New analysis finds rising competition for wood fibre, tightening regulation, and climate disruption are increasing cost and supply risks for paper, packaging, and textile industries

Canopy and Finance Earth outline strategic pathways for brands and investors to reduce virgin wood exposure and strengthen supply chain resilience

A new research brief released during the World Economic Forum warns that global wood-dependent supply chains face mounting commercial and ecological risk as rising demand, climate impacts, and regulatory pressure push forests toward ecological limits. The brief, produced by environmental non-profit Canopy with Finance Earth, argues that business-as-usual sourcing of virgin wood exposes brands and investors to higher costs, supply volatility, and growing reputational and legal risk over the decade ahead.

The analysis comes as Canopy works with more than 1,000 consumer brands representing over $1.2 trillion in combined annual revenue to reduce deforestation and accelerate the adoption of circular and low-impact alternatives across sectors where wood is a primary input, including textiles and packaging.

A Tighter Market for Wood Fibre

The 2026 issue brief, Paper Thin Comfort, jointly authored with Finance Earth, finds that escalating demand for wood fibre across energy, construction, packaging, and man-made cellulosic fibre production is converging with climate-driven supply shocks and tightening regulatory constraints. According to the authors, these forces point to structurally tighter markets for certified and traceable virgin wood over the medium term, with implications for cost, compliance, and growth across paper, packaging, and fashion value chains.

Embedded analysis highlights rising bioenergy demand, increased uptake of engineered timber, and growing losses from wildfires and climate-related disturbances, reinforcing the pressure facing commercial forestry systems.

The brief warns that rising input costs and sourcing volatility will be most acute for companies reliant on paper-based packaging and wood-derived textiles, where virgin wood pulp already accounts for roughly one-fifth of global wood use. Brands exposed to e-commerce-driven packaging demand and viscose-based textiles are flagged as particularly vulnerable.

Nicole Rycroft, Founder and Executive Director of Canopy, said:
“Forests are one of our greatest climate allies and central to meeting global climate and nature targets, yet current sourcing models and supply chains are pushing them to breaking point. This brief makes it clear: if companies and investors stay locked into business-as-usual wood sourcing, they are signing up for higher costs, greater supply vulnerability, and growing regulatory and reputational risk. This exposes businesses unnecessarily, given there is a clear exit ramp with Next Gen and alternative sources.”

Compliance Costs and Investor Scrutiny

The authors point to expanding due-diligence requirements in the European Union, Canada, the United Kingdom, and other jurisdictions aimed at eliminating deforestation, forest degradation, and forced or child labour from supply chains. The European Union Deforestation Regulation (EUDR), set to enter into force in late 2026, is expected to reshape sourcing expectations for forest-derived inputs by restricting market access for non-compliant commodities and increasing competition for verified and traceable volumes.

At the same time, investors are tightening expectations around deforestation-free portfolios and beginning to reassess capital allocation to companies considered high-risk from an environmental or supply-chain perspective. The brief highlights growing alignment between forest-related risks, climate-related disclosure regimes, and cost-of-capital considerations for exposed companies.

RELATED ARTICLE: Microsoft Builds First Wood Datacenters, Cutting Carbon Emissions by 35%

Strategic Pathways for Brands

To manage rising exposure, the report outlines a three-part framework for companies seeking to reduce risk and build long-term resilience:

• Reduce reliance on virgin wood by scaling recycled and Next Gen fibres derived from agricultural residues, waste textiles, or recycled materials
• De-risk remaining wood supply through credible certification, full traceability, and screening for ecological and social risks affecting Indigenous Peoples and local communities
• Plan for future shocks by integrating wood-related scenarios into stress testing, procurement strategies, and capital-allocation decisions

Elizabeth Beall, Managing Director of Finance Earth, said: “The good news is that many corporates engaged in wood fibre sourcing are already starting to consider the financial implications of these risks to their bottom line. By quantifying the risks associated with business-as-usual wood fibre sourcing, businesses are able to see the clear rationale for investing in resilience and doubling down on sourcing of lower-risk supply.”

Why It Matters for Executives and Investors

For corporate leaders and financial institutions, the brief frames wood-fibre risk as a material business issue rather than a purely environmental concern. It positions circular and low-impact fibres as a hedge against regulatory shocks, raw-material volatility, and shifting investor and consumer expectations.

As climate and nature constraints increasingly reshape commodity markets, wood joins a growing list of raw materials facing heightened scrutiny from regulators, financiers, and supply-chain decision-makers. The brief concludes that resilience, traceability, and circular sourcing are rapidly moving from voluntary commitments to strategic imperatives for forest-dependent sectors worldwide.

Read the 2026 Paper Thin Comfort here.

Follow ESG News on LinkedIn