Facing up to the risks of illegality in your supply chain

Helen Burley

Almost half of all tropical deforestation is due to the illegal conversion of forests for commercial agriculture, according to a new report from the New York Declaration on Forests Assessment Partners, with forests most often cleared to make way for the “big four” commodities: timber, soy, cattle, and palm oil. What does this mean for companies sourcing commodities from these areas — and how can they ensure they do not have illegal deforestation in their supply chains?

The scale of the problem

Improving Governance to Protect Forests, the new report on progress on Goal 10 of the New York Declaration on Forests reviews nine major tropical forest countries to assess progress in tackling illegal logging and deforestation and related governance issues.

New York Declaration on Forests Goal 10:

“Strengthen forest governance, transparency, and the rule of law, while also empowering communities and recognizing the rights of indigenous peoples, especially those pertaining to their lands and resources”

It finds that “the violation of laws in agricultural production remains alarmingly high” in countries with the high rates of commodity-driven deforestation.

And in “75 percent of major timber producing-countries and all of the largest soy, beef and palm oil producing countries, there are significant risks of one or — in most cases — multiple laws being broken in producing these commodities.”

Not surprisingly, countries with “weak forest laws…, insufficient enforcement and high levels of corruption experience higher rates of deforestation than countries with stronger legal frameworks and institutions”.

The risks for companies

This is worrying news from companies sourcing timber, cattle, soy or palm oil from tropical forest regions as it suggests that unless they have good oversight of their supply chains, there is a high risk that some of the commodities they source come from land that was illegally cleared.

No company likes to be associated with illegal activities, and the risk of being linked to illegal deforestation (and the related climate emissions) should sound alarms bells for those concerned with protecting the company’s reputation.

But commodity supplies sourced from illegally deforested areas also make a company’s supply chains vulnerable. Land that has been illegally converted to agriculture could be seized by the authorities, or supplies could be disrupted. When the Brazilian authorities cracked down on illegal deforestation in the Cerrado as part of Operation Soy Sauce, they seized 84,000 sacks of grain grown on illegally cleared land.

What can companies do?

Tackling illegality in the supply chain is not easy. But that problem is even harder to address for companies who do not know where the commodities they source come from.

The report highlights that a current “lack of transparency and poor traceability in agricultural commodity supply chains” is part of the problem. Many companies in supply chains are reluctant to share data, and the report finds that “the information they provide is often vague, incomplete, or buried in sustainability reports”.

To identify problems in their supply chains, retailers and consumer goods companies need to obtain information from their suppliers on their sources. Transparency tools, such as Trase, and the use of satellite data can also help identify where supplies may be linked to illegal clearance, as well as helping to identify other issues related to sustainability.

Forest 500, which ranks companies on their commitments to address deforestation risks in their supply chains including on their traceability. Aligned with the Accountability Framework Initiative guidance, the methodology requires traceability back to the plantation for trading companies, and at least to first importer for retailers and consumer goods companies. But if an importing company is not able to guarantee compliance, these retailers and manufacturers need to dig deeper to be sure they are identifying and mitigating the risks.

Some progress has been made — for example, some of the big companies have now started to disclose supply chain information, with Nestlé, for example, disclosing the mills used to source palm oil. Companies who share supply chains can benefit from working together on this to share resources and efforts.

Gaining a sustainability advantage

Knowing where their supplies come from not only gives companies peace of mind, it also ensures that they are able to access markets where legislation covers the protection of forests in supply chains.

In timber markets, the US Lacey Act, and the European Union’s FLEGT legislation is designed to prevent illegally sourced timber and timber products from being sold in these markets.

Consumer country governments are increasingly looking at ways to ensure that their consumption is not responsible for deforestation in tropical countries, as illustrated by the new French strategy on combatting deforestation. Legislation for other commodities could be one way forward.

Companies need to stay ahead of the curve by making sure their supply chains are not only free of illegal deforestation, but free of all deforestation if they are to be sustainable.

Photo shows forest cleared for palm oil in Indonesia, photo: Rainforest Action Network viaflickr.com, creative commons licence