Companies sourcing raw materials such as beef, soy, palm oil and biofuels are not fully aware of the deforestation risks in their supply chains.
According to the CDP Global Forests Report 2013, while there is a better understanding of risks and companies are reducing their potential contribution to deforestation, there are still many challenges. Firms that responded to the study last year improved their score by an average of 27 per cent in 2013.
But the study of 139 companies explained there are difficulties in tracing the source of raw materials, and the complexity and lack of transparency in supply chains are “major barriers”.
“Companies are asking for help in formulating steps to improve performance and sourcing guidelines as well as developing appropriate key performance indicators for work with supply chains,” the report said.
Respondents also pointed to a need for the demand for certified commodities to reach a ‘tipping point’ to increase quantities and reduce price. “The issue of who pays for certification is still a contentious one,” the study said.
Legal uncertainty and lack of government action are further barriers to the supply of certified commodities.
The report added: “There is a big gap between sector leaders and other disclosers; some companies are taking meaningful action to build traceable and sustainable supply chains, but slow uptake by producers and processors is hampering progress.”
CDP, previously known as the Carbon Disclosure Project, also raised concern about a number of respondents that have only partially completed a risk assessment process to understand where their exposure to forest risk commodities is found. “Clearly companies cannot manage their risk if they have not calculated it comprehensively,” said CDP.
The report added: “Very few companies cited security of supply and price volatility as operational risks in securing these commodities, which is surprising given recent extreme weather events, the increase in biofuels as a competing use and commodity price spikes.”
CDP’s chief executive officer Paul Simpson said: “Many companies do not understand the full complexity of deforestation risks in their supply chain. But if no action is taken on this, there will be many more supply chain disasters like the horse meat scandal to undermine shareholder value.”
He added: “Many investors and companies have much to do to understand the risks arising from deforestation and related commodities: not only their contribution to global warming, but the regulatory, reputational and operational risks down the supply chain which have the potential for significant value creation and destruction.”