Corporates and financial institutions still “dragging their feet” when it comes to drafting deforestation policies, fuelling the climate and biodiversity crises.
Claims by the world’s largest businesses to be acting against deforestation have been undermined by research from Global Canopy, but the non-profit hopes incoming legislation will have the “real teeth” to drive change.
Global Canopy’s Forest 500 found that 40% of the companies and financial institutions most at risk of driving deforestation – including VW Group, BlackRock, Vanguard and State Street – have no formal deforestation policy.
Deforestation is at the heart of unfolding climate, nature and human rights crises, Sarah Draper, Corporate Performance Programme Manager at Global Canopy told ESG Investor.
“It is also an issue that companies and financial institutions have been committed to tackling for quite a while now, but we are really behind time on seeing meaningful impact,” she said.
One of the main reasons that corporates and financial institutions are “dragging their feet”, said Draper, is reliance on voluntary action, such as the Global Deforestation Pledge signed by governments at COP26, which did not result in legislative action in most cases.
“It has largely been companies and financial institutions responding to consumer and internal pressure, but there hasn’t been a huge number of external requirements,” she said. “We’ve been seeing this patchy landscape where some of them are choosing to act, and lots of them are not.”
She described as “amazing” the adoption of the Global Biodiversity Framework (GBF) at COP15 last December and cited the development of the Taskforce for Nature-related Financial Disclosure (TNFD) as an indicator of the increased awareness of nature-related risks.
“It’s important to remember that deforestation is a critical subject underneath this nature umbrella.”
Legislation coming down the track
Speaking at the TNFD’s ‘Moving to Action After Montreal’ webinar earlier this week, David Craig, Co-chair of the TNFD, called the GBF an “ambitious framework” and highlighted its role in “halt[ing] the degradation of nature and biodiversity”.
He also underlined the importance of the GBF in ensuring “harmony in nature” by restoring natural ecosystems, which the TNFD’s disclosure framework aims to support.
“We’re starting to see legislation coming down the track. It’s important that the validation is well designed and has real teeth to force movement from companies and financial institutions on deforestation,” said Draper in reference to the GBF and the TNFD.
“Voluntary action pushes the bar higher, gets things started faster, but it’s never going to get everyone moving. You need mandatory requirements to bring corporates and financial institutions up to a minimum standard – mandatory requirements are 100% essential.”
Signs of tougher legislative approaches include a European anti-deforestation law agreed in December which requires imports of a number of key commodities to have precise details of their provenance.
According to the Forest 500 report, which tracks the policies and performance of the 350 most influential companies and 150 financial institutions linked to deforestation, major financial institutions provided US$527 billion to Forest 500 companies with no deforestation policies last year, potentially fuelling the climate and biodiversity crisis.
“What I would want to say to motivate [corporates and financial institutions] is just get started – you don’t have to know everything to get started,” said Draper. “You don’t have to know everything about your supply chain, or your portfolio, you don’t even necessarily have to know every step you’re going to take to achieve your goal.”
In the UK, Legal & General, HSBC, NatWest Group, Schroders, Standard Chartered are all financial institutions that have set policies to avoid deforestation for all of the highest-risk commodities, the report noted.
“There is enough data and guidance to create a quick and dirty analysis of your portfolio,” said Draper. “You have to have enough information to get started to get going on the journey. Things will become clearer for you as you go, but we don’t have time to wait for organisations to know absolutely everything before they even start engaging on this issue.”
Agents for change
While 31% of companies still have no deforestation commitments for any of the commodities to which they are exposed, financial institutions are woefully behind, 61% have no deforestation policies for any commodities, almost unchanged from last year, the report said.
The disparity between corporates and financial institutions is a reflection of the different role that each plays in the supply chain, said Draper, adding that companies are much more directly linked to the supply chain that is driving deforestation.
However, the situation has begun to change.
“Over the last few years, we’ve seen so much more attention and awareness from within the finance sector itself in their role as agents for change and for encouraging, forcing and supporting companies to change and tackle this issue,” she said.
“Financial institutions are also increasingly taking action because they understand the need to protect themselves from risks that they’re exposed to through their relationships as well.”