Leather Benchmark Report:
Auto sector falls short in addressing its deforestation footprint
Car companies know that their leather seats may contribute to the deforestation of rainforests, yet they do very little to mitigate it.
CATTLE: Cattle grazing is the single largest cause of all rainforest destruction. Photo: Victor Moriyama/RFN
- The automotive industry does not do enough to mitigate its deforestation risks. While some companies have recently adopted zero-deforestation measures, all fall short of best practices.
- There is a growing divide between the leaders who are taking initial steps to ensure that their products are not linked to forest destruction, and the laggards who fail to take any meaningful measures. Lear Corp, Adient and Hyundai are the only companies with a dedicated zero-deforestation policy. Well-known brands including Volkswagen, Renault and Ford fall short.
- Unsubstantiated sustainability claims about alternative products, and high-profile philanthropic donations are no substitute for necessary measures to achieve deforestation-free supply chains.
- A group of investors has recognized the deforestation risks in this sector. Responsible investors have an opportunity to reduce the deforestation footprint of the automotive industry through targeted active ownership.
Cattle grazing is the single largest cause of all rainforest destruction. Of all forest lost to agriculture, the meat and leather industries account for more than a third. In the Brazilian Amazon, cattle is linked to a stunning 80 percent of forest clearing.
Europe is an important market for leather produced from these animals, and half of the leather that Europe imports from Brazil goes into luxury car seats. As the European Union is developing new deforestation regulation on forest-risk products such as leather, car companies that rely on Brazilian leather may face substantial risks when they are associated with the destruction of the Brazilian Amazon. So what are these companies doing to mitigate these risks and ensure that their products are deforestation-free? Rainforest Foundation Norway’s new briefing shows that the automotive industry is not nearly doing enough.
“The automotive industry is well aware of this issue, as we have confronted them with it several times, yet they choose to ignore our warnings and do little or nothing to ensure that their production does not contribute to deforestation. The Amazon rainforest is at the brink of a tipping point, and more action is urgently needed,” says Nils Hermann Ranum, Head of Deforestation Free Markets at Rainforest Foundation Norway.
Following our 2021 report on the role of the car industry in driving deforestation, Rainforest Foundation Norway (RFN) has now examined the policies and practices of 15 companies in the automotive supply chain; 10 well-known car brands and five of its direct car seat suppliers. Together with the sustainability consultancy Aidenvironment, RFN assessed these companies on the strength of their policies and strategies to address leather-related deforestation risks; how they implemented these policies; the information they disclose to the public; and their performance. Each of these companies are systematically scored against best practice indicators, based on the Guiding Principles of the Accountability Framework, the most widely accepted set of standards for companies in forest-risk sectors.
“Only a few companies from the automotive sector acknowledge leather as a deforestation risk commodity even though Europe has been the destination market for one-third of the bovine leather produced in Brazil. The automotive sector has been late in establishing zero deforestation policies that include leather as a deforestation risk commodity, and it is urgent to monitor its effective implementation,” says Joana Faggin at Aidenvironment, lead researcher for this briefing and the previous leather study from 2021.
A few companies have adopted zero-deforestation policies, but none meet best practices
At the time of publishing the Drivers of Deforestation report in the spring of 2021, not a single company had policies or systems in place to avoid deforestation leather from entering its supply chain. In the meantime, a handful have adopted zero-deforestation policies and have thus taken the first step to address this issue. However, most companies continue to operate without taking any measures to ensure that their cars are made without negative impacts to tropical rainforests. (See detailed scores of all companies in the benchmark at the bottom of this article.)
Lear Corporation, one of the largest makers of leather car seats, revised its one-page No Deforestation Policy in March 2022. However, this policy falls short of best practices; it defines deforestation as “loss of forest due to illegal land conversion for agriculture, or practices that result in severe and sustained degradation of forests and peatlands”. The expectations it sets towards its leather suppliers do not go beyond the legal requirements that these companies are already expected to adhere to. It only ‘encourages’ the protection of ‘High Conservation Value (HCV) forests. Neither does Lear set a time-bound commitment or deforestation cut-off date, nor trace where the leather it sources comes from, or have a mechanism to deal with non-compliances.
The Irish American car seat maker Adient also adopted a Deforestation Policy in September 2022. This policy explicitly recognizes cattle-derived products as having a deforestation impact, making it the only policy that specifically identifies which materials in its supply chains carry a deforestation risk. Adient has initiated a risk assessment, set interim traceability deadlines and refers to internationally accepted standards such as the Accountability Framework, however it stops short of setting an ambitious deadline for a fully deforestation-free supply chain, nor does it publicly communicate clear cut-off dates. In the implementation of its policy, it remains unclear how the company intends to deal with suppliers that do not meet its expectations.
Hyundai is the only car brand that has a No Deforestation Policy, adopted in June 2022. The policy only applies to Hyundai’s own operations and is merely recommended for adoption by its suppliers and other business partners. Its language does not suggest that the adoption of this policy will alter the company’s use of leather for car seats, although the company does state an overarching ambition to “complete a value chain structure that operates a business without deforestation in the mid-to-long term”.
The remaining twelve companies that were reviewed do not have a deforestation policy. Some of the companies do have overarching supplier and social and environmental policies. Their mechanisms could theoretically be used to address leather-related deforestation risks, but this is unlikely without an explicit recognition of the materiality of this issue.
The gap widens among car seat makers
The study looked at two segments of the automotive supply chain; the well-known automotive brands (10 companies) and their direct suppliers of car seats (5 companies). This latter group has a higher exposure to leather as a main raw material for its core business. The car seat sector is highly concentrated, with only five companies controlling 80 percent of the market. Whereas none of these companies had any meaningful approach to reducing deforestation risks in 2021, the newly adopted policies by Lear and Adient have resulted in a growing divide between the leaders and the laggards in this sector.
The other three companies, Magna International, Faurecia and Toyota Boshoku, score the lowest of all companies in our scorecard. These tier 1 suppliers fail to recognize that the leather they purchase contributes to the destruction of the Amazon biome and do nothing to mitigate their role in this environmental disaster. Not only does this mean that these companies have a harmful environmental footprint, but it also exposes them to potential material regulatory and market access risks.
Lot of talk about alternatives, but few report on the sustainability impacts
In addition to the few companies that try to source responsible leather, several companies in the automotive sector have decided to replace leather with alternative materials. These alternatives include cork, hemp, recycled plastics, cactus, corn starch, polyester and recycled fishing nets.
Whereas such alternatives may appear more sustainable than leather, they are not always. Several alternative seat covers may require additional plastics, based on fossil fuels, or other materials with high carbon footprints. The briefing therefore assessed not only whether companies report developing leather alternatives, but also whether they publicly report sustainability metrics on these substitutes, including emissions data.
Only two companies provide such metrics. Faurecia reports that its hemp-based materials have a 25% lower CO2 footprint than PVC and 95% lower than leather. Hyundai reports 47% lower CO2 emissions from its eco-friendly PU artificial leather, compared to regular petroleum-derived PU artificial leather.
Four other companies make sustainability claims around leather alternatives, but do not provide any data to back up these claims. Stellantis does not report any figures to substantiate that its substitutes are environmentally more friendly than leather. General Motors does not report to what extent its plant-based alternatives in leather are more sustainable. Renault has committed to no longer use any leather in its cars by the second half of 2024, replacing it with polyester for all its models. While it reports that this polyester is recycled and low carbon, it does not provide any underlying metrics. Geely reports that its Lynk & Co 01 model in Europe has replaced leather with ‘sustainable’ materials, but also does not further substantiate or define this claim.
Volkswagen commits to PR, but not a clean supply chain
A company that has a notably mediocre score is Volkswagen. The company ranks lower than six of its peers (four car brands and two car seat makers). It does not have a dedicated deforestation policy or time-bound commitment, although it has undertaken a risk assessment and sets a contractual requirement on its suppliers on sustainability certification by the Leather Working Group. It has assessed risks through outreach to its direct (Tier 1) suppliers and has concluded that it is not exposed to any leather from Brazil or Paraguay. However, it remains unclear whether such exposure may still exist further in its supply chain (Tier 2 and beyond).
This has not held the company back from making high-profile commitments at COP 27, where it was one of two companies to join the LEAF Coalition. As a corporate member of this coalition, it has committed to purchasing “high-integrity” emissions reduction credits. The disconnect between its failure to take the necessary steps to achieve a deforestation-free supply chain, and its high-profile appearance at the Climate COP are striking.
Responsible investors recognize the automotive sector’s deforestation footprint
All the companies included in this scorecard are publicly traded entities. Institutional investors may therefore be exposed to deforestation risks in their portfolio through their holdings of companies in the automotive supply chain. Several investors have recognized this risk and have come together in the Investor Working Group for a Deforestation-Free Automotive Industry. This working group conducts collaborative engagement on deforestation risks stemming from the use of leather (for car seats) and rubber (for tires). RFN acts as the leather knowledge partner for this group.
"The automotive sector is an underappreciated but important contributor to tropical deforestation through its leather supply chain,” says Joe Horrocks-Taylor, Biodiversity and Climate Analyst at Columbia Threadneedle Investments.
He continues: “Over the last year, we at Columbia Threadneedle Investments have engaged eight automobile manufacturers and five car seat manufacturers to drive forward action on assessing and managing exposure from deforestation risks. Rainforest Foundation Norway's expertise has been invaluable in working to improve the sector's performance on deforestation, and we believe this assessment will be a key resource in identifying sector laggards and the actions they need to take to improve."
Norwegian Storebrand Asset Management, also a member of the new working group, commits to becoming deforestation-free within the next couple of years: "Storebrand Asset Management has committed to having a deforestation-free investment portfolio by 2025. Our main method is ownership engagement to induce companies to eliminate deforestation from their operations and supply chains. Automakers and producers of car seats are exposed to deforestation risk through the sourcing of leather. We urge them to adopt commitments to avoid sourcing from suppliers without zero deforestation commitments, and to carry out due diligence on their supply chains to trace the leather that they source all the way to the original farms," says Vemund Olsen, senior sustainability analyst at Storebrand Asset Management.
The working group has formulated the following high-level asks to automotive companies, in line with the principles of the Accountability Framework.
- Publicly commit to a time-bound zero-deforestation supply chain and adopt responsible sourcing policies
- Set clear public expectations for suppliers on deforestation-risk management systems and disclosures
- Trace the leather and natural rubber supply chain beyond direct suppliers and provide transparency about the origin of leather and natural rubber products
- Systematically assess deforestation and other sustainability risks in supply origins
- Engage direct and indirect suppliers that face high deforestation risks and/or are non-compliant with sourcing policies
- Publicly disclose sufficient detail on deforestation risk management to CDP Forests or corporate reporting
Rainforest Foundation Norway regards the automotive leather market as exceptionally well suited for impactful shareholder engagements, because of its high market concentration of stock-listed companies.
“Responsible investors are well placed to push for swifter action towards deforestation-free supply chains, and the Investor Working Group for a Deforestation-Free Automotive Industry offers an accessible platform for collaborative action," says Nils Herman Ranum, head of deforestation-free markets at Rainforest Foundation Norway.