AUM in Action

No “Credible” Net Zero Path Without Halting Deforestation

The Church Commissioners’ COP26 commitment to eliminate soft commodity-driven deforestation from its portfolio will be supported by COP28 pledges.

Following the adoption of a global commitment to halt and reverse deforestation by 2030 at COP28, the Church Commissioners for England has stressed the announcement’s importance to its own and other asset owners’ efforts to tackle the issue. 

The final text at COP28 pledged to halt and reverse deforestation by 2030 for the first time, as well as noting the need for increased support and investment to reverse deforestation and forest degradation by 2030, including payments and incentives to sustainably manage forests. 

“There’s no credible pathway to get to net zero without halting deforestation,” Isobel Mitchell, Responsible Investment Analyst at the Church Commissioners, told ESG Investor. “It is a critical and systemic risk that we and many other asset owners can’t diversify away from.” 

She added that the pledge by governments worldwide at COP28 recognised this, as well as acknowledging the key role deforestation needs to play in providing solutions to the “twin challenges” of climate change and biodiversity loss. 

Driving down deforestation 

At COP26, the Church Commissioners – one of the Church of England’s two national investing bodies – and over 30 other financial institutions representing US$8 trillion in AUM signed a commitment to use best efforts in eliminating soft commodity-driven deforestation from their portfolios by 2025. 

Mitchell pointed out that 95% of deforestation occurs in tropical regions, and within those regions 75% of that deforestation is driven by agricultural soft commodities. These commodities include beef, palm and soy, and timber for pulp and paper. 

Deforestation is responsible for 11% of total global greenhouse gas emissions.  

This commitment includes clear milestones – establishing a deforestation policy, assessing exposure to deforestation, and engaging with companies and policymakers on deforestation – to help achieve its goal. 

Following the commitment at COP26, the Church Commissioners, which has £10.3 billion (US$13 billion) in AUM, established a Deforestation Policy last year. This policy calls on and encourages investee companies to make “quantifiable, time-bound commitments” to eliminate deforestation from their activities and their supply chains.  

This includes disclosing the due diligence they’ve undertaken and the actions that they’re taking towards eliminating commodity-driven tropical deforestation, as well as showing deforestation is being taken seriously at board level. 

The Church Commissioners has played a central role in the steering committee of the Financial Sector Deforestation Action (FSDA) initiative to develop a collaborative investor engagement on deforestation.  

It is leading on engagements with four companies through FSDA, and is involved in six others, encouraging alignment with the initiative’s investor expectations for firms to assess and address their deforestation impacts. 

The organisation has also joined global investor engagement initiative Nature Action 100. 

In 2024, the Church Commissioner will continue to engage with companies towards achieving the FSDA expectations. It also intends to the use Taskforce on Nature-related Financial Disclosures’ recommendations for organisations to report and act on nature-related dependencies, impacts, risks and opportunities which it will incorporate into its engagement and due diligence toolkit.  

Mitchell hopes next year’s COP16 and COP29 will discuss adding a 2025 deadline for ending soft commodity-driven tropical deforestation, which she said “feels like the missing piece of the puzzle this time.” 

“Forests are clearly vital for the stability of many ecosystems across the world, especially in terms of storing carbon, protecting biodiversity, and providing livelihoods for millions of people,” Mitchell said. 

“Deforestation really sits at the heart of this Venn diagram of climate change, nature loss, social inequality, and financial risk,” she added. “I think the commitments at COP 28 just really brought that to the fore.” 

Regulatory pressure 

Last December, the European Council and Parliament agreed a proposal to minimise the risk of deforestation and forest degradation resulting from EU imports and exports. The deal set mandatory due diligence rules for entities involved in trading commodities – palm oil, beef, timber, coffee, cocoa, rubber and soy. 

The EU’s Deforestation Regulation (EUDR) will apply from December 2024, requiring companies dealing in in-scope products to undertake due diligence into the source of a wide range of commodities to ensure that they have not been obtained as a result of deforestation. 

The UK government is set to take similar steps, recently confirming that palm oil, cocoa, beef, leather and soy will be included in new legislation to ensure supermarket shelf products do not harm the world’s forests.   

The legislation is introduced through the UK’s Environment Act and will see businesses with a global annual turnover of over £50 million and use over 500 tonnes of regulated commodities a year banned from using them if sourced from land used illegally. 

Businesses will be required to undertake a due diligence exercise on their supply chains and report this annually for transparency. 

In July, environmental disclosure platform CDP found that 90% of companies disclosing on deforestation were not prepared for incoming anti-deforestation regulations in affected jurisdictions, which could collectively cost them US$80 billion. Less than less than 10% were deemed to have a robust public commitment to end deforestation by 2025. 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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