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Indonesian Forest Fires, Amazon Tipping Points, and the Business Case for Investing in Reforestation
November 26, 2015
Businesses have a central role in addressing the forest issues that are in today’s headlines—including the Indonesian fires (which emitted more CO2 in three weeks than the entire German economy in a year), and the Amazon forests, which may be at a tipping point with serious water and climate implications both regionally and globally.
This role of business, however, is more expansive than what is commonly perceived today.
The focus today is on companies making zero-deforestation (or even zero net deforestation) commitments. And a growing number of well-known companies have made such commitments through the Roundtable on Sustainable Palm Oil (RSPO), including Hershey’s, Johnson & Johnson, Kellogg’s, Nestlé, Mars, Starbucks, Unilever, and WalMart.
While essential, these zero (or zero net) deforestation commitments—through sourcing and supply chains—are hardly the end of corporate engagement on forest issues.
Both expectations and leading practices on corporate engagement with forest issues are broadening—beyond sourcing and supply chain management, to include active investment in reforestation and ecological restoration. The reason cuts to the core of mitigating business risk. Landscapes need plants or trees to prevent erosion, improve soil productivity, diminish flood and landslide risk, sequester carbon, and provide numerous other (ecosystem) services. Absent restoration, businesses will face a growing number of landscapes with ecosystem malfunction risk, which in turn will translate into business risk.
The idea of a business investing in ecological restoration, and reforestation, is increasingly accepted. For example, leaders in the beverage industry, such as Coca-Cola and ABInBev, have experienced a similar arc related to water issues and now invest outside of corporate fence-lines in planting trees and restoring meadows to improve watershed structure and function. Both the Beverage Industry Environmental Roundtable (BIER) recommends restoration work, and the CEO Water Mandate recommends a watershed approach to considering corporate water risk and opportunity.
Also indicative that corporate engagement on forest issues is broadening and investment in reforestation is increasingly on the agenda are the actions of companies less tightly tied to agricultural inputs and landscapes. For example, Apple has invested in 36,000 acres of forestland in the United States “to create and protect the types of sustainably managed forests that produce virgin fiber for paper and packaging.” The company ultimately aims to protect as much as 1 million acres of responsibly managed working forests, so as to have “zero net impact” on forests of its paper use. TD Bank has invested in protection of nearly 3,000 hectares of North American forest through the TD Forests program, bringing the total to nearly 13,000 hectares since 2012. Puma, and parent company Kering, is investing in forest restoration through domain of forest carbon and REDD+ (Reducing Emissions from Deforestation and Degradation), through its work with Wildlife Works. The list goes on, including companies increasingly seeking to mitigate risk or gain business advantages from investing in green infrastructure and natural capital, which often includes forestlands.
These corporate actions are supported by an increasingly robust business case based on the growing number of studies that link proactive corporate management of environmental, social, and governance (ESG) issues with better financial performance over time. For example, a 2012 Deutsche Bank Group publication, based on review of 100 academic studies, found that “ESG factors are correlated with superior risk adjusted returns at a securities level.” A 2014 report from University of Oxford and Arabesque Partners presented findings from analysis of 190 studies, in which 88% showed that “companies with robust sustainability practices demonstrate better operational performance". A 2015 Generation Investment paper summarized additional studies of this ESG and financial ROI positive relationship, and recommended an approach for investment decisions which is in line with “our conviction that sustainability risks and opportunities directly affect long-term business profitability.”
The bottom-line of this research (in every sense of the term) is that fiduciary responsibility of corporate leaders and boards can now be linked to proactive management of ESG factors — of which addressing forest-related risks are a key part.
Scrutiny of corporate impacts on deforestation, as well as dynamics that contribute to ecosystem malfunction risk, is on the rise — as is clear from initiatives that range from WRI’s Global Forest Watch through CDP’s Forest Program.
The take-away is simple: Companies that seek to mitigate forest-related business risks will need to address both sourcing and supply chain drivers of deforestation, as well as impacts that contribute to ecosystem malfunction—which means investing in restoration and reforestation of forested landscapes.
This systems-thinking approach to considering corporate risk and opportunity is the basis for investing in reforestation and ecological restoration. Deforestation issues are about climate risk, water risk, and human well-being. Without investment in reforestation, the risk will grow.
Think about the situation in Indonesia and the Amazon. When the Indonesian fires are put out, large swathes of denuded landscape will remain; unless there is significant investment in reforestation. And, at the edges of the Amazon, there already are hectares of bare soil — eroding with every rainfall or windy day.
It is no one’s best interest to have these lands sit without restoration. And public funds tend to be insufficient for the task at hand. Enter the opportunity for collaborative initiatives and partnerships for restoration, as a business risk mitigation strategy.
This systems thinking approach to corporate risk, fiduciary responsibility, and investment is taking root. Forest advocates continue to shine a light on the broadly acknowledged linkage between forest, land use, and climate change issues, such as at the upcoming Paris climate change negotiations. For corporate leaders, the opportunity is to stay ahead of the change in a way that shows robust management of ESG factors. Committing to zero (or net zero) deforestation sourcing and supply chain is the first step. The next step is corporate investing in partnerships that restore forest landscapes, and in the process decreasing business risk.