AllianceBernstein: Tree Spotting - Detecting Deforestation Risks One Company at a Time

NORTHAMPTON, MA / ACCESSWIRE / September 19, 2023 / AllianceBernstein

Foto: Accesswire

ESG in Action

Practically everyone has heard the phrase "save a tree." Its call to action is more poignant and timelier than ever as whole forests are disappearing at alarming rates, often because of business activity. Equity investors must gain a greater understanding of how companies are impacted by and addressing deforestation-and how different approaches might affect long-term return potential.

The Issue

The world's forests play a vital role in sustaining life, providing products and services and counterbalancing the effects of global warming. But they're threatened, which also means companies and investors alike should understand deforestation's impact and risks to the bottom line.

The Investment Case

Agriculture is deforestation's chief driver, but practically every industry is either a contributor or exposed to it. The key is to know how and where a company is vulnerable and whether it has a policy to effectively respond.

Engagement Goals

Our research suggests that many companies don't have adequate policies to address deforestation risk, so investors should engage with management to encourage awareness and improvement.

Authors
Dev Chakrabarti| Chief Investment Officer-Concentrated Global Growth
Sara Rosner| Director of Environmental Research and Engagement-Responsibility

From the dense Amazon jungle to wide stretches of Malaysian palm oil plantations, agricultural practices have been stripping the world of vital forests for decades. But now, as awareness grows, companies of all stripes-from e-commerce to sportswear-are being pressed to show how they're addressing deforestation, which is as much a threat to businesses as it is to the planet.

Deforestation is the process of converting forests to non-forest uses, such as agriculture and roads. Some 31% of the world is covered by forests, about 10 billion acres in all. This is down from 11 billion 35 years ago, and the rate of disappearance is accelerating. In 2021 alone, the equivalent of 10 football pitches was lost every minute, according to the World Resource Institute.

Deforestation is a manmade problem, but problematic for all forms of life and livelihoods. About 25% of the world's population relies directly on delicate forest ecosystems just to survive. Forests are home to 80% of the world's biodiversity-all plants, animals and microorganisms in a given ecosystem. Therefore, they provide an essential balance of healthy soil, clean water, safe habitats, crop pollination and barriers to erosion and flooding.