Strategic Intelligence: Deforestation Risk

Historically, public pressure and reputational concerns have driven deforestation action. However, new regulations will now force companies to take account of the risk posed to them by the deforestation to which they contribute, both directly and indirectly.

Key Highlights

• The landmark EU deforestation regulation (EUDR) will require companies to prove their supply chains are deforestation-free or face hefty sanctions. Companies must be prepared for this regulation, which comes into force in December 2025. Other regions are scrambling to respond to the EUDR, either with similar regulations or by supporting their exporters.
• Companies should implement a comprehensive deforestation strategy to minimize the risk they face. Setting robust targets, engaging with stakeholders across the supply chain, and investing in technology to monitor deforestation will all help mitigate deforestation risk.

Scope

• Deforestation is the removal of trees from the land so that either the land or the trees can be used for other purposes, like agriculture or construction. Anthropogenic deforestation (forest loss caused by humans) and forest degradation (the destruction of a forest’s ability to perform ecosystem services) have climbed steadily over the past few decades.
• Deforestation drives climate change, weakens ecosystem services, and reduces biodiversity. To prevent this, governments are increasingly regulating it. Most deforestation occurs in a small number of countries to aid the production of a small number of commodities. However, new regulations will hold any company whose supply chain involves deforestation accountable. Any company that uses deforestation-intensive commodities will face elevated risk.
• This report includes analysis of the economic and environmental impacts of deforestation, an overview of the global regulatory landscape, and deforestation risk profiles for 12 industries.

Reasons to Buy

• While previous efforts to halt deforestation have focused on consumer campaigns, we are entering a new era of deforestation regulation with serious financial implications for companies. The analyst’s Deforestation Risk framework combines this regulatory risk with physical, reputational, and financing risk. This report also contains our five key recommendations for mitigating deforestation risk.