Q&A: why tackle harmful deforestation – and how?
Q&A: why tackle harmful deforestation – and how?
With around 80% of terrestrial biodiversity existing in forests, deforestation poses a critical threat.
It also has a broader impact on climate change, human rights and even global health, as the Covid-19 pandemic has brought to light through a suggested link with zoonotic disease (explained below).
If tropical deforestation were considered a country, it would be the third most polluting nation in terms of carbon emissions.
It is clear deforestation is a big issue, which is why Schroders is putting a focus on analysis and active engagement in this area.
What are the drivers?
The causes of deforestation include pasture for cattle, croplands for soy and palm oil and tree plantations for timber. Tropical forests hold more carbon than any other type of woodland and are home to the greatest diversity of species. They also face the greatest pressures from large-scale agriculture, with the bulk of tropical deforestation occurring in Brazil and Indonesia.
What are the main impacts?
Impacts include the loss of carbon sinks, reduced rainfall and increased risk of drought and human rights impacts such as displacement of indigenous people, workers’ rights and public health issues.
In Brazil, where deforestation accounts for close to half of the country’s carbon emissions, the Amazon region is already experiencing reduced rainfalls and shorter growing seasons.
Complex links between habitat destruction, human disturbance, land use change and biodiversity loss have been linked with increased prevalence of zoonotic disease, according to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES).
Zoonotic diseases are those transmitted between species, including from animals to humans, such as Lyme disease, rabies and coronaviruses.
What kind of products are associated with harmful deforestation?
More than half of global emissions associated with deforestation are the result of commodity drivers, according to the Intergovernmental Panel on Climate Change (IPCC).
Beef and leather and then palm oil are the commodities accounting for the biggest share of greenhouse gas emissions from deforestation.
Which are the main countries of production for these commodities?
The table below highlights the emissions produced from these commodities by their country of origin. In Brazil, cattle-related products and soybean production dominate, while in Indonesia palm oil and rubber account for the largest share of deforestation-related emissions.
But it’s not as simple as that, is it? Which are the biggest importers and exporters?
Looking at the country of production alone only paints a fraction of the picture, given the global and interconnected nature of supply chains. An analysis of deforestation-related emissions embedded within international trade highlights that Indonesia is the largest exporter of these commodities, given high levels of domestic consumption in Brazil. China is the largest importer, followed by the European Union and India.
Which sectors and industries are exposed?
The consumer staples sector, for example through household and personal products and food goods, has exposure from paper products for packaging. In the consumer discretionary sector, e.g. autos suppliers, textiles, hotels and leisure, exposure is from leather and rubber, wood pulp and timber and food commodities for restaurants. In the materials sector, exposure comes from timber and paper for containers and packaging.
What are our priorities for research and engagement?
Our research and engagement priorities for deforestation centre on: companies’ commitments and policies, governance and risk management, supply chain mapping and traceability, certification and targets and disclosures in line with emerging best practice.
What will we be looking for?
We will be calling on companies to improve disclosure around forest-related risks. We hope to raise corporate awareness, encourage knowledge-sharing on best practice and increase transparency across industries that are exposed. We will seek to differentiate between leaders and laggards in this area to help investors form decisions.
How will we determine leaders and laggards?
We have built a scorecard that measures companies’ exposure to and management of forest-related risks, using publicly available data from a range of sources. This scorecard will give a quantitative indication of company exposure and performance, which we can then build upon through dialogue with a number of key companies.
- Getting through market volatility via thematic investing
- Google, Facebook: how we are acting to protect digital rights
- Amazon workers’ rights: how we will vote at 2022 AGM
- Podcast: What is net zero and why does it matter to investors?
- Podcast: my pathway to a career in ESG: how can you upskill?
- Why should investors care about waste management?
The contents of this document may not be reproduced or distributed in any manner without prior permission.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.
This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.