Leading consumer goods companies directly linked to deforestation: soybean, cattle, paper & palm oil risks potential threat to global supply chains

• 2020 industry-wide zero net deforestation commitment will not be met.¹
• Global staples from beauty to burgers, soaps and snacks face significant risk from climate-related price volatility.
• Palm oil has been the focus of deforestation efforts but risks from other commodities like soybean, cattle and paper have grown under the radar, with the potential to disrupt global supply chains. Certified volumes of palm oil still only account for 20% of global production.
• Current certification levels and traceability are not effectively tackling deforestation and urgent action is required by consumer goods giants upstream.
• European companies, Danone, Nestlé, Unilever and L’Oréal, lead with strong governance of deforestation risk.
• Restaurant Brands International (owners of Burger King), Tyson Foods and Kraft Heinz rank bottom.

November 18, 2019: The world’s global consumer goods companies, including Kraft Heinz, RBI and Tyson Foods, are off track to achieve sustainable consumption and production by 2030, and industry commitments to zero net deforestation by next year are now impossible, according to new research by CDP, the environmental non-profit and investment research provider.

The CDP Consumer Deforestation Report ‘No Wood for the Trees’ analyses 22 companies (3% of MSCI ACWI World*) according to scale and commodity use in the consumer goods sector, including Food Manufacturers, Personal & Household Goods Manufacturers and Fast Food Retailers. Due to their proximity to the consumer they face reputational risks from commodities linked to deforestation with potential risks to revenues. They also face operational risks from disruption in the supply chain, especially in Asia and South America.

Despite the net zero deforestation target for 2020 set by the Board of the Consumer Goods Forum, only eight companies were found to be deploying comprehensive forest and land-use management practices (including regenerative agriculture and soil management). This is at a time when changing consumer trends with a greater focus on transparency on sourcing, threatens traditional business supply chain models.

These global consumer-facing companies are particularly exposed to ‘soft commodities’ linked to deforestation, so called ‘Forest Risk Commodities’ (FRCs), with palm oil, soybean and cattle playing a major role in product formulation, whilst paper and pulp products are essential to product packaging and marketing. Even leading companies Nestle and Procter & Gamble have acknowledged that they will fall short of the 2020 deforestation goal. CDP’s research shows that just three companies achieved 100% certification in palm oil and just one in timber.

Whilst companies’ ambitious targets indicate they understand the need for action on deforestation, none are taking concrete steps to significantly reduce deforestation risk in their supply chains. European companies Nestle, Unilever and L’Oreal, with larger reported revenue and supply risks related to FRCs, focus on sustainable production innovations and have more robust governance of deforestation-related risks. But not all stakeholders are considering the hidden use of FRCs within their supply chains.

Companies like Tyson Foods and Restaurant Brands have indirect exposure to soymeal through animal ingredients and there is insufficient labelling for animal derivatives in consumer goods (including bovine). These FRCs represent as much as 30-40% of procurement costs for some companies and margins could be significantly impacted by price volatility or increased price differentials between certified and non-certified products.

Carole Ferguson, Head of Investor Research, CDP commented: “When it comes to deforestation and consumer goods, the go-to is palm oil. Revenue exposure due to palm oil can be significant. 45% of companies reported revenue dependencies of at least 20% on palm oil. But leading global consumer goods companies need to look closer at all the hidden risks they are running across their supply chains and scratch below the surface. As we approach our planetary boundaries much more needs to be done upstream. These companies are well placed in the value chain to act and fast. That starts with full and deep transparency of supply chains for companies to hold producers to account and provide consumers with full sourcing and product visibility.”

CDP's League Table of companies in the consumer goods sector:

Close to 90% of global palm oil production is concentrated in Southeast Asia in low lying land exposed to coastal flooding, which could jeopardize global supply and risk further deforestation inland. But substituting palm oil with other types of vegetable oil could inadvertently lead to further deforestation. Companies need to look at ways to eliminate deforestation from their supply chains through a combination of traceability, certification and engagement with all supply chain actors to mainstream sustainable agriculture practices.

The report finds that leaders in the sector, like Unilever, L’Oreal and Mars recognize these risks and are driving competitive advantage through product innovation and establishing sustainable agricultural practices direct with small holders. The report also shows significant developments in plant-based foods and a change in supply chain models that bring consumer goods manufacturers closer to the field. McDonalds performs significantly better than other fast food retailers Yum! Brands and Restaurant Brands by actively engaging with its suppliers and has robust risk management systems in place. Restaurant Brands, Tyson Foods and Kraft Heinz come bottom due to exposure to land-intensive cattle and weak performance on forest risk commodities disclosure.

Due to their position in the value chain, consumer goods companies face unique risks and opportunities resulting from their proximity to the consumer. From a risk perspective, they are highly exposed to changes in consumer preferences and reputational risks compared to upstream industrials. This proximity however, gives them the opportunity to engage directly with consumers and drive behavioral change to shape the markets into which they sell, ensuring the relevance and longevity of their brands.

Ling Sin Fai Lam, Senior Research Analyst at CDP and author of the report, said: “From plant-based meat alternatives to the move away from plastic in favor of paper-based packaging, consumer trends are impacting global supply chains and ultimately our forests. This report shows consumer goods companies’ responsibility does not stop at transparency and certification.”

“Smallholders manage 80 percent of the farmland in sub-Saharan Africa and Asia, and we are seeing companies actively looking at transformative innovations to shorten the supply chain, working directly on smallholder initiatives. With increasing pressure to feed a growing population and protect the planet, companies and their customers are looking beyond their headquarters to the field.”

To read the summary of the report please visit our website.

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Notes to the editor

1) Information on the Consumer Goods Forum’s zero net deforestation resolution:

*The MSCi ACWI captures large and mid- cap representation across 23 developed markets.

Companies featured in this report are among the largest in their sectors and have been chosen based on the scale of their businesses and commodity use. They account for 3% of the MSCI ACWI World companies by market capitalization. Companies are listed in Europe, the U.S. and Japan; all with global operations and most with a large and growing presence in emerging markets.

About CDP

CDP is an international non-profit that drives companies and governments to reduce their greenhouse gas emissions, safeguard water resources and protect forests. Voted number one climate research provider by investors and working with institutional investors with assets of US$96 trillion, we leverage investor and buyer power to motivate companies to disclose and manage their environmental impacts. Over 8,400 companies with over 50% of global market capitalization disclosed environmental data through CDP in 2019. This is in addition to the over 920 cities, states and regions who disclosed, making CDP’s platform one of the richest sources of information globally on how companies and governments are driving environmental change. CDP, formerly Carbon Disclosure Project, is a founding member of the We Mean Business Coalition. Visit https://cdp.net/en or follow us @CDP to find out more.

The report

This research is part of a series of award-winning in-depth sector analysis by CDP to provide investors with the most comprehensive environmental data analysis. It aims to identify the most material metrics for each specific sector and how they link to financial performance. Our methodology is unique as the weighting assigned to each metric is transparent and can be applied individually according to investor preferences. These rankings are not intended to identify definitive winners and losers for investment purposes, but rather to indicate strategic advantage in an industry where there is a significant regulatory impact on all major markets.

Reports on the oil & gas, steel, cement, automotive, electric utilities, chemicals, mining and capital goods industries were released in 2015, 2016, 2017,2018 and 2019.

¹ 2010 Consumer Goods Forum resolution