By Gabriel Thoumi
This case studies series examines the potential business risks for companies that source commodities from areas with deforestation. The series spotlights three companies (IOI Corporation, JBS, and United Cacao) and summarizes the business risks and negative financial consequences that the three companies faced.
- IOI Corporation was suspended from the Roundtable on Sustainable Palm Oil (RSPO) because of 11,750 hectares of land cleared illegally by its Indonesian subsidiaries. With the suspension, RSPO prohibited IOI from selling crude sustainable palm oil (CSPO). This prompted 27 of IOI’s largest corporate buyers to suspend procurement contracts with IOI, leading to a drop in its net income.
- United Cacao’s illegal deforestation was a leading indicator of the broader corporate governance issues, culminating in its winding-up in July 2017. Its expansion plans conflicted directly with government regulations against deforestation – a risk the company itself identified in its bond issuance. On January 4, 2017, United Cacao’s nominated adviser resigned its role, leading to the suspension of trading of its equity on AIM and its bond on the NEX Exchange, and the delisting of United Cacao from the AIM on February 6, 2017.
- The case of JBS demonstrates the cascading effect of uncovering actions that generate reputational risk. Investigations by Brazilian authorities into JBS have produced accusations of bribery, financial and accounting violations, labor standards and illegal deforestation. The accusations of deforestation provided additional reasons for investors and trading partners to be suspicious of JBS’ reputation. The cascade of scandals forced JBS to delay its initial public offering (IPO) for its foreign operations through JBS Foods International.