Tree Spotting: Detecting Deforestation Risks One Company at a Time

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

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.

Very few regions aren’t touched in some way. Declining forests threaten most corners of the globe, with temperate zones just as vulnerable as the tropics, albeit for different reasons (Display).

Sources of Forest Loss by Region