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.

Featured Reading

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

Beef
Cocoa
Corn
Dairy
Fiber Packaging
Palm Oil
Soybeans
Sugarcane
Wheat

Beef

high

Beef production is a major driver of deforestation globally. In Brazil, cattle ranching occupies about 80% of the deforested area in the Amazon, and it has led to the conversion of nearly 200 million acres of Cerrado habitat. 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), ongoing action to avoid further clearing of new land is required.
Cocoa

medium

To date, roughly 90% of West Africa’s primary forests have been destroyed. In Côte d’Ivoire, roughly a quarter of forest loss since 1970 is tied to the expansion of cocoa production. Cocoa production also drives deforestation in other parts of the world; for example, approximately 9% of commodity-driven deforestation in Indonesia has been attributed to cocoa production, and thousands of hectares of rainforest were destroyed in Peru to make way for cocoa plantations in recent years. Widespread poverty often motivates cocoa farmers to cut down remaining forests, including in protected areas, to increase their harvests and income. This has increasingly become an issue in recent years in the major cocoa growing regions in Côte d’Ivoire and Ghana.
Corn

low

Corn production has not been a major driver of deforestation.
Dairy

low

Soy feed for dairy cows can sometimes originate from deforested land. Rainforests are converted to farms to grow commodity crops such as soybeans for export to Europe and China as meal to feed dairy herds.
Fiber Packaging

high

Wood harvested illegally is a legal and reputational risk
Although the use of recycled fiber is slowly increasing, the paperboard industry's primary source of fiber is still forests and tree plantations.
Palm Oil

high

Palm oil production has been a major driver of deforestation in Indonesia and Malaysia. In Indonesia, from 2000 to 2010, the total harvested palm area grew dramatically, tripling to 6 million hectares. Of this, 500,000 hectares was observed to be from peat swamp deforestation. The draining and burning of these carbon-rich peat soils can emit up to 30 times more GHG emissions than simply clearing the forest. Due to its high deforestation rate, Indonesia is now one of the world's largest emitters of GHGs. Approximately two-thirds of its emissions come from land-use change and forestry.
Soybeans

high

In the Amazon, an area of the world that plays a vital role in regulating the global climate, soybean production has historically been a major driver of deforestation. In the Cerrado grasslands, a global biodiversity hotspot that stores substantial amounts of carbon and is a key source of the water critical for Brazil's agricultural productivity, soybean production has already contributed to the conversion of more than half the savannah. Estimates predict the possible destruction of a further one-third of the Cerrado by 2050 if current conversion rates continue.
Despite efforts made to reduce deforestation in the Amazon (such as more intense monitoring and the Soy Moratorium in Brazil), the risk of land conversion for soy production continues to be significant. In fact, after a noticeable deceleration in deforestation rates between 2004 and 2012, there has now been a serious uptick. Land conversion and deforestation to grow soybeans in other biomes, such as the Cerrado (where 60% of Brazilian soy is grown), is also expected to remain a material business risk. Since the current Brazilian law (the Native Vegetation Protection Law) still allows for legal conversion of land in the Cerrado, various efforts are underway to stem the ongoing rapid conversion of this critical ecosystem. These efforts include collaborative announcements like the Cerrado Manifesto and other initiatives to restore degraded lands. While the Soy Moratorium in Brazil and other factors have helped to reduce soybean production in the Amazon, the loss of important native vegetation 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. Since the current Brazilian law (the Native Vegetation Protection Law) still allows for legal conversion of land in the Cerrado, various efforts are underway to stem the ongoing rapid conversion of this critical ecosystem. This includes collaborative announcements like the Cerrado Manifesto and other efforts to restore degraded lands.
Sugarcane

low

Sugarcane production has not been a major driver of deforestation.
Wheat

low

Wheat production has not been a major driver of deforestation.

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 6,800 square miles of Brazilian Cerrado were lost to soy plantations 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

For additional examples of risk, download the Case Studies on Business Risks.

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.

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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.

Commodity Exposure to Deforestation and Land Use Change Issues

Beef

Cocoa

Corn

Dairy

Fiber Packaging

Palm Oil

Soybeans

Sugarcane

Wheat

Beef

Cocoa

Corn

Dairy

Fiber Packaging

Palm Oil

Soybeans

Sugarcane

Wheat

Priority Commodities

Beef

Palm Oil

Soybeans

Business Risks from Deforestation and Land Use

Market

Reputational

Litigation

Priorities for Investor Engagement