Deforestation at the depot: Can shareholders stop the matter?

July 07, 2022

Recently there has been a string of shareholder votes in favour of companies taking action to strengthen deforestation commitments and report on progress. Last year, investors at Bunge, an agriculture and food company, voted overwhelmingly in favour of the company taking stronger action to address deforestation in its supply chain. In May this year, The Home Depot shareholders also supported a resolution in favour of the company producing a report on its links to deforestation, and a full study into the certification standards of its wood suppliers, despite management opposition. Green Century Capital Management, an environmentally focused investment fund behind the resolution, stated that, “Companies that do not adequately mitigate deforestation and forest degradation in their supply chains are vulnerable to material climate and reputational risks.” Fighting deforestation is no longer simply a matter of saving the forests for the sake of it, but a salient business issue for shareholders.

Previously, The Home Depot was lagging in this area. Not only had it not committed to rigorously evaluating imports of wood, but it only required some products to receive deforestation risk certification from third-party evaluators. Furthermore, it had not responded to CDP’s Forest Questionnaire. Ahead of the annual meeting, the company’s board recommended that shareholders vote against the fund’s proposal, saying that the work would not boost forest protection, but only “create an additional administrative burden”. Now let’s see how The Home Depot management responds, and whether meaningful action filters down from boardroom pressure to execution, within procurement and supply chain teams.

There is no doubt that protecting forests is being pushed onto companies’ plates by shareholders. However, the main question still stands. How will companies tackle this growing expectation?

Sadly, deforestation of the Amazon has hit an all-time high. In April 2022, this had more than doubled compared to the same period last year. Such environmental impacts have historically been published on an annual basis, but this substantial time lag between satellite image processing and dataset release has led to a lack of transparency and meaningful insights. However, a new tool is allowing scientists, NGOs, companies and governments to compare and evidence change in high resolution and near real-time quality.

Google’s newly released AI tool Dynamic Planet, developed by Google Earth Engine and World Resources Institute (WRI), uses satellite data to track deforestation using satellite images in real-time. The tool is so detailed it can observe if one or two trees are cut down even when a larger area is still intact. The potential of such a tool for companies such as The Home Depot with extended supply chains is huge. It can be used to mitigate raw material sourcing risks, while simultaneously contributing to the improved transparency. Companies that have extensive supply chain activity in forests, should begin to familiarise themselves with such tools. Technological advancements are beginning to allow a range of stakeholders to monitor and understand land and ecosystems; this will allow for more accurate predictions and impactful plans to protect the future of our planet.

Author: Emily Williams