Traceability Is a Must for Companies With Zero-Deforestation Pledges

Unilever and Nestlé made waves in February when they became the first global food companies to publish their entire palm oil supply chains — both their direct suppliers and the mills that indirectly supply them. Palm oil is a key ingredient for many of the companies’ products, from margarine to candy to soap and shampoo; yet, it has been a thorn in the side of their zero-deforestation commitments.

Despite widespread efforts across many industry players to produce palm oil more sustainability, deforestation in palm-producing regions remains a critical concern. Forest clearing for palm plantations is still a major contributor to climate change and a key driver of biodiversity loss.

By mapping and disclosing their suppliers, Unilever and Nestlé (and a handful of other companies that have since followed suit) aim to shed light on their supply chains. Such transparency and traceability, as outlined in the 2017 Reporting Guidance on Palm Oil, are essential to halting deforestation — not just for palm oil but also for other commodity supply chains such as beef and soy.

But, unfortunately, not enough companies are stepping up.

Ceres recently partnered with Supply Change to analyze the traceability ambitions of companies with deforestation commitments in 2018. Of the 469 manufacturers with commitments to address deforestation, fewer than half (208) had made any statement about traceability intent, and even fewer (98%, or 21%) had made clear and actionable commitments to carry out traceability such as through public disclosure of their suppliers as Unilever and Nestlé have done.

To combat deforestation in commodity supply chains, manufacturers need to address issues not only with their direct suppliers but also in their extended supply chains. As with many other agricultural commodities, the palm oil supply chain is highly complex. Farmers grow the fruit on palm plantations, with 40% of all palm oil estates in Indonesia — the biggest producer globally — being managed by some 2 million smallholder farmers. Those farmers sell their produce to middlemen and agents, who in turn sell to mills, where the fruit bunches are processed. The processed fruits are transported via traders to refineries for further processing. At this point, palm oil and its derivatives enter the direct supply chain of manufacturers like Unilever.

Commitments to deforestation-free supply chains alone are therefore insufficient to ensure change on the ground. Companies like Unilever and Nestle know that. They understand that commitment to reliable traceability is an essential building block for mitigating risks from deforestation.

As more companies step up their traceability commitments, they may want to study what other leading companies have put into practice. Supply Change and Ceres’ research found that, among the companies with the strongest traceability commitments, there were commonalities in their practices. These best practices for traceability commitments include:

Commitments that are quantifiable and time-bound. Publicly declaring a commitment’s target date and establishing milestones can guide the development of an implementation plan and serve to keep traceability on the corporate agenda. Just over half (56%) of all traceability commitments analyzed by Supply Change were found to be time-bound.

Commitments to traceability across all commodities. Committing to traceability for one commodity is a good place to start, but to truly make a difference, companies must implement traceability programs across all major commodities. Currently fewer than 1% of companies have traceability commitment(s) covering each of the big four commodities to which they are exposed.

Commitments to reporting annually or more frequently their progress toward traceability. Demonstrating progress through public reporting is critical for reassuring investors, supply chain actors, NGOs, and other stakeholders that the commitment is alive and well. Just over half (56%) of companies with traceability commitments are communicating publicly about their progress.

Commitments to tracing the supply chain to the “landscape” level (e.g., plantation, forest or ranch). This detailed level of reporting can enable companies to understand where issues are occurring at the most upstream location in their supply chains; however, it may be more practical for traders than for retailers. Currently one-third (36%) of companies with commitments report to the landscape level. More (55%) report to the level of mill or tannery.

On this last score, companies have barely begun to scratch the surface. As Marc Engel, Unilever’s chief supply chain officer, acknowledged when discussing last month’s public disclosure, “This is a big step towards greater transparency, but we know there is more work to be done to achieve a truly sustainable palm oil industry and we will continue our efforts to make this a reality."