1. Deforestation Risks: Financial Costs and Tropical Agriculture Supply Chains World Bank Land and Poverty Conference - March 20, 2018 – Washington DC

2. Key: Stopping Deforestation 1/3rd Climate Solution

3. Risks Are Systemic and At Sector Level
Global GHG emissions: 25% from agriculture and land-use and 18% from tropical deforestation for agriculture
In 2016, BlackRock suggests that deforestation risk is material for supply chains
In 2017, 200 corporations had $941 billion revenue-at-risk from deforestation (CDP)
49% of Brazil’s soy covered by zero-deforestation commitment, may soon reach 57% (Chain Reaction Research)
74% of SE Asia’s palm oil refining capacity covered by zero-deforestation commitments (Chain Reaction Research)
Corporate zero-deforestation commitments up 174% to 760, 2015 to 2017
Palm oil
Cattle
Soy
Timber, pulp and paper
Coffee
Cacao

4. TCFD States Deforestation Risks Material
On June 29, 2017 the Financial Stability Board Task Force on Climate-Related Financial Disclosures (TCFD) published their final report including key recommendations for the Agriculture, Food and Forest Products sector:
“TCFD framework enables addressing material deforestation risks in agriculture supply chains and for downstream buyers.”
Bruno Bertocci, Managing Director, Head of Sustainable Investors, UBS Asset Management and TCFD member (Interview, July 19, 2017)
Material Impacts
Revenues
Expenditures
Assets and liabilities
Capital and financing

5. Risk Control is Imperative, Drives Financial Performance
Risk Categories
Operational
Reputation
Legal / Regulatory
Market
Credit
Liquidity
Business
Strategic
Direct Risks or Cause
Indirect Risks or Effect
Operational risks are direct, and the other seven risks are indirect
Effective risk control improves financial performance
Executive and board of directors risk management is key to equity performance

6. Forensic Case Study Analyses Show Risks are Material
Operational Risk: Sime Darby grow oil palm on 4% of 220K ha Liberian plantation due to 55 communities concerns, Q2 ‘17 $48 million impairment Reputation Risk: JBS caught with 59K cattle from illegal deforested properties, bribed food inspectors, other issues, cascade cancels ‘17 IPO of international division, shares down 35% Legal / Regulatory Risk: Felda Global Ventures violates RSPO rules and laws with illegal deforestation on 2K ha, $5 million restoration liability equals Felda’s Q2 ‘17 net income Market Risk: Sawit Sumbermas Sarana violates Unilever’s deforestation policy, Unilever ceases procurement Q2 ‘17, Sawit loses 8% revenue, shares down 15% Credit Risk: Noble Group misstates palm oil assets value used for loan collateral, deforests 70K ha, Noble decreases palm oil balance sheet assets $60 million Q2 ’17 Liquidity Risk: IOI Corporation lost 27 corporate buyers after RSPO suspension because of illegal deforestation on 11,750 ha, Q earnings negative $14.8 million Business Risk: United Cacao’s illegal deforestation caused executive turmoil and fraudulent payments, then delisted by LSE, investors lose $42 million Strategic Risk: MP Evans fights off bid from KLK for Evans’ RSPO certified plantations, Evans sells plantations for $100 million at premium per ha, Evans shares up 58% Strategic Risk: Unilever achieves palm oil commitment, sells part of its palm oil business to KKR, KKR pledges 100 percent sustainable sourcing, sale initially priced at $7 billion sold at $8 billion

7. How Can We Enable Informed Risk Management?
Management of deforestation risks is material
Poor Risk Management
Successful Risk Management
Reduced revenue
Premium for certified products
Increased operating costs
Customer retention
Increased financing costs
Cost savings
Reduced profit
Brand value enhancement
Cash flow risks
Satisfied staff
Stranded assets
Lower cost of debt and equity
Reduced land value
Leadership in sector
Increased net debt / EBITDA
Higher equity returns
Lower share price
Access to green finance
Customer loss
Sustainability-based subsidies

8. Summary Slide Key: Stopping Deforestation 1/3rd Climate Solution
Risks Are Systemic and At Sector Level
TCFD States Deforestation Risks Material
Risk Control is Imperative, Drives Financial Performance
Forensic Case Study Analyses Show Risks are Material
Impacts: Revenues, Expenditures, Assets and Liabilities, and Capital and Financing
How Can We Enable Informed Risk Management?
Material Impacts
Revenues - Expenditures - Assets and Liabilities - Capital and Financing

9. Gabriel Thoumi, CFA, FRM DIRECTOR CAPITAL MARKETS thoumi@climateadvisers.com