Brazil risks BRL 24 billion by ignoring deforestation in the value chain, study calculates

Companies around the world could lose US$ 80 billion (R$ 386 billion) if they do not act to combat deforestation in their value chains. Considering only Brazil — the country that clears the most tropical forests on the planet — the financial risk is estimated at up to US$ 5 billion (R$ 24 billion).

The data are from a study published last Wednesday (25) by the AFi (Accountability Framework Initiative) in partnership with the CDP (Carbon Disclosure Project), an organization that helps companies and governments to disclose their environmental performance.

According to the report, by ignoring actions to eliminate deforestation in all business links, companies are subjecting themselves to billions of losses, which can be caused by factors such as: reputational damage, consumer flight, difficulties in accessing international markets and changes in the dynamics of ecosystems.

The study also highlights that facing this risk would be much cheaper. In the global scenario, the impact of US$ 80 billion could be avoided with investments in the order of US$ 6.7 billion (R$ 32.3 billion). In the Brazilian case, the total cost would be US$ 680 million (R$ 3.2 billion) – about an eighth of the projected loss.

The estimates take into account the companies’ own responses to the CDP’s 2021 questionnaire on forests. soy, rubber, cocoa and coffee.

In Brazil, the questionnaire was answered by 45 companies, mostly agro giants such as JBS, Marfrig, Minerva Foods, Amaggi and BRF.

The country concentrates the greatest financial risk linked to deforestation in Latin America, according to the study. Even in an optimistic scenario, the estimated losses are high: US$ 3 billion (R$ 14.5 billion).

In Chile, for example, which ranks second among the countries in the region, companies reported risks of up to US$417 million (R$2 billion). In Mexico —third in the ranking — the amounts do not exceed US$ 17 million (R$ 82 million).

For Fernanda Coletti, CDP manager in Latin America, the report makes it clear that taking action against deforestation is not a matter of additional cost for companies, but of risk mitigation.

She reinforces that the values ​​are indicated by the companies themselves in the questionnaire, estimated according to the assessment that each one makes in its risk matrix. Therefore, it is possible that not all factors are being considered in the calculation.

In any case, it is quite likely that the Brazilian risk is already underestimated, since the calculation is based on the response of only 45 companies. “Considering the entire GDP of Brazilian agriculture, these billions could be much greater”, says Coletti.

Deforestation targets are not comprehensive

The CDP study indicates that companies have invested in operational and governance strategies to ensure forest preservation. However, most reported systems do not have the rigor, scale or scope needed to address deforestation associated with commodity production.

Only 36% of the 675 companies have public policies for non-deforestation or non-forest degradation.

The proportion gets even smaller when social and remediation elements are taken into account. Only 13% include commitments to restoration and/or compensation for past damages in their policies, as well as targets to protect the rights and livelihoods of local communities.

Blind spots in the value chain

Mitigating the problem across the supply chain remains the main challenge.

In Coletti’s assessment, one of the main ways to face this risk is to invest in the traceability of raw materials purchased. “Companies need to know the origin of the commodities they are producing or selling and ensure that they are not promoting deforestation in other regions,” he says.

In Brazil, the proportion of companies that say they have traceability actions is even high: 79%. However, less than a third (31%) are comprehensive in terms of volume and extent to other links in the chain.

On the global stage, 75% of companies report having a traceability system, but only 57 companies (8%) are able to trace 100% of the volume to the origin.

For Coletti, the data in the report point to the need for more mobilization of the private sector, which has announced goals for 2025 or 2030.

“What we need at this moment is to focus on concrete actions. We will not be able to reach net zero commitments, nor reduce emissions, if there are no concrete actions to eliminate deforestation in our own operations and in the supply chains”, he says.

“We need to get off this scale of broader commitments and move towards implementation,” he adds.