N4C Interviews: Niki Mardas & James Lloyd talk deforestation and finance for a nature-positive future

As London Climate Action Week approaches, Niki Mardas from Global Canopy & James Lloyd from Nature4Climate spill the beans on why finance and business need to act fast on deforestation, and the wins that will come from shifting funds to protect and restore forests.

James: “There are signs that deforestation rates are finally falling in the Amazon – does this mean we are seeing a shifting of attitudes and practices when it comes to finance, business and forests?”

Niki: “We have seen some encouraging signs in the first half of this year – not least because of the momentous change of direction on deforestation with a new government in Brazil. But deforestation rates are still monumentally high. In 2022 the Amazon suffered record levels of deforestation; if deforestation were a country it would be the 3rd largest emitter behind the US and China. And the capital still driving deforestation simply overwhelms the finance that’s going towards protecting nature.”

James: “The City of London, Manhattan, or Hong Kong, all seem a long way away from where deforestation is at its worst in the Amazon and Congo Basin. Can you explain the link between finance and deforestation?”

Niki: “Sure. We are all part of a global deforestation economy. A study using data from our Trase Partnership found that over ninety per cent of deforestation worldwide is ultimately driven by agricultural expansion for a handful of globally traded commodities – like beef, soy, and palm oil. The capital that’s powering every stage of the supply chains linked to these commodities comes from investors and lenders worldwide. The 150 financial institutions we assess as part of our Forest 500 rankings provide more than US$6.1 trillion in finance to the 350 companies with the greatest links to tropical deforestation. Deforestation is in our food, our fashion and our finance. And yet 40% of the companies and financial institutions most exposed to deforestation are still ignoring the issue.”

James: “I’m surprised we aren’t seeing finance doing more, especially as net zero targets are unreachable without a rapid end to deforestation – and most big banks and investors have set these.”

Niki: “You’re spot on. Deforestation causes 11% of global emissions. There is simply no solution to climate change without a solution to deforestation. Powerful groups like GFANZ, comprising financial institutions representing over $140 trillion in assets that have made strong net zero commitments recognise this reality. Their leadership wrote a letter last year declaring that net zero transition plans without action on deforestation are incomplete. Yet our assessment of all financial institutions with significant climate commitments, who are in groups like GFANZ and Race to Zero, shows that only a very small minority have taken any action at all on this carbon bomb in their portfolios.

But it’s not just about net-zero targets. The direct economic impacts of deforestation are hitting hard – the Brazilian energy crisis in 2021 was brought on by drought, linked to deforestation. Finance and businesses are increasingly exposed to reduced productivity as a result of disrupted forest ecosystems, and a whole host of related reputational, operational, physical and market-related risks are threatening the very agricultural commodity industries that the forest has been cleared for. And there is increasing regulatory pressure too – new due diligence legislation on deforestation that covers all companies that trade with the European Union is already dramatically reshaping the landscape. The writing really is on the wall now. All financial institutions should be engaging with the companies and clients in their portfolios to encourage and enable them to shift to deforestation-free methods of production.”

James “Yes, it’s high time we saw all leading financial institutions engaging with the agricultural commodity sectors to encourage them to shift towards ways of working that protect and restore our forests – at the same time as making a profit of course! But what will really change the status quo?”

Niki: “There’s a Brazilian saying ‘cada macaco na seu galho’ (‘each monkey on their own branch’) – which means ‘you take care of your business and I’ll take care of mine’. But when it comes to the deeply interconnected climate and nature crises, the opposite approach is the only one that makes business sense. We are at the start of a new era of nature regulation, which underscores the importance of transparency and collaborating with peers. Reporting risks and exposure is increasingly mandatory. Sharing learnings creates a network effect of knowledge so that finance and business can take the steps to become deforestation-free.”

James: “Legislation has often been lauded as the holy grail of change, but other factors are important too. What else is coming together to change the status quo and make finance sector action on deforestation even more of a no-brainer?”

Niki: “In the past, lack of data was an excuse for inaction. But this is no longer the case. We and our peers and partners now provide a whole host of tools, data, and guidance specially designed to help finance and business act on deforestation. Frontrunning financial institutions – such as the members of Finance Sector Deforestation Action – are showing that progress on deforestation is both positive and possible. UK bank Schroders – one of the members of the FSDA – improved its annual Forest 500 score by 46% in a single year. With board-level buy-in, and concerted effort, it can be done.

“In September, the TNFD (Taskforce on Nature-Related Disclosures) will launch its final framework and expectations will be on investors and lenders to properly get to grips with all their nature-related impacts and dependencies. And as an organisation, Global Canopy will be holding financial institutions to account. In November, the Deforestation Action Tracker for finance will shine a public light on which financial institutions are acting on deforestation, and which are failing to change.

James: “I’m optimistic that we will see some real shifts over the next year. Yet with deforestation rates so high, surely financial institutions need to be making new investments to restore and regenerate forests and other ecosystems too?”

Niki: “There is absolutely reason for optimism towards the future. We’re co-hosting an event at London Climate Action Week that explores new hope for Brazil under Lula and how Brazil can once again become a beacon for sustainability. For that to happen, we need responsible, sustained investment and growth in nature and forest regeneration. These are vital parts of the solution, as long as they go hand in hand with shifting capital away from the drivers of deforestation. There are some promising signs. Assets held in thematic biodiversity funds have more than tripled over the course of last year to reach $984 million. Leading Brazilian investor JGP and WWF are raising a fund to restore deforested land around the Amazon.

“There are of course risks here too, so it’s crucial that all financial sector strategies and initiatives towards accelerating the nature positive and net zero transition should be time-bound, ambitious, equitable and transparent.”

James: “Ok, so I’m an investor and I’m fed up with my portfolio being blamed for being a key cause of deforestation and want to change things fast. Where do I start?”

Niki: “Global Canopy, alongside partners, has developed a suite of guidance for financial institutions. The Finance Sector Roadmap is the best starting point – showing the key steps needed for financial institutions to eliminate commodity-driven deforestation, conversion, and associated human rights abuses from their portfolios. But there is also more in-depth and sector-specific guidance – and all of it links across to the best available data and tools, and will continue to evolve as things improve further. Please see guidance.globalcanopy.org online or do get in touch with our team. Above all, don’t let the perfect be the enemy of the good – start today, and remember that many of your peers are already showing how this can be done, so follow their lead and don’t get left behind.”