Cheaper to mitigate deforestation risk, yet companies avoid action
Source: Middle East Insurance Review | Sep 2023
Companies acknowledge that it is cheaper to mitigate risk caused by deforestation but just one in 10 report taking sufficient action to do so, according to a new report published in July 2023.
The 48-page report, The Forest Transition: from Risk to Resilience Global Forests Report 2023 published by CDP, said that 1,043 companies have disclosed forest-related risks but are still not acting to mitigate them effectively and are risking nearly $80bn in total as a result.
CDP is a not-for-profit charity that runs the global environmental disclosure platform. The new report from CDP said companies and financial institutions are already on track to lose billions but if deforestation continues at this rate the economic and environmental cost will be catastrophic.
More than 60% of companies disclosed some sort of risk caused by continued deforestation, such as shifts in consumer preference or increased severity of extreme weather, but less than 10% have a robust public commitment to end deforestation by 2025. Only 10 companies have committed to do so whilst ensuring good social conditions and remediation are in place.
The impact of not addressing risks related to deforestation is huge. Two hundred and sixty-nine companies estimated the potential financial impact at almost $80bn while the complete cost of responding to all identified risks was only $5.9bn (reported by 342 companies).
This is an average of $300m at risk per reporting company, versus $17.4m to respond. The implications of not addressing deforestation are huge – neither the Paris Climate Agreement nor the Global Biodiversity goals will be achieved without action on forests.
The annual economic gain from a deforestation-free future is estimated at $895bn by 2030, with the biggest driver of that gain being a reduction in environmental costs of $440bn a year. Inaction from companies makes no economic or environmental sense.
Companies have disclosed over 50 different risk drivers across four main types of risk: physical, reputational, technological and regulatory. M