‘It’s about managing risk’: Food industry urged to tackle deforestation in soy

By Food industry urged to tackle deforestation in soy

- Last updated on GMT

Deforestation in Brazil for soy crop ©iStock/Phototreat
Deforestation in Brazil for soy crop ©iStock/Phototreat

Related tags: deforestation, Soy, Greenhouse gas, Global warming

Food makers need to do more to manage the risk presented by deforestation in their soy supply chains, an investor coalition has said.

A group of 57 investors with more than €5.6 trillion in assets under management have called on companies operating in the food system to disclose and eliminate deforestation risks associated with their soybean supply chains.

Global production of soy is around 370 million tonnes currently (up from 270 million in 2012 and 130 million in 1996). The Food and Agriculture Organisation of the United Nations (FAO) expects demand to reach 515 million tonnes by 2050.

The vast majority of soy, 80%, is produced in just three countries – the US, Brazil and Argentina. In Latin America, clearing land for soybean production is a major contributor to deforestation. The Brazilian Government estimates that carbon dioxide emissions associated with conversion of the Cerrado are equivalent to more than half the total emissions from the United Kingdom for 2009.

Protect long-term value

Action is needed to protect the long-term value of investments, the letter – signed by investors including BNP Paribas Asset Management and Rathbone – stated.

“While we recognise the important role of agriculture and soybean production to economic development and the livelihoods of farmers, we are also concerned that the environmental and social issues associated with unsustainable soybean production could have a material impact on companies that source the commodity.”

The statement was coordinated by the Investor Initiative for Sustainable Forests (IISF). IISF is a joint initiative led by sustainability non-profit Ceres and responsible investment proponent PRI, which aims to transform industry practices to eliminate deforestation from cattle and soy supply chains.

Julie Nash, director of food and capital markets at Ceres, explained that for investors the issue is really one of risk management.

“What they have seen is an increase in environmental activism. Deforestation presents a reputational risk and a market risk,” she said, pointing to advances in technology such as real time deforestation alerts.

“[The letter] focuses less on what they are morally obliged to do: we focus on it as a matter of risk,​” she told FoodNavigator.

Increasing consumer awareness of the topic presents a reputational risk for brands – while suppliers also face a market risk if they are associated with deforestation. “If you are supplying to brands such as Nestle of General Mills and you have deforestation in your supply chain you have a risk because they have the ability to cut ties with you,”​ Nash noted.

Added to this can be the possibility of future regulatory risks, she continued. “There is an emerging feeling that regulatory risk is real, There is the potential to introduce legislation.”

GHG emissions and global warming

ice caps global warming climate change Crédits maxmihai
©iStock/maxmihai

An important long-term risk is also the contribution that deforestation makes to greenhouse gas emissions and global warming, Nash continued.

Soybean production is a "top driver" ​for deforestation in the "hot spot" ​of South America, according to Nash. It is the second largest soft commodity driver of deforestation, she revealed. More than one million square kilometres of farmland worldwide is already dedicated to soybean production and production continues to expand to meet growing demand.

Ceres and PRI noted that the Brazilian Soy Moratorium, which was put in place in 2006, has reduced deforestation within the Amazon Biome. However, there is now “growing concern”​ that agricultural expansion and soybean production is leading to increased deforestation in other important regions and biomes within South America, such as the Cerrado and Gran Chaco, they warn.

The statement comes as the latest Intergovernmental Panel on Climate Change report calls on world governments to limit global temperature rise to 1.5-degrees Celsius to avoid the worst impacts of climate change.

“As a long-term investor, we consider climate change to be a systemic risk to our global investment portfolio and view the reduction of deforestation as one of many solutions to help manage our exposure to climate change risk,”​ said Beth Richtman, CalPERS managing investment director, sustainable investments program.

“Effective management and reduction of deforestation by our investee companies in their agricultural supply chains, such as soybean, is critical to reducing our portfolio exposure to climate change related risks.”

What should be done?

The letter’s signatories are calling companies to commit to eliminating deforestation risks within their entire soybean supply chain.

In the statement, the investors laid out several expectations for companies to meet including awareness and oversight of sustainability and deforestation issues at board level, and increased public disclosure on a wide range of issues including of scope 1, 2, and 3 (direct and indirect) greenhouse gas emissions.

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