On Monday, over 100 global leaders committed $19 Billion to end and reverse deforestation. Over the past few years, many companies have been mentioned in our sentiment and news analytics with regard to deforestation, in both a positive and negative light. We use our ESG Safeguard platform to explore key players in industries that drive deforestation, consumer packaged goods and agriculture, to gauge the progress (or lack thereof) on their sustainability commitments.

By
Sam Leavitt
|
November 4, 2021

ESG Spotlight: COP26 Commitments, How Companies Measure Up

Article
ESG Spotlight: COP26 Commitments, How Companies Measure Up

At the 26th meeting of the UN’s Conference of the Parties, more commonly referred to as COP26, that is being held in Glasgow, world leaders gathered to discuss the future of Earth. A major takeaway of this conference was to end deforestation by 2030 with a commitment of $19B to achieve this. Carbon emissions are just one piece of the puzzle when it comes to Climate Change. Forests are the lungs of our planet, constantly filtering the atmosphere of carbon. Ending deforestation is another crucial tactic in the approach to preserving our planet.

Deforestation happens for a variety of reasons, but the two major contributors are the paper products and packaging segment that cuts down trees for raw materials, and agricultural companies clearing forests for farms and ranches. The issue expands to the finance sector as well and in February 2021 BNP Paribas (BNP:FR) announced that it would only work with clients committed to zero deforestation starting in 2025. Financial companies have a strong final say in who does and does not have access to lending, so they are able to work with their clients on issues with some say in these matters.

This week, we applied our ESG Safeguard platform to explore key players in industries that are driving deforestation: consumer packaged goods and agriculture, to gauge the progress (or lack thereof) on their recent sustainability commitments.

ESG Safeguard Platform: Deforestation Topic, Since 2018

Consumer Packaging Developments

Consumer Goods companies are one of the key drivers behind deforestation. The demand for wood pulp from trees to manufacture cardboard and paper is a primary input for a variety of products. Palm oil is also an area that contributes greatly to deforestation and is used in many consumer products.

To date, Unilever (UNLVR) has pledged to end deforestation in their supply chain by 2023, and has been working with the LEAF Coalition and Google to accomplish this goal. The LEAF coalition is a forest finance group that has raised over $1B to protect tropical forests. In addition, Unilever has been using satellite imaging from Google to monitor problem areas in their supply chain.

Procter and Gamble (PG) previously pledged to end deforestation in their supply chains by 2020, but that was not met. In October 2020 a shareholder resolution voted 67% in favor of a proposal for the company to increase efforts against deforestation. Just last month, Rainforest Action Network took a stance against the company and their measures on deforestation in another call to shareholder action.

"P&G needs to invest less in greenwashing and more in stopping deforestation and rights abuses,” — Maggie Martin, Sr. Forest Campaigner with Rainforest Action Network (October 8 2021)

While both companies operate in the same Consumer Goods segment, Unilever, at least publicly, has more transparent measures to stop deforestation by a set date, whereas Procter and Gamble has faced issues via shareholder activism over failing to act. It will be interesting to see where the COP26 funds will be headed in the near future and if these companies will have a role to play in that.

Agricultural Developments

Meat and agricultural products have long been a driver of deforestation as cocoa, and ranching led to land clearances for plantations and grazing space. JBS, Marfrig, Hershey, Nestle, and Bunge Ltd. have all appeared in connection with this issue on our ESG Safeguard platform.

JBS (JBSS3:BR) has been the most outspoken on the issue of deforestation and moved their commitment to end deforestation from 2035 to 2025. However, they also receive their share of criticism, as do the other companies mentioned. In May shareholders of Bunge (BG) voted for increased measures against deforestation. Marfrig (MRFG3) has faced past allegations for purchasing cattle from ranches that practice illegal deforestation. The company did launch a brand of meatless burgers in 2019 in an attempt to mitigate their impact, but it has failed to lessen the criticism they face. In general, the cattle industry has bad PR regarding climate change, linked to both methane emissions and deforestation.

In September 2018, Nestlé (NESN:CH), the world’s largest food and beverage company, pledged to eliminate deforestation in their supply chain by 2020. We discussed this more in the context of commitments in the agriculture space from our recent Climate Week Preview. Nestlé failed to achieve this goal, but in January of 2021 the company committed $3.6B over the next five years to improve their climate footprint, some of which will likely go towards addressing deforestation.

In March, Hershey (HSY) made a pledge to end deforestation by 2030, which is right in line with the COP26 agreement. It is worth noting that the cocoa supply chain is fraught with human labor concerns, as we covered in March 2021. Deforestation links to human rights violations, particularly for Indigenous Peoples and Local Communities.

Fool Me Once, Fool Me Twice?

On one hand, many of the companies we highlighted had moved their deforestation pledges up to 2030 or before the COP26 deadline. On the other hand, some of the companies have failed to achieve their deforestation goals in the past. It is likely that these companies will be involved in the efforts agreed upon in Glasgow going forward and will benefit, and maybe have access, to some of the financial resources being put forth by these governments.

Of the $19B earmarked for forest protection, $1.7B has been committed in support of Indigenous Peoples and local communities, who have always been stewards of the environment. This financial commitment supports the advancement of their forest tenure rights and both recognizes and rewards their role as protectors of nature.

Generally speaking, Unilever appears to have a better handle on the deforestation issue than some of the companies mentioned in this highlight, but there is much work to be done. Hopefully, these measures to protect forests will also be a call to action for corporations and governments to protect waterways and natural spaces in a more holistic way that is truly sustainable.

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About Amenity

Amenity Analytics is the industry leader in providing insights from unstructured text by using Natural Language Processing (NLP) assisted by Artificial Intelligence (AI) and Machine Learning (ML). Amenity’s NLP system is a sector-agnostic, language-dependent tool for quantitative text analysis that is deployed across the financial services industry and beyond.

This communication does not represent investment advice. Transcript text provided by FACTSET and S&P Global Market Intelligence.

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