New research from global environmental non-profit CDP finds that companies using palm oil in their products are vastly underestimating their deforestation risks, compounded by the lack of transparency among upstream companies in the supply chain. CDP’s new report “The Palm Book: Tracking progress on sustainable palm oil commitments in Indonesia” is based on self-reported data from nearly 100 companies that produce, source or use products made with Indonesian palm oil. Of the 543 companies that disclosed this year, 96 reported producing or sourcing palm oil – or products containing palm oil – from Indonesia, representing a 20% increase from 80 companies in 2018 and an incredible 50% growth from 64 companies in 2017.
However, a significant number of companies still don’t report the financial impact of their risks. Only one third of all companies (33) reported the potential financial impacts associated with substantive deforestation risks in 2019, representing US$4.9 billion in losses if risks aren’t managed.
While reputational risk (67%) continues to be the most frequently reported risk, companies sourcing palm oil from Indonesia are underestimating the physical (20%) and regulatory risks (19%) in their operations. Alarmingly, more than 10% of companies still don’t consider deforestation in their risk assessments.
Companies are increasingly aware of the scale of deforestation risks and are starting to build the governance structures to manage them. 91% of the companies that use palm oil from Indonesia in 2019 reported having board-level oversight of forest-related issues, reflecting a growth from just 69% two years ago. Initiatives like the Sustainable Development Goals are increasingly used as a framework for managing deforestation. Still, CDP’s 2019 data shows that only one third of companies (33) have adopted a policy committing to eliminate deforestation and land conversion. Whether the goal is sourcing certified palm oil or establishing traceability, just under 20% of companies report that they are on-track to meet their 2020 targets.
The lack of transparency is the main challenge in assessing the contribution of commitments from the private sector. Despite the increase in the number of companies reporting on their use of Indonesian palm oil, disclosures are still dominated by manufacturers and retailers located in North America and Europe. Increasing disclosure among upstream companies and producers where forests are located – including Indonesia – is vital to assessing progress toward targets to curb deforestation.The report also reveals a notable gap in technical and financial support from upstream companies to smallholders in scaling up the sector’s transition to sustainable palm oil production.
As the crisis of deforestation – primarily driven by commercial agriculture – continues to loom large, this latest research highlights that companies must address deforestation in their business as well as their supply chain by going beyond certification and engaging beyond direct suppliers to drive transparency and action.
Morgan Gillespy, Global Director, Forests at CDP, commented: “As the impacts of deforestation become an increasing concern to consumers and investors worldwide, the true level of companies’ commitment will be tested. Moving forward, more ambition and robust implementation that cover more entities and larger geography are critical to achieving no-deforestation commitment post-2020.”