With a new European Union zero-tolerance deforestation law set to take effect, several major investors have expressed concern over their exposure to the issue. Some have even gone so far as to say that they may stop investing in consumer goods makers with “risky” supply chains. The new rule, agreed upon by the EU in December, aims to prevent the sale of commodities linked to deforestation, such as coffee, beef, soy, rubber, and palm oil, into its market. Companies must prove that their supply chains are not contributing to the destruction of forests or face fines of up to 4% of their turnover within an EU member state.
One such investor, Germany’s Union Investment, a top-10 investor in consumer goods companies, has said that it will scrutinize the supply chains of the companies in which it invests. The company has already divested from some firms due to their links to deforestation. Other investors, such as Norway’s Storebrand and France’s BNP Paribas Asset Management, have also expressed concern and are urging companies to take action to reduce their exposure to deforestation.
The issue of deforestation has become increasingly pressing in recent years. The destruction of forests is a major contributor to climate change and has devastating effects on biodiversity. In addition, deforestation can have serious social and economic impacts, particularly on indigenous communities who rely on the forests for their livelihoods.
The EU’s new law is part of a broader effort to combat deforestation and promote sustainable practices. The EU has pledged to halt deforestation by 2030 and has committed to supporting sustainable supply chains through its flagship initiative, the European Green Deal. The EU is also working with partner countries to promote sustainable land use and reduce deforestation globally.
For companies, the new law presents a significant challenge. Many companies have complex supply chains that span multiple countries and involve numerous suppliers. Ensuring that these supply chains are free from links to deforestation can be a daunting task. However, companies that fail to take action risk losing market access to the EU, one of the world’s largest consumer markets.
Some companies have already taken steps to address the issue. Nestle, for example, has committed to achieving zero deforestation in its supply chain by 2022. The company has also pledged to work with suppliers to improve their practices and has established a monitoring system to track progress. Other companies, such as Unilever and Danone, have made similar commitments.
However, there is still much work to be done. A recent report by the Forest 500, an initiative that tracks the deforestation policies of companies, found that only 10% of the 350 companies assessed had policies that adequately addressed deforestation. The report also found that many companies were failing to disclose information about their supply chains, making it difficult to assess their exposure to deforestation.
The EU’s new law is expected to increase pressure on companies to take action. The law is set to take effect in 2023, giving companies time to prepare. However, with deforestation continuing at an alarming rate, there is a growing sense of urgency around the issue. Investors are increasingly demanding that companies take action to reduce their exposure to deforestation, and consumers are becoming more aware of the impact of their purchasing decisions.
In conclusion, the EU’s new zero-tolerance deforestation law is a significant step in the fight against deforestation and climate change. It presents a major challenge for companies, but also an opportunity to take action and demonstrate their commitment to sustainability. Investors and consumers are watching closely, and companies that fail to take action risk losing market access and damaging their reputation. The time for action is now.
