By Matt Piotrowski
Matt Piotrowski explains how new analysis from Climate Adviser’s Latin America Responsible Deforestation Rankings shows it pays to take deforestation seriously.
Deforestation is on the rise throughout Latin America and regional commodity companies may be the ones who truly need to take action. These companies, some of whom may perpetuate deforestation, will see increasing risks to their bottom line with the enhancement of physical climate change risks and shifting investor priorities.
To evaluate how companies are responding to deforestation and to create greater engagement around Environmental, Sustainability and Governance (ESG) policies we worked with S-Network Global Indexes to establish the first Latin American Responsible Deforestation Ranking.
Companies that are high in the rankings have ESG scores that point to integrating supply chain best practices into their operations and should be considered part of the solution in the coming decades in handling deforestation risks. Our latest review period assigned the following companies the highest rankings:
How we established the rankings
The analysis measured best practices in strategic or operational policies that reduce exposure to deforestation. The Rankings incorporate Thomson Reuters ESG data, along 25 “social” indicators, 29 “environmental” indicators, and 23 “controversy” indicators.
The research creates a metric for companies to incorporate more robust efforts to limit deforestation and other climate risks, produce commodities legally and sustainably, and protect local communities.
How does deforestation increase risk?
Connections to deforestation expose companies to a variety of risks, including financial, market access, reputational, stranded land, and legal. For instance, companies that operate in Brazil are coming under pressure due to their links to deforestation. Investors could divest their shares from companies connected to deforestation, consumers could stop their buying products, and regulations may lead to stranded assets in the future, which would undermine their long-term valuations.
Tying ESG performance to the bottom line
Our rankings do not take into account financial performance. However, sustainability and profitability do not need to be at odds, and in fact, they can complement each other. For instance, in our simulation of Southeast Asian palm oil companies’ performance, firms that adapted transparency and sustainability measures through membership in the Roundtable on Sustainable Palm Oil (RSPO) outperformed those that have not joined the certification scheme by approximately 25 percent since 2012. Those findings point to investors shifting money from “grey to green” will likely be rewarded with higher returns and financial stability.
Global investors are beginning to pay more attention to ESG factors, and their inclusion is becoming more mainstream. Globally, sustainable investing now accounts for $31 trillion, which makes up approximately 10 percent of total wealth. As ESG investing grows, investors will take into account the impact of climate change on companies’ operations and profits.
Investors can use ESG analysis, like the Latin American Responsible Deforestation Ranking, to engage with companies and pressure them to implement policies to mitigate deforestation and other climate risks and become more durable as the global economy shifts toward more ambitious sustainability goals.
To learn more about the ranking methodology or the impacts of deforestation reach out to email@example.com.
This analysis was produced by Climate Advisers as part of the New York Declaration on Forests Platform.
This project is part of the International Climate Initiative (IKI). The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative on the basis of a decision adopted by the German Bundestag.