Why investors expect action to eliminate deforestation

Deforestation poses material financial risks to exposed companies. Forest loss intensifies physical risks, such as fires, droughts, and floods, which can disrupt operations and reduce agricultural yields across supply chains. Meanwhile, regulations are tightening across multiple jurisdictions, creating transition risks for companies with weak traceability and due diligence systems. Deforestation is also frequently linked to human rights violations, compounding exposure to reputational and legal risks. It also leads to systemic risks; deforestation contributes approximately 11% of global greenhouse gas emissions and is one of the largest drivers of terrestrial biodiversity loss.

Companies that transition to supply chains free from deforestation and associated impacts stand to benefit. Scaling investment in regenerative agriculture, landscape approaches, smallholder inclusion, and ecosystem restoration builds resilience across supply chains and helps companies withstand intensifying physical risks. Furthermore, estimates suggest that broader transitions in food, land, and resource use, including transitioning to deforestation-free supply chains, could unlock up to USD 10.1trn in annual business value and cost savings by 2030. Exposure to deforestation and associated impacts is a systemic risk that can undermine long-term value. Investors seeking to preserve long-term value therefore expect companies to eliminate these impacts as a core component of governance and risk management.

Summary of expectations

The investor expectations are intended to be applicable to all companies for which deforestation is a material issue, addressing all forest types and drivers of deforestation, forest degradation, land conversion, and associated human rights violations. These expectations are commensurate with a company’s role in the supply chain and are structured around five key pillars: Commit, Assess, Transform, Engage, and Disclose.

The full investor expectations for companies on deforestation

1. Commit

Companies must set a public commitment to production and sourcing that is free from deforestation and associated impacts. This commitment should cover all material forest-risk commodities and their derived products, all operations and geographies, and all direct and indirect suppliers. The target date for this commitment should be within two years of publication and no later than 31 December 2030. Additionally, companies should establish an appropriate cut-off date that is aligned with best practice and is no later than 2020.

The commitment must also include a pledge to respect internationally recognised human rights. This includes the rights of Indigenous Peoples and local communities, the right to Free, Prior and Informed Consent (FPIC), and customary rights to land. Companies should ensure appropriate governance with explicit board-level oversight and allocate sufficient resources to integrate the commitment. It must be accompanied by an implementation plan containing publicly stated, time-bound, and quantitative targets and milestones.

2. Assess

Companies are expected to ensure traceability to a level that enables effective identification and management of deforestation risks within the supply chain. This includes full traceability to the production unit in high-risk geographies. Reliable and consistent monitoring approaches must be employed to perform ongoing due diligence of operations and the supply base, including tier 1 suppliers, smallholders, and indirect suppliers. Compliance and progress towards eliminating deforestation must be validated through rigorous, independent verification.

3. Transform

This pillar requires companies to transform and manage operations and supply chains. Companies should engage with suppliers, communicating requirements for compliant production and supporting the economic inclusion of value chain actors such as smallholders. Responsible practices must be conducted or supported in land acquisition, land-use planning, and site development to provide long-term protection of conservation and cultural values.

Companies must manage non-compliance according to clear policies and maintain an effective public grievance mechanism. Where instances of deforestation or associated impacts have occurred, companies should provide or cooperate in providing fair and just remedy, as well as environmental restoration and compensation. Companies are also encouraged to invest in new product streams and business models to reduce dependence on practices that contribute to deforestation.

4. Engage

Companies should prioritise efforts in collaborative actions based on where they can have the greatest positive impact and which landscapes are most material to their operations. Policy engagement must be aligned with the global goal to halt and reverse deforestation and forest degradation by 2030, the Kunming-Montreal Global Biodiversity Framework, and the Paris Agreement. This covers all engagement across subsidiaries and business areas, ensuring that affiliated associations engage in a manner consistent with these commitments.

5. Disclose

Each year, the company should publicly disclose its progress. Disclosures should include the total volume of commodities produced or sourced and the proportion determined to be free from deforestation, disaggregated by commodity and geographic origin. Companies should report the percentage of total commodity sourced that is traceable to each level of the supply chain. Furthermore, reporting should cover activities to respect the rights of Indigenous Peoples, progress on collaborative actions, a summary of grievances raised and resolved, and detailed policy engagement activities. Company reporting on performance and progress should be independently verified by credible measures.