Why deforestation risk matters

The consumption of animal proteins entails levels of land-use change that have contributed to the transgression of this planetary boundary beyond a “safe operating space”.^[1] Deforestation also pushes the world closer to, or further beyond, other key planetary boundaries. These include the critical thresholds of climate change, as forest carbon stores are released, leaving behind fewer trees to sequester CO2, as well as biodiversity intactness. Intensive livestock farming is recognised as one of the main drivers of changes in ecosystem diversity, as well as habitat and biodiversity loss,^[2][3] – phenomena that undermine nature’s ability to provide the fundamental ecosystem services on which societies, economies and all species rely.^[4]

50% of the world’s habitable land is used for agriculture, with livestock – including land used for animal feed production – responsible for 77% of that figure.^[5] Beef and soy are the largest drivers of tropical deforestation, with 70-75% of all soy becoming livestock feed.

Soy Farming Deforestation 

Most of the world’s soy comes from the Americas, with the US and Brazil accounting for almost 70% of production, followed by Argentina (11.7%).^[6] Soy exports from Brazil and Argentina – both high-risk deforestation areas – are largely destined for farmers in Europe and China, where soy is a key ingredient in animal feed.^[7] Global forests are, therefore, increasingly at risk as meat consumption in China continues to grow. Although North American companies tend to source the majority of soy locally, deforestation is prevalent due to the remainder being sourced from high-risk deforestation locations, given the sheer volumes of soy sourced by the largest animal protein producers. There could be a shift in the profile of soy sourced as a result of climate change, as locally sourced soy will have to be increasingly supplemented by soy outside North America.

Most of the world’s soy used for livestock feed is for poultry and egg production (53%), followed by pork production (29%) and aquaculture (8%), with much less soy used in beef and dairy production (<3%).^[8]

There has been little in the way of large-scale adoption of alternative feeds that could reduce environmental impacts. Soy remains one of the cheapest protein sources available to farmers, while alternatives such as beans are currently less competitive and less widely available.

Cattle Farming Deforestation

Cattle raised for either beef or dairy are both pasture-raised and/or grain-fed. Around 90% of beef cattle in Latin America and around 50-60% in Australia tend to be primarily pasture-raised.^[9][10] Allowing for such levels has required significant swathes of land to be cleared for grazing, which has driven deforestation rates in South America and Eastern Australia, which is now designated a deforestation hotspot by WWF.^[11] In contrast, many larger-scale commercialised beef operations combine grass-fed and grain-fed systems. Grain-fed cattle make up more than 60% of total beef production in the US,^[12] driving soy deforestation through feed import demands.

A common feature of modern beef production is its vertical segmentation, contrasting with vertically integrated systems for pork and poultry. Cattle typically change hands a few times before they reach abattoirs, meaning supply chain visibility tends to be poor. Indirect suppliers usually breed and raise cattle and sell to direct suppliers, who fatten cattle until they reach slaughter weight. The extent of this segmentation differs between countries. The Brazilian meatpacker Marfrig has around 30,000 direct and an estimated 60,000-90,000 indirect suppliers across the Amazon and Cerrado biomes, highlighting the complexity of these supply chains.^[13] Brazilian beef-packing companies are often linked to deforestation through the purchase of cattle that were at some stage kept on farms that cleared land illegally and were then moved to “deforestation-free” ranches before being sold.^[14] Traceability and monitoring of indirect suppliers is essential to guarantee deforestation-free products linked to cattle. Progress has so far centred mainly on direct suppliers, which are more easily tracked and often account for the minority of the herd.

Of the nine companies with material exposure to beef assessed on associated deforestation risk, three – JBS, Minerva and Marfrig - have been linked to deforestation in the last reporting year (2022-2023).

Beyond safe planetary boundaries, natural cycles and vital environmental processes can easily swing off-kilter. Here, the planet’s resilience in terms of its ability to stabilise itself in the face of change is hindered.^[15] Reciprocally, the dependence of animal protein producers on the steady provisioning of ecosystem services and a stable climate makes them extremely vulnerable to physical environmental risks. Excessive deforestation exacerbates the effects of climate change by reducing precipitation levels in local areas. This increases temperatures, diminishing agricultural productivity and yield.

High-risk region case study 

Brazil, a major supplier of both animal feed and beef, suffered its worst drought in decades in 2020 and 2021. Research found this was likely due to reduced rainfall as a result of local deforestation, alongside rising temperatures.^[16] The consequent lower yields saw Brazil – also the world’s number-two exporter of corn, mainly for use as animal feed – turn to imports, while soy and corn prices also spiked. As the beef sector intensifies its dependence on confinement and semi-confinement operations, which rely more heavily on grain inputs, weather-related pressures will be increasingly felt. Nature Communications has predicted forest loss will reduce dry-season rainfall across the Amazon basin by 21% by 2050,^[17] with productivity-associated revenue losses of USD $180.8 billion for beef production.^[18] The conversion of the Cerrado into open grasslands or planted crops has already reduced yearly precipitation by approximately 8% over the past three decades.^[19] Research suggests the Amazon is deemed close to its tipping point, with some studies showing this has already become a dire reality in some parts of the region.^[20]

These findings are further compounded by a 2023 study which predicts deforestation will reduce local precipitation across the world's rainforest biomes. The greatest impact is in the Congo, where precipitation is predicted to reduce 8-10% by 2100. The findings also indicate that forest-loss-induced changes to precipitation could cause crop yields to decline by 1.25% for every 10-percentage point change in forest cover.^[21]

At COP26, more than a hundred countries, representing over 85% of the world’s forests, pledged to halt and reverse deforestation by 2030.^[22] This pledge was followed by the launch of the Forest and Climate Leader’s Partnership (FCLP) at COP27, which aims to enhance cooperation between countries towards delivering the target.

It is clear that addressing deforestation is now becoming a mainstream commercial imperative as the world responds to climate change and biodiversity loss. This poses a growing material risk for producers – and investors – that fail to respond.

Since 2022, several new forms of guidance have been released which have an impact on deforestation:

• New Science-Based Initiative Forest, Land and Agriculture (FLAG) guidance: Sector-specific guidance for FLAG companies enabling them to align with the latest climate goals.

• Taskforce for Nature-Related Financial Disclosure (TNFD): TNFD has recently launched its first version of recommendations for organisations to act upon nature related dependencies and opportunities.

• The Science Based Targets Network (SBTN): The SBTN has released guidance for companies who wish to set Science Based Targets for Nature.

• EU Deforestation-Free Regulation: Coming into force in June 2024, this regulation aims to tackle deforestation, which stems from the sourcing of commodities, such as soy. Stakeholders who import or sell such commodities will need to prove that they did not originate from deforested land or contribute to forest degradation.

Animal feed and cattle

At a minimum, FAIRR would expect companies that source soy or cattle to have conducted a risk assessment of their supply chain to identify high-risk deforestation areas where it sources soy and/or cattle and to reference deforestation and biodiversity in its supplier code of conduct.

FAIRR assesses the robustness and strength of companies‘ deforestation targets and measures taken to monitor compliance and engage soy and cattle/beef suppliers in support of its targets, including the extent to which companies have traceability of soy and cattle sourced. Therefore, companies that have conducted risk assessments, set targets and undertaken monitoring of supply chains to ensure compliance can achieve a higher score.

Aquaculture sector

Alongside soy, salmon feed is also reliant on the use of marine ingredients, fish meal and fish oil (FMFO), which are sourced from wild forage fish, leading to detrimental biodiversity impacts. More information can be found on the ESG risks in salmon feed through FAIRR’s Sustainable Aquaculture Engagement.

Companies producing aquaculture are therefore also assessed on feed disclosures, conversion ratios and their strategy to diversify into more sustainable feed sources. Aquaculture companies are also assessed on the extent to which they have ASC, Global, GAP or BAP certifications. Additionally, disease and sea lice management and the impact of the company on the ecosystem are assessed through commitments to reduce escapes approach towards mitigating biodiversity impacts.

In accordance with the New York Declaration on Forests, target 15.2 of the United Nations Sustainable Development Goals, the Accountability Framework Initiative and, more recently, the SBTi’s FLAG guidance, zero-deforestation target dates should be set no later than 2025, and cut-off dates no later than 2020.

The target date refers to the date by which a company plans to achieve its commitment. A target date beyond 2025 is considered insufficient and allows too many years of deforestation.

The cut-off date refers to the date after which land that is deforested cannot be considered “deforestation-free”. This is because clearance after that date would render the area non-compliant with non-conversion commitments. No cut-off date could incentivise a company to accelerate deforestation rates and land clearing until its zero-deforestation target date. Proterra’s cut-off date is August 2020. RTRS’s cut-off date is 2009 for zero deforestation and 2016 for zero conversion.

The majority of companies assessed in the Index that source or produce beef and soy do not address deforestation risks in their supply chains. Many have also not addressed the new SBTi FLAG criteria alongside other regulations around deforestation.

Nearly half of the companies assessed on soy/cattle sourcing do not provide public disclosure of deforestation risks linked to their supply chains. While some companies are addressing increasing regulation, many do not have the necessary commitments in place, or the and tools needed to monitor implementation.

The majority of Index companies do not have full traceability of their soy and cattle supply. Lack of monitoring means companies cannot track overall progress and supplier compliance with their commitments.

What about soy certifications? 

Several companies in the Coller FAIRR Protein Producer Index have commitments to ensure they source soy responsibly by using a range of certification schemes. However, these schemes have different criteria and audit standards, making it difficult for investors to compare.

Many experts regard targets and commitments to source certified soy as less effective than zero-deforestation commitments. As a result, when assessing companies, FAIRR allocates a higher score to companies with zero-deforestation commitments.

Buying certified deforestation-free soy from a supplier offering both certified and non-certified soy forces traders to manage two soy sources. Companies might use 100% certified deforestation-free soy but, through such suppliers, remain indirectly connected to deforestation. For example, Norwegian salmon producers that purchase feed from Cargill Aqua Nutrition, whose feed is 100% certified deforestation-free, retain a connection to deforestation, as Cargill still purchases deforestation-linked soy in South America.

There is little doubt that certification schemes can be useful and are able to play a complementary role in the transformation to deforestation-free supply chains. Alone, though, they are insufficient to lead to sector-wide or systemic moves towards fully deforestation-free soy suppliers.