The finance sector must move further and faster on deforestation

Josh Brewer, sustainable finance associate, Global Canopy explains why there is no pathway to net zero without addressing tropical deforestation

Forests matter in the climate crisis. They matter because their destruction is causing ten per cent of our global greenhouse gas emissions. They matter because they support the lives and livelihoods of millions of people, and they matter because reversing and halting their destruction will provide a significant part of the solution to the climate crisis.

Over the last year alone, an area of forest the size equivalent to 11 New Yorks has been lost. Deforestation in the Brazilian Amazon is at record levels. It is time the finance sector accepted the challenge that the responsibility to drive change is in their hands.

There is no pathway to net zero without addressing tropical deforestation. This has been recognised by Mark Carney and Michael Bloomberg, who lead the Glasgow Financial Alliance on Net Zero (GFANZ). To be a part of GFANZ a financial institution now has to set policies on deforestation. The problem is, most are still at the starting line.

Ahead of COP27, Global Canopy’s Deforestation Action Tracker provided a baseline review of the 557 financial institutions that are part of GFANZ and Race to Zero. It found that four out of five do not recognise deforestation as a risk. The majority of deforestation is driven by the trade in agricultural commodities like beef, soy and palm oil. The tracker showed just 20% of the financial institutions assessed have set a single commodity specific policy.

Through their loans and shareholdings, financial institutions provide the money that enables the business activities that lead to the clearing of forests. If we are to meet the 2030 deadline to halt and reverse deforestation, set by world leaders at COP26, this money must drive change not destruction.

Thankfully, there are already some leaders. The Finance Sector Deforestation Action group of investors represent around $9 trillion dollars in assets under management. They’ve committed to halt and reverse deforestation by 2025. In Sharm El-Sheikh, at the African COP, Southbridge became the first African financial institution to join their number. Its CEO, Frannie Leautier, said finance has an obligation and a responsibility to take the lead. She is right. Now others need to follow.

For a long time, the finance sector has said that a lack of data stands in the way of action. But, in 2022, this is no longer an excuse. Data and guidance is available for financial institutions to begin changing the way they operate.

The finance sector roadmap provides a clear path for financial institutions to achieve deforestation-free portfolios. It can help them assess and understand their exposure to deforestation through their investments and adopt robust policies to address deforestation. Financial institutions should engage with the companies in which they invest and demand change. Active engagement and stewardship can shift companies that are currently laggards and turn them into leaders. 

At COP26 there were many fine words and big announcements about ending deforestation. Now, after Finance Day at COP27, the “implementation COP”, we need to see financial institutions take concrete steps that can drive change. As Steve Waygood, Head of Responsible Investment at Aviva said, “climate change and biodiversity loss are systemic risks to financial markets”. They are also systemic risks for all of humanity. Large-scale finance sector action is the only way forward. 

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