Please cite this publication as SCRIPT (2018) Portfolio risk Tool: Methodology, Global Canopy, Oxford, UK.

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2 Citation Please cite this publication as SCRIPT (2018) Portfolio risk Tool: Methodology, Global Canopy, Oxford, UK. Acknowledgements The authors would like to thank the Ceres, CDP, and ZSL SPOTT teams for their input into the development of the Portfolio Risk Tool. The team would also like to express thanks to the financial institutions who have provided useful feedback on the methodology outlined in this document. Partners The Portfolio Risk Tool has been developed in partnership with Ceres. CDP and ZSL have supported as data partners. Funding The Policy Benchmarking Tool was developed thanks to financial support from the Moore Foundation. About SCRIPT SCRIPT (Soft Commodity Risk Platform available at is a new freely-available system to help financial institutions understand and mitigate the deforestation risks associated with financing companies in soft commodity supply chains. The platform provides unrivalled tools and guidance for financial institutions to establish a robust sustainable financing policy and screen their portfolios to determine the companies and issue areas that pose the greatest risk to their institution. About Global Canopy Global Canopy is an innovative environmental organisation that targets the market forces destroying tropical forests. Our mission is to accelerate progress towards a deforestation-free global economy - through improved transparency, innovative finance and strategic communications. Since 2001, we have catalysed new thinking and action by leading governments, companies and investors worldwide. See: The contents of this report may be used by anyone providing acknowledgement is given to Global Canopy. No representation or warranty (express or implied) is given by Global Canopy or any of its contributors as to the accuracy or completeness of the information and opinions contained in this report. Global Canopy sits under The Global Canopy Foundation, a United Kingdom charitable company limited by guarantee, charity number Global Canopy. All rights reserved

3 Introduction to the Portfolio Risk Tool The Portfolio Risk Tool is a comprehensive information system to identify, and effectively engage, portfolio companies that are failing to mitigate their exposure to risks associated with deforestation. The methodology The purpose of this methodology is to quantify progress made by companies in removing deforestation and its associated impacts from their commodity supply chains. It takes a pragmatic approach in identifying and making use of data already in the public domain and aims to assess company progress at scale, offering comparison of companies along supply chains and across commodities. The framework has been designed to be applied to companies operating in soft commodity supply chains that drive the vast amount of tropical deforestation; palm oil, soy, cattle products, and timber products. The methodology assesses company progress by measuring action on a company s journey to sustainable production or procurement of soft commodities. The journey described below is designed to apply to all companies operating in soft commodity supply chains but will vary depending on the type of company (i.e. which commodities they are exposed to and their position in the supply chain). An example of a company s journey to sustainable production or procurement A. Assess and measure exposure to risks from deforestation Step A1. Aware of environmental and social risks Step A2. Awareness of business risk stemming from deforestation. Step A3. Assess company business exposure to deforestation risk B. Company policies and commitments to mitigate risks Emergence of new business risk Policies should: Protect sensitive and globally important forests. Minimise business impacts on biodiversity. Protect the rights and livelihoods of local communities. Be timebound. Step B1. Strategy to mitigate risks in place Step B2. Commodity specific policies Step B3. Public statement of deforestation ambition C. Monitor and report on policy implementation Step C3. Engage with suppliers to ensure ongoing compliance and prioritise mitigation steps. Step C2. Deforestation assurance system in place to monitor compliance Step C1. Policies communicated to existing and new suppliers Step C4. Report progress

4 Assessment framework The methodology was developed by reviewing the practices of leading companies. It has been reviewed by sector experts and the included indicators are important in assessing whether companies are acting to mitigate deforestation risks. Low scoring companies should therefore be high priorities for engagement by lenders and shareholders. Companies are prioritised for engagement based on an assessment against indicators in four overarching categories; Company exposure, Assess and measure exposure to risk from deforestation, Company policies and strength of mitigation, and Monitor and report on policy implementation. The total points available for each of the four sections in the default scoring framework are as follows: Category Total points available Company exposure 8 Assess and measure exposure to risk from deforestation 14 Company policies and strength of mitigation strategy Monitor and report on policy implementation Companies are included in the Portfolio Risk Tool when there is available data from one or more of the data sources. In cases where the tool has information on holding company level, data on subsidiaries has not been included. SCRIPT makes use of publically available data from key transparency initiatives and certification schemes. Forest 500 identifies and assesses the 500 largest powerbrokers in forest risk commodity supply chains. SCRIPT use the assessment data of the 250 companies that have the greatest influence within global forest risk supply chains. The latest data was published on the 17 th of November 2017.

5 CDP Forests Program assists companies and their investors in understanding and addressing their exposure to forest risk commodities. Companies disclose information through CDP s Forests Information Request. The reports were published 21 st of November SPOTT (Sustainable Policy Transparency Toolkit) promotes transparency and accountability to drive implementation of environmental and social best practice for the sustainable production and trade of global commodities. SPOTT have assessed 50 of the world s largest palm oil producers and traders, as well as 24 timber, pulp, and paper companies. The latest data for timber, pulp, and paper companies was published 9 th of November 2017, and the latest palm oil assessments were published on the 23 rd of November Roundtable on Sustainable Palm Oil (RSPO) has developed a set of environmental and social criteria which companies must comply with in order to produce Certified Sustainable Palm Oil (CSPO). Members of RSPO reports yearly through Annual Communication of Progress (ACOP). The latest reports were published 30 th of April Ceres is a sustainability non-profit organisation working with the most influential investors and companies to build leadership and drive solutions throughout the economy. Ceres has assessed companies on their awareness and governance of risk related to deforestation. Data was collected in September Data availability Data was not available for all indicators in the assessment framework. Each company assessment is therefore accompanied by an indicator of data availability. Data was only included where the information was deemed to be equivalent to information collected by other initiatives. For example, we have only included data for deforestation commitments where initiatives use the same, or very similar definitions. We therefore encourage users to visit the primary data sources to explore additional available information even where no data is available on the tool. The tables below show how these data sources have been used in the Portfolio Risk Tool assessment framework. Note that in some cases companies might receive different points for responses in the Portfolio Risk Tool to how they have been scored by different initiatives.

6 Company exposure Indicator Guidance Answer options Does the company operate in an industry that produces/procures soft commodities? Highest points are given when the company is not in an industry that produces/procures soft commodities Accessories & luggage; Agri commodities; Agriculture; Animal feed; Apparel & footwear; Construction; Cosmetics & personal care; Dairy; Fast food; Food retail; Forestry; Furniture & flooring; Home care; Home improvement; Ingredients; Oils & fats; Other; Packaged food; Paper & packaging; Printing & publishing Not in an industry that produces/procures soft commodities Forest 500; SCRIPT What is the primary role of the company in soft commodity supply chains Points are determined by the role that a company fills in the supply chain. Points are determined by the segment closest to the site of production. Producer Processor 0.5 Trader Manufacturer 1 Retailer 2 Forest 500; SCRIPT What percentage of the company s total revenue is reliant of the production/procurement of soft commodities? Highest points are given when the company s total revenue reliant on the production/procurement of soft commodities is low High 0 Medium 0.5 Low 1 CDP

7 Indicator Guidance Answer options What is the volume of soft commodities used by the company? What is the total land area controlled by the company for soft commodity production? Highest points are given to companies with lowest volumes of soft commodities used. Highest points are given to companies with small landbanks. Companies that are not producing soft commodities get full points. High volumes used 0 High volumes traded 0 High processing capacity 0 High production capacity 0 Moderate volumes used 0.5 Moderate volumes traded 0.5 Moderate processing capacity 0.5 Moderate production capacity 0.5 Low volumes used 1 Low volumes traded 1 Low processing capacity 1 Low production capacity 1 Large landbank 0 Medium landbank 0.5 Small landbank 1 Not a producer 1 RSPO; CDP SPOTT; RSPO Does the company operate in or source commodities where soft commodity production is driving deforestation or land use change? Highest points are when a company is not operating in countries where soft commodity production is driving deforestation or land use change Yes 0 No 2 CDP; RSPO

8 Assess and measure exposure to risk from deforestation Indicator Guidance Answer options Does the company perform a regular sustainability related materiality assessment? Does the company identify deforestation as a business risk? Does the company s board have a committee that is formally focused on sustainability issues? Does the committee charter reference deforestation or deforestation related risks? Does the company link executive compensation to sustainability issues? Points are if the company performs and publishes a sustainability related materiality assessment Points are if the company recognises deforestation as a business risk Points are if the company has a committee on the board that is formally focused on sustainability issues Points are if deforestation or deforestation related risk is referenced in the committee charter Points are given if any portion of executive pay is specifically linked to sustainability outcomes for all named executive officers Yes 3 Partial 1.5 Yes 3 Yes 1.5 Yes 1.5 Yes 3 Ceres CDP Ceres Ceres Ceres Does it disclose the proportion of pay at risk? If executive compensation is linked to sustainability issues points are given to companies that state the proportion of pay at risk Yes 1 Ceres Has the company signed up to key initiatives seeking to end deforestation? Full points are given if the company has signed up to both the New York Declaration on Forests and the Consumer Goods Forum. Half points are given if the company has only signed up to one of these. New York Declaration on Forests signatory 0.5 Consumer Goods Forum member 0.5 New York Declaration on Forests signatory; Consumer Goods Forum member 1 SCRIPT

9 Company Policies and Strength of Mitigation Strategy Indicator Guidance Answer options Does the company have a commitment to address deforestation? Does the company have a commitment to source soft commodities sustainably? Does the company have a commitment to minimise GHG emissions from its procurement of soft commodities? Does the company have a commodity-specific sustainability policy that protects against the conversion of primary, intact, high carbon stock, and high conservation value forests? The commitment must be companywide and apply to all relevant high risk commodities. Zero deforestation is understood as no loss of forest anywhere (zero gross deforestation), while zero net deforestation is understood as a commitment to offset forest loss through forest restoration. Points are when the company commits to producing or procuring commodities that are sustainably produced. Points are given to companies that commits minimise GHG emissions from its procurement of soft commodities. For producers, this indicator applies directly to their operations. For operators at later supply chain stages, the commitment must state all relevant scope III emissions. Policy must state that the company will not source from any of the mentioned forest definitions or similar. Points are to policies that state that the company will or plans to only source commodities whose production is certified by a credible certification scheme that protects one or more of these forest types No deforestation commitment 0 Commitment to address deforestation 1 Zero net deforestation 4 Zero deforestation 5 No policy 0 No policy 0 No policy 0 Yes, but only regional coverage 2.5 Forest 500; SPOTT Forest 500; SPOTT; CDP; RSPO SPOTT; SCRIPT Forest 500; SPOTT; RSPO

10 Indicator Guidance Answer options Does the company commit to obtaining the Free Prior Informed Consent of local communities, including but not limited to indigenous peoples, for all new developments and operations in relation to their commodity supply chains? For producers, this indicator applies directly to their operations. For operators at later supply chain stages, this is related to commodity sourcing. No policy 0 Yes, overarching company policy 5 Forest 500; SPOTT Does the company have a policy that protects workers rights in relation to their suppliers? Policies should state the company will require that the standards laid out in the United National International Labor Organization conventions and United Nations Declaration of Human Rights are upheld, or use similar language specifying the fundamental principles and rights at work. These include: freedom of association and recognition of collective bargaining; the elimination of forced labour; the abolition of child labour; and the elimination of discrimination. No policy 0 Yes, overarching company policy 5 Forest 500; SPOTT Does the company have a policy to increase traceability? Traceability is defined as the ability to follow a product back to at least one step removed from production (i.e. mill level for palm oil, paper, and timber products other than roundwood; crushing facility for soy beans; slaughterhouse for cattle), and ideally further. Where it is not clear how far back a company is committing to trace the commodities no points are. No policy 0 Yes, but not for all company operations Yes, but only regional 2 Back to first importer 2 Back to mill/back to crushing facility/back to slaughterhouse Back to plantation/back to ranch 4 See certification Forest 500; SPOTT

11 Indicator Guidance Answer options Does the company have a policy to produce or procure certified commodities? Points are given to companies that have a commitment to source soft commodities that are certified by a credible certification scheme. No commitment 0 Certification commitment 2 Time bound certification commitment 4 See traceability 4 RSPO; SPOTT Does the company s policy apply to all of its business, including all business units and companies within the group? Points are when the policy apply to all subsidiaries and business units. Subset of operations 0 All operations 5 Forest 500; RSPO Policy is not timebound 0 Yes; later than Yes; Is the policy timebound? Highest points are given when the company has already achieved its policy. Policies with no date of implementation are no points. Yes; Yes; Yes; Yes; Yes; Yes; Yes; Yes; current 5 Forest 500; RSPO

12 Monitor and Report Implementation Indicator Guidance Answer options Does the company enforce procurement standards that impact commodity sourcing? Points are given when the company has procurement standards in place that impact the sourcing of soft commodities. Partially 2.5 CDP Is compliance against procurement standards monitored? Points are given when the company has a system to monitor compliance against procurement standards CDP Does the company report against its policy? Points are when the company reports annually or more frequently against its policy Forest 500; RSPO Does the company report its GHG emissions footprint from its procurement of soft commodities? Points are if the company publically reports its GHG emissions footprint. For producers, this applies to their operations. Operators at later supply chain stages must report on all relevant scope III emissions related to the procurement of soft commodities. Partial reporting 2.5 SPOTT; SCRIPT Does the company disclose all of the subsidiaries that it owns or partially owns that produce or consume soft commodities? Points are when the company disclose all of the subsidiaries that it owns or partially owns that operates in an industry where they produce or use soft commodities. Yes 1 RSPO (ACOP 2015)

13 Indicator Guidance Answer options Making little or no progress 0 Is the company on track to meet its timebound goals to increase traceability? Highest points are when the company has reached the target set in their policy to increase traceability. Making some progress 2 Making significant progress 3.2 SPOTT Reached target 4 Making little or no progress 0 Is the company on track to meet its timebound goals to procure certified commoditites Highest points are when the company has reached the target set in their policy to procure certified commodities Making some progress 2 Making significant progress 3.2 RSPO Reached target 4 Does the company have any active or recent land conflicts or complaints registered against them? Points are when the company has not had any recent complaints registered against them Yes 0 No 1 RSPO Complaint Tracker

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