International commodity trader Louis Dreyfus Company (LDC) has committed to “eliminate deforestation” and UK supermarket Tesco has committed to “help achieve zero net deforestation” in their soy supply chains.
LDC wrote: “We are fully aware that soy production comes with a cost. We are engaging with our stakeholders across the value chain to minimize adverse environmental and social impacts.”
LDC plans to shift its policy for sourcing soy along the entire supply chain, particularly in the Amazon. It will also help protect land in the Cerrado biome, a savannah which covers about 25 percent of Brazil. Moving forward, the company will buy its supply from only soy producers that provide evidence that they have abided with the Brazilian Environmental Registry. The company’s policy aims to “eliminate conversion of native vegetation in the Cerrado biome” with “a realistic target date to eliminate conversion from soybean supply chains in the Cerrado.” These goals appear to include all conversion, not just illegal deforestation. It should be noted, though, LDC is currently much less exposed to deforestation in the Cerrado than its competitors Bunge and Cargill. Still, this is a strategic move by LDC that may influence others in its peer group.
In a statement on its website, Tesco said that the company has “a role to play in protecting the environment—starting from understanding and addressing the impacts in our operations and supply chain. Doing so can increase our resilience to risk, help secure the supply of our products and provide opportunity to save money.”
Tesco is aiming to implement its “U.K. Zero Deforestation Soy Transition Plan” by 2025. To reach this goal, Tesco says that it will begin its transition this year and next, using credit schemes before moving onto mass balance certified soy by the end of 2020. Mass balance certified soy refers to a system that makes sure the amount of responsible soy that is sold is in “balance” with what is bought. And by 2025, although later than many other zero-deforestation commitments of 2020, Tesco plans to use soy from only supply areas that have verified that they are not undergoing deforestation for production purposes.
Tesco’s latest plans come on the heels of similar actions to curb deforestation. The company, a member of the Consumer Goods Forum, has participated in industry engagement to support farm level certification programs, while also complying with the Amazon Soy Moratorium, a voluntary agreement to ban converting forests to soy production in the Amazon. Tesco has also taken steps to reduce deforestation with other commodities. For instance, in 2012, it nixed its contract with beef exporter JBS after reports surfaced that it sourced livestock on deforested area in the Amazon.
Some of Tesco’s largest equity investors do screen their investments for deforestation risk, such as Norges Bank, the third largest shareholder (Figure 1 below).
Figure 1: Tesco’s top equity investors. Source: Bloomberg Terminal.
LDC is a privately-held company, and as such, faces less scrutiny than publicly-traded companies. The companies’ commitments add momentum to environmental and climate efforts in Latin America, particularly Brazil, where soy production has been a major driver of deforestation over the past two decades.