Prada, Walmart, Warren Buffett: Who leads, who lags on forests?

Prada, Walmart, Warren Buffett: Who leads, who lags on forests?

Forest 500 Nike, Gap, IKEA, Coach, McDonald's, Cargill supply chain deforestation
Forest 500
From Adidas to Walmart, a new supply chain deforestation ratings initiative called the Forest 500 lays out who leads and who lags on corporate forestry policies.

How do beef and soy policies stack up between the fast food industry's big three, McDonald's, Burger King and Wendy's? What about a ranking of transparency on deforestation issues among major retailers such as IKEA, Target, H&M, Walmart or a luxury goods company such as Prada?

As of Wednesday, it's possible to start answering those questions with the help of the new "Forest 500" online supply chain deforestation ratings system compiled by tropical forest think tank the Global Canopy Programme. The analysis cuts across industries to include companies exposed to deforestation-related risks with numerous types of commodities, from beef to soy to palm oil, paper and other resources.

The short version of the new findings: Businesses, investors, global governments and other entities exposed to risks associated with deforestation still have a really long way to go to clean up complex supply chains.

Mario Rautner, programme manager for the Global Canopy Programme, told GreenBiz that the less-than-stellar results "measure not just companies, but in a way society’s progress” (or lack thereof) on forestry issues.

Mario Rautner Global Canopy Programme
Mario Rautner, programme manager for the Global Canopy Programme.
Still, he added, "There are clearly operational risks that are being considered" for businesses, particularly when it comes to heightened economic anxiety about unpredictable commodity pricing or supply availability — especially when linked to scarce or degraded resources, such as water and soil.

The research effort also comes as supply chain traceability and transparency efforts ramp up across industries. In addition to cost and risk mitigation concerns, the trend is fueled by increased consumer awareness, improving supply chain data collection and analysis technologies and renewed interest from regulators.

The United Nations — along with signatories Asia Pulp and Paper, Unilever and Cargill — made perhaps the biggest wave in the forestry field in September with the New York Declaration on Forests aiming to cut deforestation of natural forests in half by 2020 and end it by 2030.

"The business case is there, especially with things like the New York declaration," Rautner said. "One of our conclusions overall is we need to speed up the transition to meet 2020.”

Leaders and laggards

To compile the new ranking, the Global Canopy Programme identified 250 companies, 150 investors, 50 jurisdictions and 50 other "powerbrokers" with the most direct power to alleviate or end tropical deforestation. Institutions were evaluated on a 100-point scale assessing components of their deforestation efforts, such as the strength of existing policies, enforcement mechanisms and transparency.

The 250 companies included in the rankings have combined revenues of $4.5 trillion and represent vastly different approaches to worldwide deforestation challenges.

Location of a company's headquarters in a developed nation, which tend to have more regulated forestry practices, particularly North America, was one predictor of how well a company performed. How much money a large company has to devote to sustainability is another precursor to stronger deforestation policies.

"Once companies surpass annual revenue thresholds of $10 billion, policy scores increase sharply," the report noted, "averaging nearly double that of companies below that value."

However, big names in the U.S., such as Wendy's, Target, Land O'Lakes, Domino's and Gap, still rank in the second-lowest tier for deforestation efforts, eclipsing only the worst offenders that hail mostly from the Asian agricultural commodities sector (Shandong Sunrise Group, Oriental Partners, PT Rajawali).*

In the middle of the pack were McDonald's, Nike, Staples, Coach, Hershey's and several others, many of which lost points for lacking a comprehensive forest policy or robust commodity-specific policies.

Here's an example of a Forest 500 profile scoring Nestle, one of only six companies — along with Groupe Danone, Kao Corp., Procter & Gamble, Reckitt Benckiser Group and Unilever — to rank in the top tier:

Nestle deforestation

The economic case for forests

Deforestation, at least in the context of global supply chains, isn't about tree-hugging. It's about economic self-preservation.

In addition to acting as "carbon sinks" that help offset emissions contributing to climate change, forest ecosystems provide raw materials that companies in sectors ranging from retail to agriculture depend on for daily operations.

In the U.S. alone, forests and the materials extracted from them support 2.4 million jobs, according to the National Alliance of Forest Owners.

Forests are "a critical piece of our green infrastructure," said Larry Felzer, president and CEO of The Conservation Fund and chair of the Sustainable Forestry Initiative, in a GreenBiz webcast Tuesday about company procurement standards for forest products.

But the threats plaguing forests vary widely in different corners of the globe.

In developing nations home to much of the world's tropical forests, such as China, India and Indonesia, illegal logging and sorely lacking regulation are still the norm.

Because illegal logging is already punishable by jail time in North America, several organizations are pursuing ancillary strategies to protect forests through various standards for processes such as land management and fiber sourcing — although some of those efforts also have stirred controversy about greenwashing

There's also the question of how capital may influence companies mulling new measures. Just as consumer-facing companies have tended to move faster to remedy supply chain deforestation, only the most publicly visible banks and pension funds have made significant progress.

“On the investor side, yeah, they’re clearly behind,” Rautner said, noting that not a single institution out of 150 investors analyzed had a comprehensive deforestation policy. “The ones that are scoring well for us are the banks — again, it’s the ones facing the public.”

Only HSBC ranked in the top tier of investors engaged in deforestation issues. Warren Buffett's Berkshire Hathaway ranks at the very bottom of the Forest 500 list, along with financiers such as Charles Schwab, State Farm Mutual Insurance and several Chinese and Middle Eastern investment funds.

A major asset manager upping the ante by enacting a new forest policy could be one way to get the ball rolling in the financial sector, Rautner said, as could increased attention on looming environmental risks such as stranded fossil fuel assets or devalued natural capital.

Seeding new solutions

When it comes to what businesses can do to amplify their impact in convoluted supply chains, both independent and collective action are on the table.

One approach is to streamline.

“You can have easily 60 or 70 supply chain steps,” Rautner said. “The big players realize that, and they try to simplify that by being much more integrated in their contracts.”

That's part of the reason he also argues for comprehensive forestry policies, rather than one-off initiatives around commodity trends of the moment, such as palm oil.

And there are companies broadening the scope of commodities covered by internal policies. After moving to implement 100 percent traceable palm oil by the end of 2014, consumer products giant Unilever this month announced new measures for sustainably sourced fruit, cocoa and tea used by brands including Breyers, Magnum and Lipton.

When it comes to paying for new deforestation efforts, the Walt Disney Company established new funding mechanisms in addition to initiatives to minimize paper use, eliminate irresponsible fiber and maximize recycling.

"We actually place an internal price on carbon," said Beth Stevens, Disney's senior VP of citizenship, environment and conservation, during the GreenBiz forestry webcast. She explainined that the company has "turned to forests as part of the solution to emissions and climate change."

The company has invested $48 million in carbon projects since 2008, including initiatives to conserve, manage and restore forests around the world.

Looking forward, Rautner is also encouraged by improving sensor technology to help collect more data about supply chains, although many of those tools remain expensive in their current early stage. There is also room for more personalizable tools to help project a company's risk of exposure to specific deforestation challenges or those concentrated in certain geographic areas.

Above all else, however, the trick will be making good on lofty discussions about saving the forests.

“You can have all the nicest policies in the world, but if you don’t implement them nothing will happen on the ground,” Rautner said. “One key issue that will solve a lot of the issues is traceability. Without actors knowing who supplies them and where the commodities come from, they can’t change.”

Learn much more about supply chain traceability in the 2015 State of Green Business report or at the upcoming GreenBiz Forum 15.