With a new year, a new decade and new levels of investor attention in play, global commodity traders should resolve to address their material risks from deforestation and disclosure their progress on no-deforestation commitments.
Following the devastating fires throughout the Amazon, Australia and Southeast Asia in the last few months, major food companies face increasing pressure from investors and consumers to tackle deforestation in both their direct operations — and beyond. Accordingly, these companies are examining their supply chains and ending or suspending partnerships with agricultural commodity traders who cannot ensure their products are produced in ways that don’t contribute to deforestation.
But it’s not just food companies themselves, but also commodity traders that face material risks from deforestation and investors need to be aware of the traders’ influential role — and what they’re doing — or failing to do — to disclose their progress on this issue.
Ceres’ new benchmark analysis, released today, found that many commodity traders don’t sufficiently address their material deforestation risks, leaving investors mostly in the dark. In fact, our analysis reveals that 10 of the world’s most influential soy and palm traders, in particular, have not effectively disclosed their quantitative progress towards eliminating deforestation in their supply chains.
Image credit: Ceres
Commodity traders’ disclosures — or lack thereof — matter because soy and palm traders are the often-invisible middle players between food suppliers and the consumer-facing food brands that people see on their supermarket shelves. Traders’ unique market position within soy and palm supply chains gives them influence over how these commodities are produced.
Here’s how: The soy and palm ingredients found in popular food and household products have to travel thousands of miles and change many hands. Soy and palm are harvested, passed through refineries or crushing facilities, and then stored in collection ports before reaching the production line at a major food manufacturer. Through every shipment of soy and palm to a food company, trading companies get a say in how those resources are grown and harvested.
The traders’ commitment-to-action gap is troubling for investors given the revenue risk from potential contract disruptions. As reported by several media outlets in the past month, Nestlé SA stopped buying Brazilian soybeans from the agricultural trading firm Cargill, after it failed to meet traceability requirements. In order to assess a company’s risk-mitigation efforts, investors also need to be able to understand traders’ progress on their own no-deforestation commitments.
But the major traders aren’t yet meeting this investor need on disclosure, despite having these public commitments. Archer Daniels Midland, for example, states that it has created and implemented a no-deforestation policy with the aim of “ensuring the protection of important natural ecosystems.” Sime Darby, a Malaysian trading company, affirms that it is not only committed to no-deforestation standards for palm, but also that its operations now “deliver to standards that go beyond those commitments.” Similarly, in its Living Landscapes Policy, Olam seeks to eliminate unacceptable land practices, including deforestation. Yet none of them disclose quantitative progress towards their commitments. This gap echoes the findings in our broader 2019 deforestation report, Out On a Limb, which found that of the 500 global companies that have no-deforestation commitments, only 21 effectively disclose their progress towards those commitments.
In 2020, investors will increasingly concentrate their engagement efforts on commodity traders, asking them to disclose their progress on two key aspects of no-deforestation progress:
What annual percentage of the commodity produced or purchased is in compliance with no-deforestation principles?
What annual percentage of the suppliers of the commodity are operating in compliance with no-deforestation principles?
This important step forward on disclosure by traders will allow companies downstream in the supply chain to deliver on their own no-deforestation commitments. Progress from the soy and palm commodity traders will drive better no-deforestation performance all the way to the supermarket shelves. The positive impact on forests could be immense. Consider that, on average, an area of tropical primary forest the size of New Hampshire and Massachusetts, combined (over 43,000 square kilometers), was lost every year between 2014 and 2018.
So, with a new year, a new decade and new levels of investor attention in play, global commodity traders should resolve to address their material risks from deforestation and disclosure their progress on no-deforestation commitments.