Deforestation and Land Use Change

Issue Overview

Soil and trees hold a significant amount of carbon. The conversion of carbon rich environments such as forests or peatlands to lower-carbon uses such as agriculture is a significant contributor to greenhouse gas (GHG) emissions. 

Forests cover about 31% of the world’s land, or an area of just under 4 billion hectares. Though the annual rate of net forest loss has decreased by 50% since 1990, our planet still has lost about 129 million hectares of forest between 1990 and 2015, an area equivalent in size to South Africa. Most global deforestation occurs in tropical climates, driven by the conversion of tropical forest to agriculture. Brazil, Indonesia and Myanmar had the greatest annual net loss of forest area between 1990 and 2015.

Converting forests to annual crops or pastures impacts biodiversity and limits the capacity of natural ecosystems to provide benefits critical to agriculture, including water purification and retention, soil protection, pollination, and climate regulation.

Agriculture and livestock production also increase GHG emissions and degrade soil quality and structure as compared to shrubs and grasslands. Fires, which are the dominant method for clearing land, also degrade air quality.

Read Investor Primer on Non-Compliance Protocols: Ending Deforestation at the Source 

Read our Case Study Series: Business Risks from Deforestation

Read: "Zooming In" a February 2018 analysis by Forest Trends' Supply Change Initiative and Ceres about how companies that are committed to addressing commodity-driven deforestation are tracing supplies to their origin to determine the impact their supply chains have on forests.

Commodity Exposure to Deforestation and Land Use Change Issues

Priority Commodities

Among the most commonly sourced commodities profiled in Engage the Chain, deforestation and other land use change impacts are significant in the production of beef, palm oil, and soybeans. 

The following summarizes how the production of beef, palm oil, and soybeans contribute worldwide to deforestation and other land use change impacts. It is important to consider that the scale of the impacts depends on the practices used by individual producers, as well as regional and local conditions.

Beef

Worldwide, beef production is the major driver of tropical deforestation. In South America, from 1990 to 2005, beef production drove 71% of total deforestation. In addition, the production of beef and cattle feed (such as soy) drives deforestation in countries like Brazil. The impact of cattle production on land conversion is a critical issue when beef is raised in sensitive and important ecosystems. 

A 2014 report for Forest Trends concluded that 49% of all tropical deforestation between 2000 and 2012 was associated with illegal conversion of forests, and 24% was the direct result of illegal conversion for export markets. While significant effort has been made in Brazil in the last decade to cut this high rate of deforestation (for example, through collaborations like the Soy Moratorium), holding the line will require ongoing action to avoid further clearing of new land. 

Palm Oil

Deforestation and the loss of native vegetation is a critical issue associated with palm oil production. For example, due to its high deforestation rate, Indonesia is now one of the world's biggest emitters of GHGs, with approximately two-thirds of its emissions coming from land-use change and forestry. 

Soybeans

Deforestation and the loss of native vegetation is the most important environmental impact associated with soybean production. About 87 thousand square miles of Brazilian Cerrado were lost from 2006-2017, releasing 210 million tons of carbon dioxide, equivalent to 488 million barrels of oil. Soy-driven deforestation leads to the loss of biodiversity, which harms not only the health of the local ecosystem but also the local populations that depend on these natural resources to survive.

Business Risks from Deforestation and Land Use

Market

IOI Group’s revenue fell significantly after its certification from the Roundtable on Sustainable Palm Oil (RSPO) was suspended in April 2016 following RSPO’s ruling that it was not meeting the certificate’s standards nor adequately protecting peat areas and forests. This led to 27 major purchasers to suspend contracts with the IOI Group, including major brands Unilever, Kellogg and Nestlé.

IMPACTS

  • Reduction in revenue due to reduced contracts with buyers
  • Threat of downgrade by ratings agency

Reputational

Many leading brands have been the focus of campaigns by NGOs such as Greenpeace, Rainforest Action Network, SumOfUs, and Union of Concerned Scientists. In 2012, Greenpeace’s mock advertisement linking Nestlé’s palm oil sourcing to orangutan deaths was viewed by over 300,000 during its first day on the Internet. Cadbury New Zealand went from number one in brand trust to number 36 after public criticism over irresponsible palm sourcing in 2009. 

IMPACTS

  • Brand equity damaged due to consumer concerns and advocacy campaigns

Litigation

The Government of Indonesia has recently begun prosecuting publicly traded companies associated with air pollution produced by palm oil fires. On August 15, 2016, the Government of Indonesia fined Sampoerna Agro $81 million for 2014 forest fires on 3,000 hectares on its concessions in Riau Province, Indonesia. The $81 million fine is slightly less than Sampoerna Agro’s revenue in the first six months of 2016.

IMPACTS

  • Legal fees and monetary settlements for violating local laws and regulations

Priorities for Investor Engagement

Ceres’ Work to Drive Implementation of No-Deforestation Commitments: Corporate no-deforestation commitments are a critical step to ending deforestation in supply chains. Hundreds of companies have set 2020 as a deadline to meet their pledges, but have yet to disclose their progress in meeting these critical targets. As the deadline approaches, Ceres is supporting investors looking to drive corporate action at scale by providing information on progress, helping investors define outcome-based metrics and other key performance indicators to follow up on corporate commitments, and supporting a collective action ask from investors to companies.

Read Ceres’ Investor Brief on Disclosure of No-Deforestation Progress.

Ceres Investor Network on Climate Risk and Sustainability: This network is comprised of more than 130 institutional investors who collectively manage more than $17 trillion in assets. It works to advance leading investment practices, corporate engagement strategies and policy solutions to build an equitable, sustainable global economy and planet. The network engages directly with portfolio companies on environmental, social and governance (ESG) risks and opportunities through investor engagement tactics via multiple working groups, including the Shareholder Initiative for Climate and Sustainability (SICS).

Explore Ceres' Climate and Sustainability Shareholder Resolution Database.

Ceres-PRI Investor Initiative for Sustainable Forests (IISF): A joint initiative led by Ceres and PRI to transform industry practices to eliminate deforestation from cattle and soy supply chains. The IISF is led by an advisory committee of institutional investors across different geographies. Working groups within the broader initiative focus on individual commodities and enable investors to engage with companies in a collaborative manner alongside other investors. 

Read more about the Investor Initiative for Sustainable Forests.

Climate Action 100+: An investor-led initiative which engages the world’s largest corporate GHG emitters on taking necessary action on climate change. To date, more than 360 investors with more than U$34 trillion in assets under management have joined the initiative. More than a dozen companies on the Climate Action 100+ list are in the food and beverage sector, and investors are focused on ensuring these companies set robust scope 3 GHG reduction targets that include commitments to end deforestation in their supply chains.

Read more about Climate Action 100+.

Please contact Courtney Foster (cfoster@ceres.org) for more information on any of these investor engagement opportunities.