Findings: Investor Side

In speaking with investors, many cared deeply about co-benefits, but had limited resources to pursue projects. This means that there is significant competition for whatever resources there are. We believe that issues addressed by CSR strategies reflect the concerns of a company’s stakeholders, like customers, employees, and suppliers, as well as take into account the potential impact of an issue on a company itself.

Issues that are of high concern to stakeholders AND have significant impacts on the Company will be the top

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priorities. Climate change often falls in this top priority segment of the materiality map. But what about REDD+? Investors often think of it as one of the options to address climate change, and so this same analysis applies but with climate change mitigation strategies as the competition. Materiality maps (like the one to the right) varies by company of course, but rarely was REDD+ cited as a the top priority in climate change mitigation strategies. Our interviewees discussed the challenges associated with REDD+ in both these areas, company impact and stakeholder concern.

 

In speaking with investors, we found that the bulk of what they believed to be REDD+’s main challenges lay on the “impact on the company” side of equation, with the two primary challenges being an unproven business case as well as

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uncertainty. In terms of the business case, REDD+ has no direct financial impact, that is once the money goes out the door, it doesn‘t come back in an easily measureable way. This contrasts with energy efficiency investments, which can have a payback period of less than 2 years. Another business argument for REDD+ is that is makes the supply chain more sustainable and resilient for some types of companies. Companies sourcing forest or agricultural products, for instance, may benefit from avoided deforestation projects. That said, an interviewee who is working on REDD said that “quite often, we in the international community speak from an emotive position rather than a position backed by empirical evidence. People throw around words like supply chain security and resilience in supply chains, but do we have the evidence that can back that? What is the impact on risk and return?” This comment highlights the highly speculative nature of REDD’s impact on the supply chain.

Similarly, while incorporating REDD into a company’s CSR strategy may help with employee recruitment, retention, and moral, there is no empirical evidence that this is the case. However, CSR managers did acknowledge that this could be a very real benefit of REDD, but as a component in a larger sustainability strategy.

Finally, there is an argument for positive public relations and a halo effect. Most investors were not convinced by this line of reasoning given the complicated message behind REDD and general lack of awareness of the mechanism, both of which I’ll touch on later. In terms of uncertainty, there are essentially two types. One is that companies are being inundated with different types of projects and standards that there is a sort of standards dilution going on. With so many types of carbon, biodiversity, and other standards out there, it’s difficult to gain the attention of key decision makers within companies. The other uncertainty is with compliance markets. Companies that want to prepare for what they expect to be carbon compliance markets have no clarity on what standards those markets will accept, and so are limiting their pre-compliance investing.

Our interviewees thought that REDD’s messaging was overly complex and not tailored to business needs. REDD’s origins are in the scientific arena, and often times that’s how REDD is framed – in terms of baselines, monitoring, verification, and reporting requirements – not the most enticing propositions for businesses. But perhaps more importantly is that the concept of REDD and avoided deforestation in general is not something easily understood by the public. PUMA, for example, is one of REDD’s biggest proponents, and they sell clothing made from a factory developed as part of a REDD project. But they can’t market these products as avoided deforestation or REDD, because the consumer doesn’t have the attention span for it. The best they can do is something like “buy a tee, plant a tree”. As a result, there is a very limited willingness to pay premium on the part of consumers.

Similarly, REDD is unknown to most people. The people in this room probably knew what it is before Evan discussed it, and most CSR staff we spoke with it were aware of it as well, but that’s basically it. For most people in Europe and America, it’s nothing more than a color.

Finally, some investors we spoke with believed there were some legacy reputational issues from when REDD were first initiated. Carbon cowboys, as they were known, essentially pushed indigienous groups off their land in order to set up a project. There are safeguards against that now, but the issue of indigenous people’s rights is still highly visible.