Material Risk of Deforestation: Assessment Considerations on Agricultural Commodity and Timber Divestments
MSMF ESG Department (Portfolio)
Publication Status
Work In Progress; Publication date 20 November
Research Team
Daniel Giam - Head of ESG & Sustainability (Portfolio)
Amaris Zhang - ESG Associate (Portfolio)
Benjamin Chow - P&C Director
Description
This research examines the impact of agricultural commodity and timber investments on deforestation, focusing on the need for diversification to mitigate environmental risks. Drawing considerations from case studies on deforestation, driven largely by agricultural expansion, accounts for nearly 88% of global deforestation, with tropical regions like Brazil and Indonesia being the most affected. Livestock, particularly cattle farming, contributes to 80% of deforested land in the Amazon and nearly half of all tropical deforestation globally. The expansion of palm oil, soy, and other commodities further exacerbates land conversion, leading to biodiversity loss, disruption of water cycles, and increased greenhouse gas emissions. Companies such as JBS, Cargill, and Wilmar International are scrutinised for their roles in this deforestation, with some making efforts toward sustainability while others face ongoing criticism.
Timber harvesting, both legal and illegal, also plays a significant role in deforestation. Commercial logging, especially in countries like Brazil, Russia, and Canada, is a major driver of forest loss, while illegal logging, particularly in regions such as the Democratic Republic of Congo and Indonesia, adds to the unsustainable depletion of forests. This research emphasises the reputational, financial, and regulatory risks for companies and investors involved in deforestation-linked supply chains. As global demand for commodities continues to rise, stricter regulations and consumer awareness are pushing businesses to adopt more sustainable practices. The study aims to highlight the importance of corporate due diligence and the need for environmentally conscious investment strategies to reduce deforestation-related risks.
Furthermore, this research will suggest company level deforestation assessment methods that are non-proprietary for organisations/companies. The recommendations will be based on reports and research from organisations such as Global Canopy and Climate & Company, which will cover both Nature-related finance and Corporate due-diligence assesments.
