Forests

Trading places: Can commodity companies become climate heroes?

A palm oil plantation in Riau province, Indonesia. Last year, CEOs from the world’s 13 largest commodity trading companies announced ambitious commitments to tackle deforestation.

Last year, CEOs from the world’s 13 largest commodity trading companies announced ambitious commitments to tackle deforestation. Image: Reuters/Willy Kurniawan

Jennifer Morris
Chief Executive Officer, Nature Conservancy
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This article is part of: World Economic Forum Annual Meeting

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  • The world's 13 largest commodities traders have pledged to act on deforestation caused by commodities they control.
  • Trading with tens of thousands of farmers around the world, no solution to deforestation is envisageable without them.
  • ESG finance could be one solution to the need to provide transition funding to farmers.

Last year, CEOs from the world’s 13 largest commodity trading companies, including Cargill, Bunge, ADM and Louis Dreyfus Company, announced at the United Nations climate conference ambitious commitments to tackle deforestation. And, right now, they are working on the roadmap for how they’ll get there. These companies control the market share of commodities with high deforestation risks, like soy, cattle, cocoa and palm oil, and have combined annual revenue of almost $500 billion.

Given deforestation is responsible for approximately one-eighth of all greenhouse gas emissions, the opportunity for these companies to make real and long-lasting change is enormous.

This isn’t the first-time corporations have pledged to act. In 2014, more than 70 companies signed the New York Declaration on Forests (NYDF), committing to eliminate deforestation in key commodity supply chains like soy and palm oil by 2020. In 2010, the Consumer Goods Forum released a board resolution with similar 2020 goals.

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Both of these failed. Why? Because companies can’t singlehandedly end deforestation. Companies need to work collectively with one another and with farmers, governments, civil society, indigenous groups, and communities. While we must change the mindset that countries in the Global South should be dependent on signals from the North, the reality remains that without those signals, farmers and governments in the tropics were not as compelled to pay attention.

Business as usual is no longer an option. We’re seeing the costs of inaction play out in real-time. The war in Ukraine is already exerting pressure to expand commodity production, and farmers in countries like Indonesia and Brazil will respond. The temptation will be to expand in ways that are unsustainable, including cutting down forests and burning native vegetation. What can be done?

Commodity trading coalition

The CEOs of these 13 companies have the power to change history. They hold the key. They are at the gates of every farmer producing those commodities, buying the product, able to influence their decisions. Also, critically, they look like the world: a quarter are Brazilian, and another quarter Asian. They look like a truly global coalition of the willing.

Solving this problem is a question of the strength of will. Farming economics need to reward the changes that they will need to make. Governments need to enforce policies already on the books more rigorously. And the commodities traders need to be able to trace commodities through the supply chain to certify their provenance. The entire system will need new investment: mission-driven sources of grants or sub-market loans, pricing differentials for more sustainable commodities, and accessible loans to farmers that may not have strong credit histories. How can we change the economic conditions for farmers so that they can maintain their livelihoods while protecting and preserving landscapes for current and future generations?

The answer must include finding new ways to channel funding to tropical farmers and ranchers. However, that’s easier said than done. People have been trying and failing to do this for years. Carbon markets aren’t working at the scale necessary yet, though there is potential for this to happen, and certification schemes do not have the market penetration needed. Even when companies make ambitious deforestation commitments, it is hard for their business units to implement them, where there is no incentive to cut uncompliant farmers out of their supply chains.

In the 20 years that the debate around deforestation has raged, agricultural commodity trading companies have often been painted as the villain, even though there is no solution to the deforestation issue imaginable without them. As shareholders and investor groups continue to ratchet up the pressure every year, these companies have the power to change the conversation through several concrete actions.

Action on the ground

First, it is critical to focus on transition funding to farmers to end deforestation. There has never been so much interest in the finance sector around climate change and Environmental, Social and Governance (ESG) criteria. These commodity companies have an enormous unrealized asset: all the intact habitat from the tens of thousands of farmers across the tropics that they trade with. Many of these companies have been monitoring their supply footprint with improving technology for years: It’s time to make a proper inventory of that habitat, as some are already starting to do.

They should also turn outwards to the finance sector and to development banks, pointing out that nobody else has such reach. Anywhere commodities are produced, they have the infrastructure and the field capacity to reach almost every commodity producer. These companies really can make lofty climate and ESG aspirations actionable.

The problem is that those financial mechanisms don’t exist at anything like the scale necessary. But that’s because they have never made a concerted effort to ask for help from the finance sector. That should be the message: help us find a solution. We have a delivery mechanism but nothing to deliver; you have capital but no delivery mechanism. There is a huge opportunity for both sectors to collectively come up with the financial innovations the climate crisis is crying out for.

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What’s the World Economic Forum doing about climate change?

Now is the time for commodity trading companies to announce a serious effort with the help of the finance sector to invest in the innovations needed to tackle deforestation. This is exactly the kind of monumental push for collective action needed to put a 1.5°C future within our reach. Now is the time to change the conversation – from commodity traders as a part of the problem, to an integral part of the solution.

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Related topics:
ForestsTrade and InvestmentClimate CrisisClimate and NatureDavos Agenda
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