Be ready for Forest Footprint Disclosure

Deforestation is gradually being recognised as one of the key contributors to climate change. Up to 20% of all carbon emissions are caused by deforestation in the tropical and subtropical regions. The Forest Footprint Disclosure Project (FFD) project is an international initiative designed to measure the forest footprint of businesses around the world. The FFD project is backed by 70 financial institutions who manage over US$ 7 trillion in assets.

“FFD annual review report 2011 states that – FFD engages with private sector companies to ask them to disclose their current understanding of their ‘forest footprint’ based on exposure to five key commodities – soy, palm oil, timber, cattle products and biofuels – in their operations and/or their supply chains. All of these commodities have the potential to be sourced from recently deforested land. FFD goes beyond simple disclosure and acts as a catalyst for investors to really engage with the companies in their portfolios on this issue”.

We have seen that companies all over the world have been working with the Carbon Disclosure Project (CDP) to disclose their carbon footprint and water footprint. In addition to this, now a new project, the Forest Footprint Disclosure (FFD), is working on similar lines with companies on their impact on forests.

Many businesses source products that lead to deforestation in their supply chains and their resulting forest footprint add to their environmental impacts. The FFD project provides a solid platform to these companies to recognise and manage the deforestation risks in their business models.  Presently an investment criterion is inclining towards broader areas of sustainability. Investors also want to know how the environmental impacts can affect business models of the companies in which they are shareholders.  FFD project includes identifying inherent risk to companies that are not managing their forests related impacts. In addition, due to FFD project  investors will have all the information about the role that their assets will play in this process.

FFD ask companies to disclose their Forest Footprint based on exposure to 5 key forest risk commodities- Timber, Bio-fuels, Soy, Beef and Palm.

Commodities	Why only these indicators?
Timber	Illegal felling and over exploitation is taking place in more than 70 countries which results in approximately 50% of entire trade in timber in the tropical forest regions
Bio-fuels	Bio-fuels are produced from biomass, renewable organic material from plants or animals. The most commonly used bio fuels are (1) fuel ethanol, made from crops like corn, wheat, sugarcane and sugar beet; and (2) biodiesel, made from vegetable oils like soy, rapeseed and palm. Cultivation of bio fuels leads o clearing of large scale areas of land leading to deforestation. This results in more co2 emissions than what will ultimately be offset by use of the bio fuels.
Soy	The soybean is an extremely versatile commodity. It’s used for vegetable oil, as a source of protein in meat and dairy substitutes, and as a hidden ingredient in many processed food products.
Beef	Expansion of cattle-ranching is the key driver of deforestation
Palm	Palm oil is found in around 10% of products on European supermarket shelves, from soap and toothpaste, to chocolate, bread, butter and cereal. South East Asia dominates global production; plantations grown on deforested land, and particularly on carbon-rich peat lands drained for agriculture, make palm oil production a major regional source of carbon emissions.

 

Quick information about the FFD project
Full Name/Title	The Forest Footprint Disclosure
Started in	2008
Current Director	Mr. James Hulse (He has joined FFD as Director in April 2011. He has worked in the financial markets for almost 20 years).
Management	The FFD Project is managed by a FFD Secretariat under The Global Canopy Programme.
Financial Support	The FFD Project is funded by UK Government Department for International Development, along with following charitable foundations – The Global Canopy Foundation, The Esmée Fairbairn Foundation, The Climate and Land Use Alliance (CLUA), The Waterloo Foundation, and the Rufford Maurice Laing Foundation”.
Investors endorsement	Currently 70 organisations endorsed the FFD’s disclosure request. These organizations include many prestigious investors groups like Aviva , AXA Investment Managers, Boston Common Asset Management, LLC, Dexia Asset Management , Delta Lloyd Asset Management , SAM (Sustainable Asset Management AG), Triodos Bank and Bank Vontobel
Steering Committee	The FFD Project is overseen by a Technical Steering Group.  Sector specific experts from following organization constitute the Technical Steering Group and help in management of the project including development of measurement and disclosure guidelines and specification. Carbon Disclosure Project The FTSE Company Global Canopy Programme (Project Manager) Hermes Equity Ownership Services The Prince’s Rainforests Project Strategic Environmental Consulting (Technical Advisors) UK Department for International Development (DFID) UNEP Finance Initiative WWF UK
First request for the disclosure was sent on	Disclosure Requests has been sent in June 2011. The request contained simple questions like – how businesses are managing their exposure to deforestation, etc
Volume of Companies to whom disclosure request was sent	357 of the largest companies worldwide.
How many companies responded?	87 companies answered

 

Forests are an important source of raw materials. In addition, the world’s forests store enormous amounts of carbon which helps to mitigate climate change. Evergrowing population and economic growth together contributes in deforestation. According to UNFCCC secretariat, the overwhelming direct cause of deforestation is agriculture.  FAO has different views on it. As per FAO, deforestation can result from a combination of population pressure and stagnating economic, social and technological conditions.  There might be several reasons behind the deforestation but, the challenges of deforestation, climate change and poverty are inextricably linked. The Forest Footprint Disclosure Project helps in risk management by Forest Footprint assessment and further its mitigation plans. It also reveals business’s forest stewardship practices. Let’s hope for the big success to FFD as similar to CDP in previous years.

Information Sources;

Forest Footprint Disclosure official website

Forest Footprint Disclosure, Annual Review 2011

Image Credit: Wikipedia