Deforestation has become a critical issue which affects not only our environment but also our economies and societies. Forests play a critical role in regulating the climate, sustaining biodiversity, and supporting the livelihoods of millions of people. Yet they are being cleared at alarming rates, largely to make way for agriculture and natural resources demand.
Following the 4th episode of Green Hub TV, we spoke to Laurie Chesné, Head of Green & Sustainable Origination & Advisory for EMEA and Gratien Davasse, Green & Sustainable Finance Analyst, both part of our Green & Sustainable Hub, as well as our external guests Lina Dechamp, Sustainability Manager, Biodiversity and Stakeholders engagement at Michelin, and Xavier Collet, ESG & Impact Specialist, Capital Natural at Mirova, to better understand the notion of deforestation, its implications and consequences on supply chains and how companies and investors are responding to these challenges.
Let’s start with the basics! Can you help us understand the notion of deforestation?
Gratien: Although there is no single global definition of a forest, the Food and Agriculture Organization (FAO) provides the most widely used benchmark: land of more than half a hectare, with trees taller than five meters and a canopy cover of at least ten percent.
Deforestation refers to the permanent conversion of such land into other uses – commonly agriculture or infrastructure development. This is not the same as temporary forest loss, such as selective logging where regeneration is possible.
Why are forests vital to people and the planet?
Gratien: Forests regulate the global climate, influence rainfall patterns, and provide resources like timber. Importantly, they are also rich ecosystems: tropical forests alone store two to three times more carbon than temperate or boreal forests, making them crucial in global carbon accounting. They are also biodiversity hotspots and home to many indigenous communities whose cultures and livelihoods depend directly on forest resources.
What is driving deforestation around the world?
Gratien: Around 75% of global deforestation stems from agriculture. Large-scale commercial farming (such as soy and cattle ranching) and smallholder subsistence farming are the dominant causes, particularly in tropical regions. In contrast, logging and wood cultivation are more prominent drivers in the Northern Hemisphere. Climate change is adding another accelerating factor with important wildfires decreasing forest cover loss.
Why should businesses and investors be concerned?
Gratien: For companies and financial institutions, deforestation is not only an environmental issue but also a strategic and financial one, impacting supply chains. Almost any company that sources raw materials is at risk of being directly or indirectly linked to deforestation.
The 3 main risks being:
- Reputational risk: brands have been damaged by NGO campaigns linking their products to deforestation, as seen in past controversies over palm oil.
- Market risk: consumers are increasingly unwilling to buy goods associated with forest destruction.
- Financial risk: banks and investors are tightening their policies, from excluding or restricting companies linked to deforestation to accompanying companies towards deforestation or conversion free supply chains.
To manage these risks, businesses can:
- Source sustainably through certifications such as RSPO (for palm oil) or FSC (for timber).
- Favor lower-risk geographies where deforestation pressures are less likely.
- Strengthen traceability by using tools like artificial intelligence and satellite monitoring and AI to verify the origins of raw materials.
For companies and financial institutions, deforestation is not only an environmental issue but also a strategic and financial one, impacting supply chains.
How does the EU Deforestation Regulation (EUDR) is reshuffling the deforestation management landscape?
Laurie: The EU Deforestation Regulation, which may come into force by the end of the year, is a significant development1. It requires companies to prove that key commodities – such as cattle, soy, cocoa, and their derived products (for example, leather or chocolate) – are not linked to deforestation and comply with local laws.
Non-compliance carries serious consequences: goods may be confiscated, fines imposed, and companies can even be barred from importing into the EU. To demonstrate compliance, firms must provide geolocation data for all land plots where commodities are sourced. Satellite imagery will play a pivotal role in demonstrating deforestation-free claims.
Could this mark a turning point for global supply chains?
Laurie: Yes, the regulation is widely seen as a watershed moment. It raises the bar for traceability, reshaping how supply chains are managed and monitored. Companies that have long relied on broad risk assessments will now need to provide hard data. The move toward geolocated, verifiable supply chains could also spur wider adoption of new technologies, certifications, and sustainable practices.
The EUDR is widely seen as a watershed moment. It raises the bar for traceability, reshaping how supply chains are managed and monitored.
How are companies preparing for the EUDR?
Xavier: Even before enforcement begins, many companies are already geolocating plots and mapping supply chains. It’s now much easier to see who is genuinely preparing.
Lina: At Michelin, we’ve invested heavily in this area. In 2017 we launched RubberWay, an app to map risks of deforestation and social issues. In 2018 we co-founded the Global Platform for Sustainable Natural Rubber with WWF to bring stakeholders together. And since 2023, with the EUDR, we have accelerated geolocation. By the end of 2024, we could show that 98% of our natural rubber was deforestation-free and fully compliant.
Has the EUDR changed the way deforestation risk is managed?
Lina: Previously, we focused on risk analysis. Now, compliance requires hard data. Regulation has accelerated traceability and moves us towards a more quantitative approach. Whether this translates into measurable reductions in deforestation is still uncertain.
Xavier: The shift is positive for investors. Supply chains are becoming shorter and more transparent, with fewer intermediaries and higher-quality certifications. Rainforest Alliance certification, for example, sets stricter requirements and earlier deforestation cut-off dates than the EUDR. These improvements create opportunities for stronger, value-added relationships.
Regulation has accelerated traceability and moves us towards a more quantitative approach.
Is the Framework creating opportunities?
Xavier: Yes. There’s rising investor interest in biodiversity-positive activities. Higher-quality certifications often come with price premiums, improving farmer livelihoods while reducing risks. Better data also enables us to integrate biodiversity and social impacts into investment strategies.
Lina: From a business point of view, opportunities will emerge if two conditions are met: proper enforcement at EU borders to keep non-compliant products out, and simplified implementation processes to reduce the burden of transmitting compliance data through supply chains. If these are addressed, the regulation can both protect forests and create fairer markets.
There’s rising investor interest in biodiversity-positive activities. Higher-quality certifications often come with price premiums, improving farmer livelihoods while reducing risks.
To dive deeper into the topic watch the replay of Episode 4 – Green Hub TV:
Tackling Deforestation across the Supply Chain.
1 - Since the time of recording this episode of Green Hub TV, the European Commision has announced it is considering postponing the EUDR for a further year due to concerns over the capacity of its IT system
