Tackling deforestation: A clear way forward for financial institutions

By Dr. Leah Samberg, Scientist, Global Policy, Rainforest Alliance; Sarah Rogerson, Global Canopy; Stephanie Kimball, Conservation International.

This week, 30 financial institutions with more than US$ 8.7 trillion of assets under management declared their commitment to tackling commodity-driven deforestation in their portfolios by 2025. This comes as banks, investors, and other organizations that finance agricultural and forestry commodity production are increasingly put in the spotlight on climate, forests, and biodiversity.

Deforestation accounts for more greenhouse gas emissions than the entire European Union – and is a leading driver of biodiversity loss. The expansion of commodity crops such as palm oil, soy, beef and pulp and paper is by far the largest cause of the clearance of forests, savannahs, grasslands, and peatlands.

Over the past decade, companies that produce, trade, and sell these products have set and subsequently missed their own no-deforestation targets, and land clearance has continued. With attention now turned to the billions of dollars of finance that flow into these companies, the finance sector faces growing calls to play their part in ensuring that commodity production and trade is protective of forests, ecosystems, and human rights.

By setting clear policies, communicating expectations to those they finance, monitoring their performance, and engaging with their clients/holdings to accelerate progress toward deforestation, conversion, and human rights goals, the finance sector can and must play a pivotal role in ending deforestation.

The path forward is already clear

Fortunately, financial institutions do not need to start from square one in determining how the companies they finance can and should address deforestation, ecosystem conversion, and associated human rights abuses in their operations and supply chains. Clear guidelines for effective target setting, implementation, and reporting on these supply chain goals already exist in the form of the Accountability Framework.

Developed by a broad coalition of civil society groups to support and accelerate company action, the Accountability Framework’s principles and guidance have become the industry standard for companies working to establish commodity supply chains that are protective of ecosystems and human rights.

Leading companies and industry associations such as the Consumer Goods Forum are already using the Framework to improve their policies, and key reporting and disclosure systems such as CDP and the Global Reporting Initiative (GRI) have aligned their indicators with the Framework. This helps ensure that companies are receiving consistent and harmonised expectations for action and disclosure by all of their stakeholders.

All of this means that the groundwork is in place for financial institutions to hold companies to already-established expectations, based on a shared understanding of deforestation risk. To make this guidance more easily usable by financial institutions, members of the Accountability Framework initiative (AFi) coalition are now translating the Framework into tools and guidance for the finance sector.

Guidance for financial institutions

An exciting step forward is the release this week of the Finance Sector Roadmap for Eliminating Commodity-Driven Deforestation, developed by AFi coalition member Global Canopy, together with Conservation International and other partners in the Finance & Deforestation Advisory Group. The Roadmap guides financial institutions on how to implement commitments such as the one announced this week.

The Roadmap guides financial institutions through five steps they can take to address risks related to deforestation, ecosystem conversion, and human rights abuses linked to soft commodity financing in their portfolios. Drawing on input from more than 60 financial institutions, the Roadmap encourages a focus on active ownership and ongoing stewardship to work towards portfolios that are free from commodity-driven deforestation.

The Roadmap is well-aligned with the Accountability Framework and other tools and guidelines that companies are already using to reduce, measure, and report on deforestation risk. This alignment means that rather than reinventing the wheel, financial institutions can use these widely-agreed upon resources to help deliver deforestation-free commodity supply chains as part of a coordinated effort across stakeholders, sectors, and continents.

Moving forward through coordinated action

The Roadmap’s target date of 2025, set in line with the COP26 Presidency’s finance sector call to action, reflects the urgent need for action to reduce forest and biodiversity loss, deliver on emissions reductions targets, and meet the Paris Agreement goal of keeping global temperature rise below 1.5 degrees Celsius.

To meet these goals requires transforming the way forest risk commodities are produced, traded, and financed. While leading financial institutions have recently embarked on this journey, coordinated action across the financial sector is still lacking. This week’s commitment from financial institutions is a welcome step forward, and will hopefully be followed by many others. By following this new Roadmap financial institutions can move forward with confidence to meet the urgency of this moment.

Eliminating Commodity-Driven Deforestation: Finance Sector Roadmap is published by the Finance & Deforestation Advisory Group – a partnership including Nature4Climate, Conservation International, Global Canopy, High-Level Climate Champions team​, WEF Tropical Forest Alliance​, and the Head of Environmental Issues, Principles for Responsible Investment

This article was originally published on globalcanopy.org.