Green Cats 2020 Update: Scoring Palm Oil and Soy Companies on Forest Policies and Transparency

INTRODUCTION

2020 was supposed to be the year that companies eliminated deforestation from their supply chains. Over the past decade, more and more companies, along with their investors, have labeled deforestation as an important ESG risk and forest loss as a major contributor to climate change. Being tied to commodity-driven deforestation could lead to many detrimental setbacks for companies, such as reputational damage, suspensions from buyers, regulatory pressure from consumer countries, and material financial losses. Key industry players have responded with commitments to reduce exposure to deforestation and increased their transparency.

Yet, despite zero-deforestation targets from many companies and the laudable goal of eliminating deforestation by 2020, they have fallen short. In fact, 2020 was not a good year for forests in key producer countries such as Indonesia and Brazil. In Indonesia, for instance, the new Omnibus Bill weakened environmental and worker protections, possibly paving the way for increased labor exploitation and land clearing for commercial development. Meanwhile, in Brazil, fires in both the Cerrado and Amazon were higher than the previous year as President Jair Bolsonaro’s administration continued to favor agribusiness over environmental protection. Along with government rollbacks, limited resources dedicated to environmental enforcement due to COVID-19, continued high demand for commodities, and lagging implementation among companies led to elevated levels of forest loss. Deforestation could remain high if these issues are not urgently addressed.

There are positive signs, however. In the investor community, inflows into ESG funds soared in 2020. The COVID-19 crisis reflected both short- and long-term necessity to ensure that portfolios are resistant to market shocks, whether from a global pandemic or climate change. Investors are also directly pressuring companies to mitigate risks associated with deforestation. During the summer, as fires raged through the Amazon and the Cerrado in Brazil, investors continuously expressed their concerns with government officials, decision-makers at companies, and NGOs. Nordea Asset Management divested from Brazilian meatpacker JBS over concerns about the company’s handling of COVID-19 and supply chain deforestation risk. Nordea’s action sends a signal, not just to JBS, but to all companies operating in commodity supply chains that accelerate deforestation. Others could take similar action. Over the summer, 30 financial institutions that hold more almost USD 4 trillion in assets sent a letter to the Brazilian government warning of possible divestment if proper actions are not taken to fight deforestation. Large investors are taking a stronger approach to climate, albeit slowly. For instance, BlackRock, which is the world’s largest asset manager and has a large exposure to agricultural companies, has not articulated a zero-deforestation policy, but it is engaging more aggressively with companies on ESG and climate risks. Meanwhile, some investors are taking even non-traditional paths of advocacy such as openly backing new technologies like satellite monitoring to boost transparency in supply chains.

Companies downstream in supply chains are also taking more measures to reduce deforestation by cutting off ties to certain sellers or excluding high-risk commodities altogether. One example is Grieg Seafood, a Norwegian feed company that launched a green bond in 2020 but will not allow any of the proceeds to be used to purchase soy from Cargill, due to its connections to deforestation in the Cerrado. This action came about a year after Nestle stopped buying from Cargill in Brazil. Meanwhile, this past year, 40 companies based in Europe including Tesco and Marks & Spencer, said they would boycott purchasing products from Brazil if the country passed land reform that would increase deforestation in the Amazon. Focusing on the Cerrado, Tesco, along with Nutreco and Grieg Seafood, founded the Cerrado Funding Coalition in order to raise funds to help stop deforestation in the biome, which lost 66 percent more natural vegetation from 2009-2018 than the Amazon. Traders, which have been the main target of criticism for their role in the soy market, have meanwhile taken steps to increase transparency, traceability, and dialogue with local farmers through their collaboration in the Soft Commodities Forum (SCF). The Consumer Goods Forum has published its first Soy Commodity Roadmap to help its members take steps to eliminate soy-driven deforestation and its associated risks from their supply chains. And in mid-December, a number of major consumer goods companies demanded that soy traders not source from deforested areas in the Cerrado starting in 2021, another sign of how rapidly stakeholders are pushing traders to become more vigilant against deforestation risks in their supply chain or possibly lose customers.

While governments of producer countries are weakening environmental oversight, consumer countries have stepped up their rhetoric and action on tackling deforestation. France continues to lead as it has set a goal to eliminate importing unsustainable commodities tied to deforestation by 2030. Others are following France. Germany plans to pass a bill in 2021 to implement higher due diligence standards in an effort to eliminate deforestation and human rights abuses in commodity supply chains. In the UK, the government appears poised to pass legislation to ban illegal deforestation in imports. Should this bill pass, it would be a watershed moment, but it ignores deforestation that takes place legally, still, a major focus of NGOs as the legal/illegal definition has become blurred amid the weakening of the Forest Code in Brazil and the actions of President Bolsonaro.

In 2020, there was an increased focus on the links between zoonotic diseases such as COVID-19 and deforestation. Commercial expansion of agricultural commodities heightens the risk of human-to-animal contact, increasing the chances of future pandemics. Given the economic devastation and the human toll caused by COVID-19, there could be increasing pressure on companies, and the investors and banks that provide them capital, to take even greater efforts to stop deforestation. If deforestation can be successfully curbed, the chances of a devastating pandemic like COVID-19 could lessen.

Curbing deforestation – which accounts for about 15 percent of global greenhouse gases – and other climate risks from agricultural commodities and biodiversity destruction are now seen just as vital as reducing the global economy’s reliance on fossil fuels in tackling climate change over the long term. In order to do this, investors, governments, companies, and NGOs will need to work together to provide increased transparency and traceability of risky commodities to inform decision-making that balances production growth in order to meet both consumer demand and sustainability efforts.

Forest Heroes Update

Forest Heroes has updated its assessment of actions companies have taken to eliminate deforestation in their soy and palm oil supply chains. We have analyzed which companies are making progress toward achieving policies to reduce their impact on deforestation.

This year’s Green Cats 2020 update – Green Tigers for palm oil production and Green Jaguars for soy – looks at 32 palm oil and soy companies. The Green Cats 2020 update assesses zero-deforestation policies and companies’ approaches to transparency and traceability in their efforts — or lack thereof — to reduce deforestation, peatland destruction, and labor exploitation.

Main Findings

The palm oil sector, as a whole, made headway in the past year, rising by about 8 points overall in scoring. However, some players saw their scores fall, reflecting the mixed progress the industry is experiencing.

  • – Golden Agri Resources leads the palm oil sector, yet it has seen a large number of RSPO complaints, a reflection of conflicting signals from the industry.
  • – Indofood’s score rose sharply in the past year, but it continues to come under fire for its treatment of workers, particularly since the COVID-19 outbreak.
  • – Vanguard, Dimensional, and BlackRock remain financiers of major players in the palm oil sector but have yet to develop zero-deforestation commitments.
  • – With deforestation risks from smallholders growing, the industry’s success in curbing deforestation in coming years will require effective plans to help this group through proper compensation and plans to mitigate risks.
  • – Leaders continue to adopt transparency and traceability measures as technology improves, which laggards need to include in their supply chains as the climate crisis becomes more severe.

 

Even though the soy industry has closed the gap with the palm sector, it continues to lag amid expansion in Brazil due to high exports. Exposure to fires and deforestation in the Cerrado, along with weak commitments that still allow for purchasing supply tied to legal deforestation, means soy producers and traders continue to see financial, market access, and reputation risks, with growing backlash from buyers, consumers, and investors.

  • – The soy sector’s average score rose by 25 percent versus last year’s report as traders have strengthened traceability and transparency.
  • – Soy traders have bolstered their traceability and transparency in Brazil through the Soft Commodities Forum (SCF), but there is a lot of room to develop bolder solutions.
  • – Soy traders scored well based on assessments of their commitments, but their overall scores were dragged down by reporting, implementation, and social considerations.
  • – ADM led the sector again this year, but its competitors closed the gap by strengthening their commitments.
  • – The soy industry should expand on degraded land instead of clearing areas for production. Traders should continue to work with farmers and provide support to them, as they have started to do through the SCF.
  • – Grieg Seafood’s decision to not use proceeds from its green bonds to purchase from Cargill and pressure from consumer goods companies on the group of major traders could be a harbinger of things to come for the soy industry. Traders could see even more demands from buyers, and even stricter regulation from governments, to tackle deforestation links.

Methodology

The scores for each company were produced by Global Canopy as part of its Forest 500 project. They are based on the following criteria:

  • – Each company’s commodity-related commitments;
  • – Implementation of those commitments;
  • – Monitoring and verification of progress, compliance, and controversies;
  • – Other social commitments, including commitments to securing the free, prior, informed consent of affected communities for development on their land.

More details on Global Canopy’s scoring methodology are available here.

COMPANY

2020 SCORE

2019 SCORE

79

87

79

80

79

74

75

73

75

61

75

68

74

71

72

39

72

59

72

72

72

83

71

60

71

87

78

55

67

72

66

66

65

26

62

67

58

0

53

48

41

26

8

11

0

0

2020 SOY FINDINGS

Soy companies are continuing to consistently lag those in palm oil. In our analysis, we found that scores of soy companies average 49, compared to the palm oil average of 64. Overall the soy industry is less transparent, and the sector has yet to develop a well-developed certification body or a process for suspensions of bad actors.

Major traders that are active in the Cerrado – which include ADM, Grupo Andre Maggi, Cargill, Bunge, LDC, COFCO, and Glencore Agriculture — have been linked to deforestation in Brazil. Even though they have zero-deforestation commitments, none have signed the Cerrado Manifesto and their focus has centered mostly on only illegal deforestation. They have come under pressure to increase transparency, ever since the fires in Brazil have gained widespread attention.

TABLE: SOY SCORES​

COMPANY

2020 SCORE

2019 SCORE

68

63

64

45

61

43

55

41

52

38

52

52

46

46

39

25

8

2