Dozens of the largest fast-moving consumer goods companies (FMCGs) have pledged to combat deforestation in recent years. Many did so as part of the Consumer Goods Forum (CGF), which in 2010 set a goal of achieving net-zero deforestation by 2020 by responsibly sourcing soy, palm oil, paper and pulp, and cattle. Many also endorsed the New York Declaration on Forests (NYDF), which set goals of at least halving deforestation by 2020 and ending it by 2030.
Many of these companies will most likely fall short of their goals. A report recently published by Climate Focus concludes that companies are not on track to meet their targets set under the NYDF, as efforts “lack ambition and remain isolated.” Similarly, this analysis by Chain Reaction Research (CRR) concludes that main FMCGs are not on track to achieve their 2020 goals. In fact, CRR has found that six of the 10 FMCGs considered in this Chain are sourcing from some of the top deforesters in Southeast Asia.
With deforestation levels remaining high and becoming a greater climate concern among lawmakers, media, NGOs, and investors, failure to achieve these goals makes companies vulnerable to reputational and material risks. In a report published in May, CRR showed how companies handle reputational risks can have a significant impact in their valuations. The difference between the leaders that are handling the looming 2020 deadline relatively well and those that are not may result in major differences in financial performance.
For the purposes of this analysis, CRR focused on publicly traded companies that have public deforestation-related or commodity-specific commitments and satisfy two further criteria: their sales put them in the top 30 global FMCGs and they are members of the CGF. Among those considered, Nestlé, Danone, Unilever, and General Mills stand out as those closest to meeting their targets.
Nestlé endorses the CGF goal of net-zero deforestation by 2020. The company was recently recognized, with Danone, as being a leader on zero-deforestation commitments in the food and beverage sector and has a five out of five rating from deforestation watchdog Forest 500. As of March 2019, the company reported that 77 percent of its palm oil, pulp and paper, soy, and meat was verified as deforestation-free, up from 63 percent in 2018. If the company can sustain that rate of progress, it could source more than 90 percent of these materials sustainably in 2020. However, these numbers obscure room for improvement on soy and palm oil. According to its most recent update on its deforestation commitment, 60 percent of Nestlé’s palm oil and 76 percent of its soy is “deforestation free.” Moreover, Greenpeace found that that the company still has significant exposure to deforestation in its palm oil supply chain, and CRR found, in an analysis published in August 2019, that it sources palm oil from three of the top ten deforesters in Southeast Asia. There are also questions as to whether Nestlé can source deforestation-free palm oil in Peru.
Danone endorses the CGF’s goal and has shown progress toward achieving it. The company reports that most of its soy comes from areas where deforestation risks are less prevalent. In Brazil, in particular, the company reports that soy enters its supply chain by way of the farms from which it sources milk. The soy used on these farms reportedly comes from Minas Gerais State, where, according to Danone, soy-driven deforestation risks are lower than in other Brazilian areas. Regarding the 20 percent of the soy in its supply chain that the company estimates may still be linked to deforestation, the company is working with farmers to transition to local soy or soy alternatives. It estimates that it will complete this transition by the end of 2020. In addition, Danone claims that 100 percent of its palm is RSPO certified (either segregated or mass balance). Finally, the company reports that 71 percent of the paper it uses is recycled and that 72 percent of the remainder is certified either by the Forestry Stewardship Council, the Sustainable Forestry Initiative, or some other certifying body.
Unilever supports the CGF goal but aims to go beyond it with a commitment to “sustainably source” 100 percent of all of its agricultural raw materials by 2020. However, the company admits it will not achieve this goal. Instead, it projects that it will reach about 70 percent sustainable sourcing by next year. Because the company is not on track to achieve its more ambitious goal, it has chosen to focus on 12 priority crops and commodities on which it can have the greatest impact. These crops and commodities include palm oil, paper and board, soy, sugar, tea, dairy, rapeseed, cereals, vegetables, cocoa, herbal infusions, and vanilla. By 2020, the company expects “to reach around 95 percent sustainably sourced for these key crops, and around 70 percent sustainable sourcing overall.” On palm oil, it claims it is on track to source 100 percent physically RSPO-certified palm oil in 2019. On paper and board, it claims that, at the end of 2018, roughly 98 percent came from certified sustainably managed forests or from recycled material and that it is on track to source 100 percent of its supply from these sources by 2020. On soy, the company reports that, while it has been sourcing 100 percent of its soybeans from physically RTRS certified sources since 2014, it currently sources only 72 percent of its soy oil from sources that are either RTRS certified (not all of it physically) or in the United States (where there is less deforestation risk). With these numbers, the company is close to achieving the CGF goal but likely to fall short on soy. Moreover, Greenpeace recently found that, like Nestlé, Unilever has significant exposure to deforestation in its palm oil supply chain.
General Mills has taken an approach similar to Unilever’s, aiming to sustainably source 100 percent of 10 priority ingredients by 2020. The company reports that it sustainably sourced 85 percent of these in 2018. Notably, however, the reported percentages are significantly higher for some of those commodities specifically mentioned in the CGF net-zero commitment. Since 2015, 100 percent of the company’s palm oil has been RSPO certified, and in 2018, 98 percent of its palm oil was physically certified (segregated or identity preserved). Similarly, General Mills reports that, in 2018, about 99 percent of its fiber packaging supply carried low deforestation risk, and a portion of the remaining one percent is sourced from suppliers certified by the Forestry Stewardship Council (FSC). Finally, the company reports that 99 percent of its soy and much of its meat comes from North America, where the risk of deforestation is less prevalent, and that only 0.1 percent of its annual meat buy comes from Latin America, where the risk is higher. Even so, with links to four of the top ten deforesters in Indonesia, the company faces exposure to deforestation through its palm oil supply chain.
By contrast with the four companies discussed above, a number of other companies are not close to achieving their 2020 zero-deforestation goals. This group includes L’Oreal, Procter & Gamble, Pepsico, Colgate Palmolive, Mondelez, and Coca-Cola.
Though it was recently lauded as a sustainability leader by CDP, L’Oreal appears poised to fall short of its goal of ensuring, by 2020, that none of its products can “be linked in any way to deforestation.” L’Oreal claims that its palm oil has been 100 percent RSPO-segregated certified since 2010, and that 100 percent of its palm oil derivatives have been RSPO-certified since 2012, with 54 percent mass balance and the rest book and claim. However, L’Oreal faces exposure to deforestation-linked palm oil based on its supplier list, and it sources from three of the top ten deforesters in Southeast Asia.
Moreover, L’Oreal appears to have made little progress on soy. In its latest annual sustainability progress report, the company reports that, in 2018, about 98 percent of the soy oil the company sourced from Brazil was “sustainable,” but this figure is ambiguous. Another company document on soy sourcing makes clear that “sustainable” means organic and traceable to source, but organic certification is connected not to the prior state of the land used for cultivation, but instead to the manner of current cultivation. Consequently, this figure is not tied to whether or not L’Oreal’s soy supply chain is linked to deforestation. At the same time, the same document also makes clear that the company’s Brazilian soy supply is “in the process” of being certified by the Roundtable for Responsible Soy (RTRS). L’Oreal is still sourcing soy from Bunge, which is exposed to deforestation through its sourcing from the Cerrado.
Procter & Gamble
Procter & Gamble does not have any general commitments on deforestation. Instead, it has commodity-specific commitments on pulp and paper and on palm oil. On pulp and paper, the company has confirmed that 100 percent of the pulp for its tissue/towel and hygiene products certified sustainable and 98.5 percent of the paper it uses for packaging either recycled or from certified virgin sources. On palm oil, however, Procter & Gamble is lagging. It claims that 100 percent of its palm oil and derivatives is RSPO certified. Most of its oil is certified using the RSPO’s mass balance program, which allows certified and non-certified palm oil to be mixed so long as the amount of certified sustainable palm oil sold is in “balance” with what is purchased. The company is aiming for 100 percent segregated certification of both palm oil and derivatives by 2020. However, only 5 percent of palm kernel oil the company sources is RSPO certified. It sources more than three times as much palm kernel oil and derivatives as it does palm oil and derivatives, meaning that the bulk of the company’s annual procurement is from non-certified sources. In addition, CRR recently found, it sources palm oil, palm kernel oil, or derivatives from one of the main deforesters in Indonesia.
PepsiCo is not on track to achieve its goal of “realizing zero net deforestation in [its] company-owned and -operated activities and global supply chains from direct supplier to source by 2020.” The company reports that, in 2018, 83 percent of its paper and fiber volume was certified “sustainable,” 52 percent of its palm oil was RSPO-certified, and it sources all of its soy oil from Brazil through Cargill and Bunge, both of which have exposure to deforestation in the Cerrado. Moreover, Greenpeace found that, like most of the companies CRR examined, PepsiCo still has deforestation links in its palm oil supply chain based on its supplier list.
Colgate-Palmolive endorses the CGF goal and has commodity-specific commitments on all four commodities mentioned in the CGF pledge. However, the company is not on track to meet its targets. It has made substantial progress only on palm oil, claiming that 70 percent of its palm oil certified by the RSPO and Rainforest Alliance. CRR recently found that the company sources palm oil from two of the top deforesters in Southeast Asia, and Greenpeace concluded that the company purchases from a large number of deforestation-linked palm oil suppliers.
Mondelez has been labeled a laggard in reaching zero-deforestation commitments. The company appears not to have any general deforestation commitments, and of the four commodities mentioned in the GCF pledge, Mondelez only has commitments on palm oil. The company has achieved its goal of using 100 percent RSPO certified palm oil and is making efforts to eliminate deforestation from its cocoa supply chain. However, it sources palm oil from fully half of the top-10 Southeast Asian deforesters and has wider exposure to deforestation through some of its other palm oil suppliers.
Coca-Cola has no public deforestation commitments, but in 2013, the company set a goal of “sustainably” sourcing 14 key ingredients, including soy, palm oil, and pulp and paper. Since then the company claims to have made progress, reporting that “the percentage of ingredients certified to a sustainable agriculture standard has grown from 8 percent to 44 percent.” On soy in particular, the company reports that 76-100 percent of its supply was “sustainably sourced.” However, though it claims to do so in its Sustainable Agriculture Guiding Principles document, the company does not clarify which if any relevant certifications it uses when it says its ingredients are “sustainably sourced.” Moreover, it is not currently reporting on palm oil or on pulp and paper.