Washington, D.C. JBS’ supply chain may be linked to 1.7 million hectares (ha) of deforestation across six Brazilian states creating significant financial risks.
A new report by Chain Reaction Research (CRR) reveals significant deforestation rates and exposure to future deforestation across a representative sample of farms that directly and indirectly supply JBS. A lack of effective mitigation measures creates financially material risks of shareholder action and supply chain exclusions. These risks are compounded by the impacts of COVID-19 and other ESG risks. CRR’s scenario analysis finds that profits could be reduced by as much as 26% or USD 1.3 billion, standing in stark contrast to JBS’ most recent quarterly figures.
CRR monitored a sample of 983 ‘direct’ and 1,874 ‘indirect’ farms selling cattle into JBS’ supply chain and found the farms were responsible for clearing 20,296 ha and 56,421 ha respectively. (An indirect farm sells cattle to another farm that then sold cattle to JBS at a later moment in time.) CRR conservatively estimates JBS’ total deforestation footprint since 2008 may be as high as 200,000 ha in its direct supply chain, and 1.5 million ha in its indirect supply chain.
“JBS monitors direct farms for deforestation but not indirect farms, creating a major transparency gap. Indirect farms face fewer repercussions for deforestation, increasing risk for JBS,” said Matt Piotrowski, an analyst with CRR.
CRR also identified several instances where indirect farms and direct farms were owned by the same individual and located in an adjacent lot but registered under different titles. This allows for cattle to be raised on different sections of a single property involved in deforestation, but still, be eligible for sale to JBS under its deforestation commitments.
Example of deforestation at a farm in Nova Canaã do Norte, Mato Grosso adjacent to a direct JBS supplier. Both properties are registered under the same owner.
Across the 1,874 indirect farms CRR located, approximately 2.1 million ha of native vegetation are still standing. Extrapolating these figures to all properties in the six Brazilian states for which records exist results in an estimation of 64 million ha of remaining vegetation in JBS’ indirect supply chain. As indirect farms have a higher likelihood of deforestation, this signals significant amounts of existing forests might be at risk.
CRR analyst Tim Steinweg stated, “JBS is at a crossroads. Either it addresses deforestation risks across its entire supply chain to allay the concerns of its stakeholders, or its risks losing access to international finance and markets.”
CRR conducted a scenario analysis for four distinct risk categories and calculated the outcomes of a low, medium, and high-impact scenarios. Financially, JBS could be very vulnerable to the business risks related to deforestation; plant closures and supply chain exclusions from deforestation and COVID-19; financier action over ESG issues; and, hanging Chinese consumer preferences. Across all ESG factors measured, JBS revenue might be severely hurt, and profit reduced by 26% or USD 1.3 billion in a high-impact scenario. Re-financing of debt might become more expensive as investors are considering new alternatives for curbing deforestation.
For more information on the state of the Brazilian cattle industry and sustainability please refer to CRR’s latest report Brazilian Beef Supply Chain Under Pressure Amid Worsening ESG Impacts.
Chain Reaction Research
Chain Reaction Research is a consortium of Aidenvironment, Profundo, and Climate Advisers. CRR conducts sustainability and financial risk analysis for analysts and investors, with a specific focus on commodity value chains and deforestation. For more information, visit https://chainreactionresearch.com.
Inquiries about the report should be directed to Kyle Saukas: saukas@www.climateadvisers.org
