A record 1,043 companies have disclosed deforestation-linked risks, but are still not acting to mitigate them effectively, according to an assessment by the environmental non-profit CDP. On average, companies face losses of US$330 million due to risk exposure, while the cost of dealing with this risk is just a fraction, at US$17.4 million.

When added up, the total risk amounts to nearly US$80 billion in total. Meanwhile, the complete cost of responding to all identified risks is only US$5.9 billion (reported by 342 of the companies).

Keeping on this current timeline would lead to “catastrophic” economic and environmental costs, warns CDP. only one in ten companies disclosed that they were near to eradicating deforestation from their operations and supply chains.

The findings come a week after the World Resource Institute (WRI) announced that an area the size of Switzerland was cleared from Earth’s most pristine rainforests in 2022.

Over 1,000 companies – many from the F&B sector, which continues to be tied with deforestation activity – disclosed their progress on managing deforestation through CDP in 2022. This figure is an increase of 300% since 2017.

Around 90% of disclosing companies are not prepared for the transition to a deforestation-free future, despite incoming regulation from UK and EU, flags CDP.

“It was a record-breaking year for companies disclosing their impacts on forests, which is encouraging for transparency,” comments Thomas Maddox, global director of forests and land use at CDP.

“The results show companies are becoming ever more aware of the risks and opportunities addressing deforestation represents, but we continue to see a gap between commitments and tangible actions,” he warns.

“Deforestation is not a requirement of commodity production. The eradication of deforestation from commodity supply chains makes economic and environmental sense but requires appropriate financial and policy incentives to prioritize action.”

Deforestation is seen by many as the “new coal” in financial portfolios, underscores CDP.

Calling time on inactivity
Companies that are slow to act on deforestation will face the highest costs, warns CDP. Meanwhile, financial institutions delaying their activity will miss out on opportunities and risk stranded assets and significant financial losses.

Last week, a separate report from the University of Maryland revealed that tropical primary forest loss worsened in 2022 despite international commitments to end deforestation, losing 10% more primary rainforest in 2022 than in 2021. Some of the loss was found adjacent to cocoa farms and had a pattern of small-scale clearings likely associated with cocoa production.

CDP stresses that companies from North America are the most exposed to forest-related risks due to poor performance on addressing deforestation, while companies across Europe are performing better on setting deforestation targets and engaging with suppliers.

Deforestation is seen by many as the “new coal” in financial portfolios, underscores CDP.

More than 60% of companies surveyed by CDP disclosed some sort of risk caused by continued deforestation, such as shifts in consumer preference or increased severity of extreme weather, but less than 10% had a robust public commitment to end deforestation by 2025.

only ten companies have committed to ending deforestation while ensuring good social conditions and remediation are in place. 

Of the four sectors with the highest impacts on forests, the retail sector has the poorest performance for putting deforestation commitments into practice.  

“No single industry is showing exceptional performance on addressing deforestation, but materials companies are performing better across the KPIs than others, with the retail industry performing the worst across most KPIs,” details CDP.

Pool of respondents
Data was reported by over 1,000 companies, making it the most comprehensive, standardized dataset on corporate deforestation risk exposure and management. 

This represents a 300% increase over the past five years, a welcome sign that companies are beginning to recognize and disclose their impact on forests, in line with voluntary frameworks, standards and incoming regulation from TNFD, ISSB, EU and the UK.

However, despite this incoming regulation, less than 200 companies disclosed risks associated with regulation through CDP.

Companies disclosed over 50 different risk drivers across four main types of risk; physical, reputational, technological and regulatory. 

“Companies were also aware of the opportunities that come from managing deforestation with over 227 companies disclosing increased brand value as an opportunity and 151 recognizing an increased demand for certified material,” highlights CDP.

Indonesia leads pace of deforestation decline
Indonesia – historically entrenched in land-clearing activities for palm cultivation – is now leading the world in reducing deforestation rates, according to statistics from the WRI. 

WRI’s most recent data shows that Indonesia has reduced its deforestation rate in primary forests by 65% since 2015, which is more than any other country over the same period.

In the EU, an incoming law to combat deforestation has offered promise, but there are chances it may fail to achieve the global impacts regulators expect unless the UN delivers a complementary framework to support it.

The annual economic gain from a deforestation-free future is estimated at US$895 billion by 2030, with the biggest driver of that gain being a reduction in environmental costs of US$440 billion a year.

“Inaction from companies makes no economic or environmental sense. Financial institutions must put pressure on companies to mitigate risks,” underscores CDP.

But as we stand today with the current data amassed, the non-profit argues that the financial impact related to risk is still “vastly underreported.”