The economic cost of deforestation

The economic cost of deforestation is both substantial and complex, impacting business operations both directly and indirectly.

The World Bank and partners estimate that deforestation, along with other forms of land degradation, costs the global economy over $6.3 trillion per year – about 8% of global GDP.

In Brazil, deforestation in the Amazon and other regions could reduce rainfall and degrade soils. Over time, this may reduce agricultural productivity, outweighing any short-term gains from clearing land.

Credit: Akshay Chauhan / Unsplash.

Knowing the risks is the first step to action — here are six areas where deforestation puts business performance at risk:

1. Supply Chain Disruption

When forests are cleared, key natural resources like timber, palm oil, and rubber become harder to source, leading to price volatility and higher procurement costs. Forest loss also changes weather patterns and reduces rainfall, and can damage soil health—affecting agricultural productivity and the food supply chain.

2. Regulatory and Legal Costs

Governments are introducing stricter environmental regulations to protect forests (e.g. the EU Deforestation Regulation). Businesses that fail to comply may face fines and penalties, import/export restrictions, and higher costs of compliance and due diligence.

3. Investor and Financial Risk

Environmental, Social, and Governance (ESG) standards are becoming central to investment decisions. Businesses linked to deforestation can face lower credit ratings, reduced access to capital, and higher insurance costs.

4. Loss of Ecosystem Services

Forests provide vital ecosystem services to businesses, including water regulation and purification, climate regulation (carbon storage), soil fertility, flood and fire protection.

Researchers estimate the global value of all ecosystem services to be around $125 trillion a year, with forests accounting for a large share. Losing these services could lead to higher operating costs for sectors like agriculture, food, and beverages.

Learn more here: The business case for forests

5. Increased Operational Risks

Deforestation contributes to climate change, increasing the risk of extreme weather events, floods, droughts, and wildfires. These events can cause supply chain breakdowns, damage physical assets, and result in casualties among workers, further driving up insurance and recovery costs. Over time, the frequency and severity of such risks can make certain projects and programs more expensive to insure or even entirely uninsurable.

6. Reputational Damage and Brand Risk

Companies sourcing products linked to deforestation (e.g., soy, beef, palm oil) could face consumer boycotts, negative media coverage, or loss of market trust.

The costs of deforestation to business are complex and far-reaching. Addressing them requires going beyond deforestation-free sourcing to also investing in programs that actively reduce emissions from deforestation and forest degradation, enabling scalable and long-term impact. By combining these actions with transparency, stakeholder engagement, and nature-positive strategies, companies can protect supply chains, strengthen customer trust, and help protect forests.

Protecting forests is not only an environmental responsibility, but a vital business strategy.

Credit: Josiah Nicklas / Unsplash.