Global nature targets hinge on eliminating deforestation. Progress must happen as soon as possible – and can be made quickly

Insight

5th October 2023

Without urgent action on deforestation – which accounts for around 11% of emissions – net zero is out of reach. Over 90 percent of all deforestation is a result of clearing land for a handful of commodities like beef, soy, palm oil and timber. But this is not inevitable; commodities can be produced sustainably.

By Sarah Draper, Corporate Performance Programme Lead, Global Canopy

 

In order to tackle commodity-driven deforestation, financial institutions investing in companies driving deforestation need to set strong policy commitments. Yet to date, only a fifth (20%) of the financial institutions most committed to net zero have set a single commodity-specific deforestation policy. As the 2025 UN deadline to eliminate commodity-driven deforestation fast approaches, financial institutions can still make rapid progress.

COP26 momentum

COP26 was a landmark moment for deforestation. The UN set a deadline for companies and financial institutions to eliminate commodity-driven deforestation by 2025.

At the same time, the Glasgow Leaders Declaration on Forests and Land Use set a deadline for halting and reversing all deforestation and land conversion by 2030. Supported by over 100 national governments, this was the first time that targets had been established by so many world leaders from producer and consumer countries. It’s now backed by regulation in some regions.

Since COP26, global recognition of the need to end deforestation has only strengthened. The updated Investor Climate Action Plans (ICAPs) Expectation Ladder has mainstreamed the issue, recognising eliminating deforestation and the associated human rights abuses as a key component of an investor’s climate strategy.

The ambitious EU Deforestation Regulation is another important step forward. To access the EU market, companies now need to know if and how they are exposed to commodity-driven deforestation. Failure to comply could result in fines of at least 4% of their EU wide turnover. Although financial institutions are currently exempt from the regulation, they will feel the impacts of high-risk companies in their portfolios.

2025 and 2030 – working towards both goals immediately and simultaneously

The 2025 deadline for commodity-driven deforestation and wider 2030 deadline for all deforestation and land conversion go hand in hand, and financial institutions and companies should work towards both goals simultaneously. The many who have not yet started should do so immediately if they are going to make these deadlines.

Although 2025 is less than two years away, having a target and maintaining a sense of urgency is essential. Eliminating commodity-driven deforestation, conversion and associated human rights abuses from financial portfolios is an ongoing process. Some will meet the 2025 deadline and others won’t – but having as many organisations as possible working towards it sends a strong signal to the market that this is the direction of travel. Those that do not meet the 2025 deadline should work to meet it as soon as possible afterwards.

The latest Forest 500 report, which tracks the financial institutions most exposed to deforestation, shows the rapid progress that can be made in a short period of time. Schroders, which is part of the Finance Sector Deforestation Action (FSDA) initiative, improved its score by almost 50% in just 12 months. This was partly due to putting in place a policy committing to eliminate forest-risk agricultural commodity-driven deforestation in the companies held in their investment portfolios by 2025.

Given the progress that can be achieved, targets should not be updated to delay or extend to 2030. The 2030 backstop embedded in other initiatives and wider goals should be seen as the latest possible date to meet this objective, rather than the starting line for action. To maintain a liveable planet, the goalposts for ending commodity-driven deforestation and the associated human rights abuses cannot continue to be shifted.

Progress can be made quickly and guidance already exists

Although the vast majority of financial institutions are yet to set deforestation policies and implement them, a wide range of guidance sets out a clear path for action.

The recent report published by the World Business Council for Sustainable Development (WBCSD) gives an overview of the tools and frameworks financial institutions need for acting on deforestation. It also finds that data on deforestation is sufficient and accessible to perform reasonable risk analysis, and continues to improve.

The Finance Sector Roadmap provides practical, step-by-step actions for different types of financial institutions, regardless of the stage they are at. It points to relevant data and related guidance across five phases and recommends timings for each phase, which in total would take four years from start to finish, although it is possible to make progress more quickly.

Forest IQ is a new platform that will help investors to meet their climate and nature targets by providing them with the most comprehensive data on corporate performance on deforestation, all in one place for the first time.

Finally, the recently launched Taskforce on Nature-related Financial Disclosures (TNFD) for the first time provides organisations with guidance and disclosure recommendations that help them identify, disclose and act on their material nature-related issues. The indicators used to assess financial institutions and corporations on their deforestation and human rights commitments are in line with the TNFD’s voluntary assessment approach LEAP.

The twinned climate and nature crises don’t afford us the luxury of time. Every year that passes without eliminating deforestation makes the overall challenge to halt and reverse nature loss and reach net zero even greater. There is ample data showing how companies contribute to commodity-driven deforestation, and guidance for the finance sector to act on risks. There must be no delay. Financial institutions have everything they need to create the systemic shift towards the nature positive outcomes urgently needed.