The finance sector has made comparatively less progress than other sectors in tackling deforestation according to Global Canopy, a not-for-profit which provides data on companies and financial institutions and their relationship to the planet’s forests.
Financial institutions identified as part of Global Canopy’s Forest 500 provided $6.1 trillion in financing in 2022 to companies in forest-risk supply chains.
For nine years, Global Canopy’s Forest 500 has tracked the policies and performance of the 350 most influential companies and 150 financial institutions linked to deforestation in their supply chains and investment.
“Only a small proportion of financial institutions most exposed to deforestation are addressing deforestation as a systemic risk,” said the report.
In 2022 only 48, one third, of financial institutions publicly recognised deforestation as a business risk. In addition, 92 financial institutions with no deforestation policies provided $3.6 trillion in finance to companies with the highest exposure to deforestation risk.
Collectively three financial institutions – JP Morgan Chase, Bank of America, and Mitsubishi UFJ Financial – provided $72bn of financing to Forest 500 companies without a single deforestation commitment.
“We are three years past the 2020 deadline that many organisations set themselves to halt deforestation, and just two years away from the UN’s deadline of 2025 for companies and financial institutions to eliminate commodity-driven deforestation, conversion and the associated human rights abuses,” added the study.
Global Canopy continued there have been small pockets of progress in the sector over the past year. The FSDA (Finance Sector Deforestation Action) initiative increased members committed to deforestation-free portfolios by 2025, including the first African-based member, SouthBridge Group.
In addition, GFANZ and Race to Zero have made it clear that action on deforestation needs to be part of any climate target.
The report highlighted Schroders, the UK asset management company, which increased its Forest 500 by 46% to 50% in the last year. In 2021 Schroders scored 4% for its action to eliminate deforestation from its portfolios.
At the end of that year, Schroders joined the Finance Sector Deforestation Action. In October 2022 the fund manager published a new policy, which featured a strong commitment to eliminate forest-risk agricultural commodity-driven deforestation in the companies held in their investment portfolios by 2025.
“It has long been clear that voluntary action by the private sector will never end deforestation,” added Global Canopy. “This was one of the key conclusions of our seventh Forest 500 report, after the high profile 2020 commitments on deforestation came to all but nothing.”
The study said it is significant that the European Union has brought in a new law on due diligence on deforestation, and the UK is close behind.
“We can expect a broadening and deepening of legal measures in support of international agreements on climate and nature across jurisdictions in the coming years,” added Global Canopy. “Companies and financial institutions still failing to take action are looking increasingly ill-prepared and at risk.”
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