Deforestation and Land Use Change

Issue Overview

The land’s soil and plants hold a significant amount of carbon. The conversion of carbon rich environments such as forests or peat lands to lower carbon uses such as agriculture is a significant contributor to greenhouse gas pollution. 

One of the most visible examples is deforestation, the destruction of carbon-rich forest for other land use purposes. Forests cover just under 31% of the world’s land, which is an area of just under 4 billion hectares. Since 1990, our planet has lost about 129 million hectares of forest, an area equivalent in size to South Africa, even though the rate of net forest loss has been cut by 50 percent since 1990. Most global deforestation occurs in tropical climates with Brazil, Indonesia and Myanmar leading the countries with the greatest annual net loss of forest area. Although the rate of forest loss has declined, the absolute area covered by forests continues to decline primarily due to conversion of tropical forest to agriculture.

Converting forests to crop or livestock production impacts biodiversity and reduces the capacity of natural ecosystems to provide benefits critical to agriculture, including watershed and soil protection, as well as pollination and climate regulation. Deforested watersheds, for example, suffer from decreased streamflow regulation and water infiltration.

Similar to deforestation, converting shrub lands and grasslands to agriculture and livestock production affects biodiversity, increases greenhouse gas pollution and degrades soil quality and structure. In addition, fires, which are the dominant method for clearing land, degrade air quality.

Commodity Exposure to Deforestation and Land Use Change Issues

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

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, fiber-based packaging, 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 progress 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

The rapid and poorly managed expansion of production of palm oil is causing large scale deforestation and significant GHG emissions from clearcutting/burning tropical forests. Most palm oil is grown in Indonesia and Malaysia, where its production is the leading driver of deforestation and habitat loss of endangered animals. In these areas, between 1990 and 2010 industrial palm oil plantations grew by 7-8 percent each year, with "more than two-fifths of that was planted on cleared forests, and the rest on land already cleared for farming."

Soybeans

Deforestation and land use change are salient region-specific issues associated with soybean production. It is a significant driver of greenhouse gas emissions and contributes to the decline of healthy ecosystems in key regions of South America such as the Cerrado.

The three main ecoregions most affected by soybean production in South America are the Amazon Basin, Atlantic Forests, and the Brazilian Cerrado. In the Amazon, which plays a vital role in regulating the global climate, soybean production has historically been a major driver of deforestation.

While the Soy Moratorium in Brazil and other factors have helped to reduce soybean production in the Amazon, deforestation in the Brazilian Cerrado, which is not covered by the Moratorium, and where 60 percent of soy is grown, is expected to remain a material business risk. Roughly 50% of the Cerrado’s 2 million km2 has been converted to agriculture and pastures, representing almost half of all of Brazil’s agro-pastoral land. If unchecked, the trajectory of deforestation in the Cerrado will continue. Only 7% of the Cerrado is legally protected and there are at least 40 million hectares of land available for legal deforestation, making continued exploitation of this region, rather than the much more protected Amazon, likely in the coming decades. Land clearing in the Cerrado requires less physical labor and machinery than forests like the Amazon, as the trees are smaller, roots are easily tilled and a long dry season allows for quicker clearing with the use of fire.

Priorities for Investor Engagement

Ceres Investor Initiative for Sustainable Forests: The Investor Initiative for Sustainable Forests works with investors to assess investment risks and opportunities associated with deforestation and develops effective strategies for engaging with companies whose practices contribute to global greenhouse gas emissions.