Our sample universe comprised a wide range of companies, with 46 based in the US, 32 in Europe and 49 from Asia. Market-capitalization size varied too, as did their value and growth tilt, industries and sectors, including technology, energy, manufacturing, retail and media.
We began by reviewing sustainable investment reports, whether specific to ESG or part of broader annual statements. Relevant words and phrasing such as “tree,” “forests,” and “cardboard” were flagged. Sections in which they were found were closely examined for context and materiality.
To help quantify deforestation exposure and risk levels, we sought to measure the percentage of an organization’s revenue that was dependent on key forest-risk commodities, as reported the prior year. Among companies with active forestation policies, we looked further into commodity sourcing and traceability, which we think speaks to a firm’s commitment and progress. That is, can the company trace commodities to their product origins, or at least to the point at which it can assure their compliance with its policies? Likewise, we asked to what extent suppliers were onboard with their policy.
The Takeaway: Deforestation’s Impact Still Underappreciated
Our analysis revealed a wide span of awareness and action plans surrounding deforestation risks, which seemed to turn up in practically every industry or sector represented.
For instance, deforestation risk levels among food producers, whose lifeblood is farmed ingredients, naturally scored high. But while an online retailer might seem to be less exposed, the picture changes when we see the vast acreage of canopy cleared to make raw materials for its products and packaging.
Interestingly, financial companies aren’t as removed from deforestation risk as they would seem. Our analysis showed that eight financial firms were exposed by association, though three—all US based—have limited policies in place, among them Charles Schwab.
Across the companies we surveyed, only about half had a forestation policy, which can cover a spectrum of initiatives to help undo the damage. For instance, reforestation entails planting trees or allowing them to regrow where forests stood until very recently; afforestation involves planting trees on stretches long devoid of forests; and forest restoration helps degraded forests recover their structure, ecological processes and biodiversity.
The universe included no companies directly tied to agribusiness, but 34% were tangentially connected. Despite their exposure, about 22% were short on any forestation focus. Among these were Genmab, the Denmark-based biotechnology firm, and Tencent, the Chinese multinational technology company. Tencent is, however, committed to eco-friendly operations, leveraging technology to promote sustainable use and protection of natural resources. For example, the company applies artificial intelligence and cloud-computing technologies to nature-based solutions to tackle digitalization and efficiency issues arising in the process of ecological conservation. And Genmab receives an A rating from Ethos ESG in the categories of access to affordable healthcare and child and maternal health.
Meanwhile, American Tower, a US real estate investment trust, and TJX Companies, a US retail group, both ranked high in deforestation risks but have strong programs to counter them. American Tower, which clears land to build and lease wireless communication infrastructure, has committed to replace each tree it removes with 50 throughout the US high plains and California. Through our research, we developed a framework that provides a good starting point for investors to assess a company’s exposure to deforestation risk and forestation policies (Display), which can help guide engagement efforts.