Supply chain sustainability for zero deforestation

Sustainability considerations in supply chains are becoming more evident. Not so long ago, this may not have been a top priority for companies, and they could be forgiven for not fully engaging with corporate sustainability issues in their supply chain. Now, however, they need to know how and from where their raw materials are being sourced, how their products are distributed, what materials are being used in their products, and how their role in the global supply chain could potentially have an impact from an environment, social, and governance (ESG) perspective. 

Compliance with sustainability goals isn’t easy to achieve, even within a single organization. Therefore, it follows that ensuring compliance throughout the supply chain is very complex. One particularly important issue relating to environmental and social aspects is the company’s impact on deforestation. 

Why does zero deforestation matter?

Around 1.6 billion people rely on forests for their livelihood. Forests are home to 70 million indigenous people. They also host almost half of the species on land, and therefore hold the most biodiversity on the planet. Forest and nature-based solutions also contribute significantly to carbon emission reductions because forests act as huge carbon sinks. Estimates suggest that they can deliver a third of the emission reductions needed by 2030. According to WRI, forests absorb a net 7.6 billion metric tons of CO2 annually.  

The problem is that as fast as one section of society takes steps to reduce global warming, other sections of society are actively causing deforestation for commercial purposes – one group essentially offsetting the positive work done by the other. This, of course, can accelerate climate changes such as global warming. Deforestation is also a significant cause of landslides, floods, and natural calamities, as well as potentially causing problems for indigenous communities. It’s also associated with urbanization without green space. 

Evidently, then, eradicating deforestation would very obviously help companies improve their environmental standards. But ending deforestation also supports aspects of social and corporate governance policies too. After all, deforestation is one reason why many populations – including large indigenous populations – are at risk of loss of food, resources, and forest-related income.

What’s the major cause of deforestation?

The Global Forest Watch highlights four major causes of deforestation as the commercial production of certain commodities: cattle, soy, timber, and palm oil. The CDP estimates that $941 billion of revenue in publicly listed companies depend on these four commodities. 

The net result is that forests are disappearing at an alarming rate. In 2021, a total of 3.75 million hectares of tropical primary rainforests were lost. Supply chain sustainability is therefore rapidly moving up both corporate and governmental agendas. 

Regulations on supply chain sustainability

Governments around the world have introduced regulations and initiatives to ensure no products of deforestation enter the supply chain. However, we’re still a long way from achieving net zero deforestation. 

The EU regulations on deforestation-free products (Regulation (EU) 2023/1115), which came into force on 29 June 2023. It prohibits companies from trading products that cause deforestation or land conversion on the EU market. The Regulation applies to six products and their derivatives: cattle, soy, timber, palm oil products, coffee products, and cocoa products. Companies have an 18-month transition period to conduct due diligence and comply with these regulations. 

As a result, as of 30 December 2024, companies will have to provide a due diligence statement before placing products on the EU market. The statement will need to include the quantity of product(s), the location where they are being produced, and legal and deforestation-related information. The aim is to ensure that only deforestation-free products are placed on the market. Companies will therefore have to: 

• Gather information about products involving deforestation in the supply chain
• Conduct a risk assessment and formulate mitigation measures with input from indigenous people
• Document all findings and due diligence policies
• Appoint a compliance officer and independent audit function to manage non-compliance risk

Governments are also keen to tackle deforestation at source. Environmental issues were fundamental to the Brazilian presidential election held in 2022, with Luiz Inácio Lula da Silva winning the election having pledged to work to eliminate illegal deforestation.  

Finding the right balance for sustainable supply chains

It’s important to note that not all deforestation is illegal. Some forest-rich countries have provisions for legal deforestation. This is mainly to remove trees for harvesting as part of forest management, where trees are expected to regrow naturally or with the help of silvicultural forest management. This adds to the complications of delivering sustainable supply chains and zero deforestation. 

Blanket laws against deforestation-related products could pose significant problems to small and medium-sized businesses, which are often the main source of income in local communities. For example, if a law prohibits companies from using raw materials that are related to deforestation, a lot of small-scale businesses might not be able to comply because of financial, technical, and legal constraints. Community-based suppliers might have difficulty meeting global sustainability requirements and could go out of business. This could in turn have a domino effect on local people living in and near forest areas.  

Compliance with mandatory and voluntary sustainable supply chain requirements has the potential to deprive people at the root level of their livelihood. Additionally, the self-sufficiency of whole communities might not lead to sound social governance and may not be sustainable. 

Social issues may not yet have the immediacy of environmental problems, but imminent sustainability regulatory requirements mean that companies now need to address these issues if they’re not already doing so. There’s growing awareness about these social issues that shouldn’t be ignored, but providing alternative initiatives and time for small businesses to prepare for any changes might be necessary going forward.  

Delivering supply chain sustainability and zero deforestation

So, what should companies do to prepare for new regulations relating to supply chain sustainability (EU CSDDD), particularly regarding zero deforestation? 

Sustainable sourcing is the key to managing and minimizing deforestation. For example, using only certified products could ensure that businesses know they’re complying with critical environmental and social standards – both mandatory and voluntary. 

The introduction of new sustainability reporting requirements will ensure that companies ask suppliers to implement deforestation-free sourcing policies. Companies must focus on having a more robust and systematic approach to managing these issues throughout their supply chains. This will no doubt require leadership roles to work with multiple stakeholders to drive collective action. Providing resources, leadership and a systematic approach to include these stakeholders within the supply chain is critical to delivering sustainable supply chains.