Why transparency is essential for eliminating deforestation in supply chains

Net-zero targets cannot be achieved without eliminating tropical deforestation, which accounts for 11% of greenhouse gas emissions worldwide. But moving towards commodity supply chains that are free from deforestation, conversion, and associated human rights abuses relies on an unwavering commitment to collaboration and transparency.

By Emma Thomson

Forest 500 Lead at Global Canopy

Why Forest 500 promotes transparency

For almost a decade, Global Canopy’s Forest 500 has identified and ranked the 350 most influential companies and 150 financial institutions in forest risk commodity supply chains.

Rankings are determined by publicly available information on company websites. Forest 500 indicators reward companies for progress towards eliminating deforestation, conversion, and associated human rights abuses, and many of the indicators also assess companies on how transparently they disclose their approach and progress.

Those that publish updates on their progress – even if it needs significant improvement to align with best practice – will score more than those who do not publish anything, who automatically score 0.

We score in this way because to make the rapid progress that’s urgently needed, companies and financial institutions must share their learnings, spurring greater engagement between themselves. We need to understand which commodities are being sourced from which regions, how they are being sourced and who is sourcing them, if deforestation is to be eliminated.

Publicly-accessible information mitigates risk

The 2023 Forest 500 report found that 40% of the companies and financial institutions with the most exposure to, and influence on, tropical deforestation still haven’t set a single public policy on deforestation.

Clear, publicly-accessible information is vital for companies to prove that they are sourcing deforestation-free commodities. Understanding the proportion that is deforestation-free and what is still exposed to deforestation risk or impacts provides key data for investors, companies and consumers looking to make informed decisions and mitigate risk.

Regulatory and financial pressures are mounting

Increased regulatory pressure also underscores the importance of supply chain transparency, with governments in key demand-side countries now considering requiring companies to publicly disclose their deforestation risks. This May, the EU passed an historic anti-deforestation law meaning that, from 2025, commodities linked to deforestation won’t be able to enter the EU market. Companies that fail to comply could see fines of at least 4% of their EU wide turnover in the following financial year.

The UK Environment Act will also introduce tough due diligence regulations on companies, with financial institutions expected to be brought in soon through the upcoming Financial Services and Markets (FSM) Bill.

Aside from the regulatory repercussions of failing to disclose progress on deforestation, reputational risks are mounting. Global Canopy and Make My Money Matter research revealed that over half (55 per cent) of UK pension savers don’t want their savings invested in companies at risk of driving deforestation, with the topic consistently ranking as a top concern among savers, alongside other issues such as labour rights abuses and investments into arms manufacturing.

Global Canopy and Make My Money Matter research found

55%

of UK pension savers don’t want their savings invested in companies at risk of driving deforestation.

Driving change across forest-risk sectors

There is also increasing evidence around the financial risks associated with failing to act on deforestation. A UN Climate Change High-Level Champions report last year revealed that some of the world’s most valuable food and farming companies could lose up to a quarter of their value by 2030 if they do not adapt to new government policies and consumer behavior tied to the twinned climate and nature crises. Those who act now can mitigate the risk of value loss; transparently disclosing progress is a crucial part of showing stakeholders including customers and investors that this risk is being effectively managed.

Disclosing progress is just the start of the journey towards commodity supply chains that are free from deforestation, conversion, and associated human rights abuses. Every company and financial institution should be striving for radical transparency. This means complete transparency about every aspect of exposure to deforestation risk and impacts – including who companies are sourcing from, how much they’re sourcing, and the proportion of their volumes that are verified deforestation and conversion-free.

As more companies begin to publish information, we’ll begin to see network effects. Peers may realise that they share the same challenges, customers, suppliers and sourcing regions. Together, they can pool resources, leverage and learnings to drive change across forest-risk sectors.

With the window to avert the worst effects of climate change rapidly closing, transparency around deforestation in supply chains is a necessity. As investors increasingly look for data to understand company performance on deforestation and climate goals, the companies forging a strong future are those that publish clear policies and publicly and transparently disclose progress towards deforestation, conversion and abuse free production and sourcing.

This insight was originally published on the Forest 500 website. See the original article here.