Supply Chain Nature Dependencies
For most companies, the most material nature-related risks and impacts do not sit within the company's own operations - they sit in the supply chain. A retailer may have a small office footprint with minimal direct biodiversity impact, yet its business model may depend entirely on agricultural commodities sourced from high-deforestation-risk regions. A consumer goods manufacturer may have a modern, certified factory, yet source raw materials from suppliers with poor land management practices. Understanding and managing these upstream nature dependencies is one of the most challenging and commercially important aspects of nature-related risk management.
Traceability: The Fundamental Challenge
Supply chain nature risk management depends on knowing where raw materials come from - a capability known as traceability. Without traceability, a company cannot assess whether its suppliers operate in biodiversity-sensitive areas, whether sourcing is contributing to deforestation, or whether supplier practices comply with the company's environmental policies. Yet traceability is notoriously difficult to achieve in complex, multi-tier agricultural supply chains.
A cocoa supply chain, for example, may involve millions of smallholder farmers across West Africa supplying village aggregators, who sell to district-level intermediaries, who sell to regional processors, who sell to multinational commodity traders, who sell to consumer goods manufacturers. By the time the cocoa reaches a chocolate manufacturer, traceability to the farm level - let alone the specific plot of land where cocoa was grown - is extremely difficult to establish without significant investment in supply chain mapping and digital monitoring systems.
Satellite monitoring technologies, blockchain-based supply chain tracking platforms, and supplier certification schemes (such as the Rainforest Alliance, RSPO for palm oil, and RTRS for soy) have improved traceability in some commodity supply chains. However, full farm-level traceability remains the exception rather than the norm for most global commodity supply chains.
High-Risk Commodity Profiles
| Commodity | Key Nature Risks | Primary Risk Geographies | Key Certification Schemes |
|---|---|---|---|
| Palm Oil | Tropical deforestation, peatland destruction, orangutan habitat loss, freshwater pollution | Indonesia, Malaysia, Papua New Guinea | RSPO (Roundtable on Sustainable Palm Oil) |
| Soy | Cerrado and Amazon deforestation, grassland conversion, water use in watersheds | Brazil, Argentina, Paraguay | RTRS, ProTerra, Amazon Soy Moratorium |
| Cocoa | West African forest loss, shade tree removal, pollinator decline | Cote d'Ivoire, Ghana, Indonesia | Rainforest Alliance, Fairtrade, UTZ |
| Beef (cattle) | Amazon and Cerrado deforestation, grassland degradation, water use | Brazil, Argentina, Paraguay | GTPS, Brazilian Beef industry commitments |
| Timber & Pulp | Old-growth forest conversion, boreal deforestation, peatland drainage | Southeast Asia, Canada, Russia | FSC (Forest Stewardship Council) |
Due Diligence Frameworks for Supply Chain Nature Risk
Several regulatory and voluntary frameworks create due diligence obligations for companies regarding supply chain nature risks:
EU Deforestation Regulation (EUDR): Requires companies placing specified commodities (cattle, cocoa, coffee, palm oil, soy, wood, rubber, and derived products) on the EU market to conduct due diligence to ensure these products do not come from deforested or forest-degraded land. Companies must collect precise geographic coordinates of the land parcels where commodities were produced, and conduct risk assessment against relevant criteria. Large companies face a deadline of December 2025 for compliance.
TNFD LEAP Approach - Upstream Application: TNFD guidance explicitly addresses the application of LEAP to upstream supply chains. In the Locate phase, companies map sourcing geographies against biodiversity sensitivity data. In the Evaluate phase, they assess ecosystem service dependencies relevant to input sourcing. In the Assess phase, they quantify which supply chain nature risks are most material to the business. In the Prepare phase, they set targets for supply chain nature impact reduction and engage suppliers on practices.
Corporate Sustainability Due Diligence Directive (CSDDD): The EU CSDDD, which entered into force in 2024, requires large companies to identify and address adverse human rights and environmental impacts in their own operations and throughout their supply chains, including at the level of established business relationships. Environmental impacts covered include biodiversity loss and ecosystem degradation, creating broad supply chain due diligence obligations that go beyond deforestation to encompass the full range of nature-related impacts.
The Scope 3 Parallel: Nature in the Value Chain
Supply chain nature dependencies are to nature risk what Scope 3 emissions are to climate risk. Just as most companies' largest greenhouse gas footprint sits in upstream purchased goods and downstream product use (Scope 3), most companies' most material nature impacts and dependencies sit in their upstream supply chains rather than in their directly controlled operations. TNFD explicitly draws on the Scope 3 disclosure framework as a model for how companies should think about and disclose nature impacts across the full value chain, even where those impacts occur outside the company's operational control.
Analogy: Traceability as Supply Chain Transparency
Imagine buying a piece of furniture and not knowing whether the wood came from a sustainably managed forest or a recently cleared section of the Amazon. As a customer, you might care deeply about this, but the complexity of the supply chain makes it difficult for even the furniture retailer to know. Traceability systems are like adding a QR code to the furniture that links back through every step of the supply chain to the specific forest plot, certified against a deforestation-free standard, enabling the retailer and the customer to verify the origin. Building this kind of end-to-end visibility is exactly what companies are now being asked to do for their high-risk commodity supply chains under TNFD and EUDR.
Supplier Engagement Strategies
Beyond due diligence and monitoring, companies with significant supply chain nature dependencies are increasingly engaging directly with suppliers to improve nature-related practices. Approaches include:
- Requiring or incentivising third-party certification (RSPO, FSC, Rainforest Alliance) as a procurement condition
- Providing technical assistance and agronomic training to smallholder suppliers on sustainable land management, which can improve both nature outcomes and yields
- Partnering with conservation organisations and local governments on landscape-level conservation programs in key sourcing regions
- Setting time-bound sourcing commitments (for example, 100% deforestation-free palm oil by 2025) and reporting progress annually
- Using satellite monitoring platforms to verify land-use change in supplier geographies and alert procurement teams when new deforestation is detected near sourcing areas
Commodity Risk Hotspot Assessment
Example: Palm Oil Portfolio Risk Assessment
A consumer goods company conducts a supply chain nature risk assessment for its palm oil sourcing. Step 1: Traceability mapping identifies that 60% of palm oil is traceable to mills in Sumatra (high-risk for peatland destruction and orangutan habitat), 25% is traceable to certified RSPO mills in Malaysia, and 15% is of unknown origin. Step 2: Geographic overlay against IBAT biodiversity data shows that several Sumatran supplier mills are within 50km of orangutan critical habitat and active deforestation alerts. Step 3: Financial risk assessment estimates that EUDR non-compliance for the non-traceable 15% would prevent approximately EUR 40 million of product sales to the EU market. Step 4: The company sets targets to achieve 100% mill-level traceability within 18 months and RSPO certification for all suppliers within 3 years, and discloses this plan in its TNFD report.
Key Takeaways
- 1Most companies' most material nature-related risks and impacts sit in upstream supply chains rather than in directly controlled operations, mirroring the Scope 3 challenge in climate risk
- 2Traceability to the origin of commodities is the fundamental prerequisite for supply chain nature risk assessment, yet remains difficult to achieve in multi-tier commodity supply chains
- 3Four high-risk commodities drive the majority of supply chain nature risk for most consumer goods and food companies: palm oil, soy, cocoa, and beef, each with distinct risk geographies and certification schemes
- 4The EU Deforestation Regulation requires companies to provide geographic coordinates of commodity production origins and conduct risk assessments against deforestation criteria, with large company compliance required by December 2025
- 5Supplier engagement strategies including certification requirements, technical assistance, landscape partnerships, and satellite monitoring are essential complements to due diligence and disclosure