ Heinz. However, it also warns that the gap between the leaders of the various forest risk commodity sectors and their peers is growing and that “there are a few sectors with really significant variances – Industrials, Construction & Autos and Utilities – where active corporate social responsibility in procurement appears not to be the norm.”
The report indeed identifies 13 companies like Mondi, L’Oréal, British Airways, M&S, Marfrig Group and Unilever that are leaders in their sectors. These companies, Liz Crosbie, Technical Director at FFD explains, share a common commitment to innovation and ensuring the security of their supply for their future. Their leadership, she adds, “consists of moving beyond the immediate supply chain to engagement upstream and being prepared to spend time and money on finding solutions to problems wherever they are found in the world.”
Yet, unfortunately these leaders represent a fraction of the business world at the moment. The main problem is that most of the environmental and social impacts on forests are still externalities and most risks associated with forests are perceived as long-term risks, if at all. In these circumstances, it is not surprising that most companies don’t see a business case for clearing their supply chains of “unsustainably grown ‘forest risk commodities’ (beef, soy, palm oil, timber and biofuels), which are responsible for the majority of global deforestation.”
Crosbie explains that “price sensitivity continues to be a barrier to the take-up of more sustainable sourcing options. Short-term gain threatens to eclipse the long-term risk to climate security from commodities with a deforestation risk. The global policy context supports this depressing prevailing trend.” In translation – it’s the externalities (and short-termism), stupid.
Yet, the endgame is not necessarily that all companies take on substantial voluntary commitments, but enhancing regulation and enforcement. Christoph Harwood, partner at Marksman Consulting and Investment Relations for FFD, writes that there’s a certain process that you have to go through when addressing environmental issues, from identification of the issue to ensuring it impacts company valuations. Based on case studies of other issues that were tackled successfully in the past, he concluded that the endgame of this journey, as he calls it, is regulation and enforcement.
So if regulation is the real game changer, is it that important to have more companies jumping on FFD’s wagon? The answer is: yes. First, to get there you need industry leaders that will be open to new ideas and support change. Second, the more companies moving towards using commodities like paper, timber or soy sustainably, the less resistance there will be for changes in regulation. The report doesn’t forget to mention that we could already see some signs of these changes last year, from the Australian Senate passing the Illegal Logging Prohibition Bill to the European Commission’s proposed changes to the EU’s Renewable Energy Directive (RED), which will limit the use of crop-based biofuels to 5 percent of total EU transport energy by 2020.
In the report, sector leaders explain the value they find in forest-proofing their business. “Ultimately, procuring sustainable commodities is essential for our reputation, for guaranteeing continuity of supply and to the long-term success of our business,” writes Judith Bachelar, Director of Sainsbury’s Brand, the food and staples retailing sector leader. “By excluding from conversion those areas that store large amounts of carbon, we will significantly reduce greenhouse gas emissions and preserve the natural infrastructure that supports our business,” added Nick Thompson, CEO of New Britain Palm Oil, the agricultural product sector leader.
The problem is that most companies still don’t see it this way. The list of companies that didn’t reply to FFD is far longer than the list of those that did reply. There’s a good chance this won’t change significantly until the FFD is integrated into the CDP next year.
Until then, and until more stakeholders start taking deforestation risks more seriously, we will continue to see only a small number of companies that make significant steps to reduce their forest impacts. The rest will wait for regulators to move forward. Hopefully, with the help of FFD, we’ll get there in time.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.