Cellulosic fibres such as viscose and lyocell are derived from timber as the raw material

Cellulosic fibres such as viscose and lyocell are derived from timber as the raw material

Leading international businesses – including apparel and textile companies – are ill-prepared for the risk that comes from sourcing products linked to deforestation, a major cause of climate change, a new report claims. 

Instead, the companies appear confident in the sustainability of cattle, soy, timber and palm oil, despite the instability that comes from sourcing products from forests that are subject to climate disasters, government crackdowns and land conflicts with indigenous people.

A report just published by the Carbon Disclosure Project (CDP) on 'Revenue at risk: Why addressing deforestation is critical to business success,' found that despite a significant share of income being derived from commodities linked to deforestation, fewer than half (42%) of companies have evaluated how the availability or quality of these commodities will impact their growth strategy over the next five or more years. 

The production of forest-risk commodities such as timber, which is used as a source for cellulose-based textile fibres for the apparel industry, and cattle for its hides, can contribute to greenhouse gas emissions and social conflict, resulting in direct and supply chain exposures for suppliers and ultimately putting pressure on future revenues.

Companies surveyed reported that on average nearly a quarter of their revenues depend upon the four commodities, with as much as US$906bn in annual turnover potentially at risk.

The potential business risks linked to deforestation include impacts arising from the physical effects of climate change on the quality, availability and prices of commodities, tightening regulation, and brand damage from increasing media and civil society scrutiny of commodity sourcing practices. 

"Companies need to address the sustainability of products that drive deforestation quite simply to protect their balance sheets," says Katie McCoy, head of forests at CDP.

"Supply chains are like rows of dominoes: if unsustainable commodities enter the top of a supply chain, the effects will cascade throughout. Failing to address deforestation will have knock-on reputational impacts, manifesting themselves as consumer boycotts, community opposition, and increased regulatory scrutiny. Business growth is at risk."

Around 155 companies were analysed and provided data for the report, including Burberry, Coach, Hanesbrands, H&M, Inditex, Kering, Marks & Spencer, Nike and Tesco. Brands including Gap, Guess, L Brands, Polo Ralph Lauren, Target and Walmart didn't respond.

Indeed, more companies are recognising the benefits of scaling-up their forest-protection efforts. Marks & Spencer, in particular, is working to prioritise commodity sourcing from areas that are pursuing comprehensive forest climate programmes. In the CDP report, the company scored A- for its efforts on the timber it uses in apparel manufacturing. 

Kering also scored A- for cattle products and B for timber sourcing. Hanesbrands scored B for timber sourcing, while Inditex scored A- for cattle sourcing. 

Across the four commodities, round 72% of companies say they are confident they will be able to source these supplies securely and sustainably in the future. However, fewer than half (44%) of those with procurement standards monitor compliance with these standards and audit suppliers across commodities, only one in five assess deforestation-risks beyond a six-year horizon, and only 30% can trace these commodities back to the point of origin.

Companies reported that the key barriers they report to face in addressing these risks are: inadequate traceability systems; weak governance (and compliance enforcement) of national deforestation policies; and limited availability of certified materials and their costs. 

CDP says "bolder corporate action" is needed if revenues, resilience and future growth are not to be put at risk, particularly as the industry approaches 2020 when many corporate deforestation goals and commitments are due to be met.

"More than ever before, deforestation needs to be firmly on the boardroom agenda," says Paul Simpson, chief executive officer at CDP. "With a clear financial dependency on these forest risk commodities, growing investor expectations, a changing regulatory environment, and the rise of consumer campaigns impacting brand reputations, companies' deforestation actions are under intense scrutiny. Long-term profitability is at stake." 

In particular, it calls on companies to improve their internal processes, move the responsibility for deforestation risk management into the boardroom, work with their supply chains, and collaborate with their peers. 

Click here to get access to the full report.