Will the finance sector rise to the deforestation challenge?

Pei Chi Wong

Strategic Finance Engagement Lead at Global Canopy

This article was originally published on the UKSIF Opinion Page.

Deforestation poses well-documented financial and systemic risks. Forests are cleared to make room for agricultural commodities, with destabilising consequences for climate, water cycles, soil health and more. The production of just nine commodities –  beef, cocoa, coffee, leather, palm oil, pulp and paper, rubber, soy and timber – was linked to 68% of global deforestation between 2013 and 2023. The EU, recognising their significance, has passed a Deforestation Regulation (EUDR) requiring companies to scrutinise imports of these commodities. But deforestation risk is not yet widely recognised and addressed by global finance. 

Every year Global Canopy’s Forest 500 project assesses and ranks the 150 financial institutions with the greatest influence on global deforestation through their financing of the production, processing and sourcing of these nine forest risk commodities. The latest data reveals that, while a few financial institutions act on deforestation risk, the majority have failed to set a deforestation policy. Yet it is easier than ever for financial institutions to act on deforestation: there are a multitude of open access tools like Forest IQ that allow banks and asset managers to screen loan and investment portfolios for deforestation exposure, financial materiality and performance. Guidance on setting and implementing policies is readily available.  

There are some examples of good practice. A large global asset manager based in the UK saw its Forest 500 score increase to 71% in 2025 from 56% in 2024. This reflects improved reporting, including on the outcomes of risk assessments made when onboarding clients, the number of clients and holdings covered by a deforestation policy, and the number of clients and holdings compliant with its deforestation policies. The transparent reporting of these risk assessments and outcomes makes expectations clear, increases accountability and encourages sector-wide action.   

The asset manager also gained points for reporting the number of clients and holdings it had engaged on deforestation. Engagement allows financial institutions to use their leverage with companies to drive change and manage risk. As with screening and monitoring, there are advanced data and metrics to support financial institutions in this, as well as collaborative initiatives such as PRI’s Spring initiative and the Deforestation Investors Group. In September, leading data platform Forest IQ will launch DEFT Pathway, a product designed to facilitate engagement by highlighting priority actions for the 500 companies most exposed to deforestation. 

Another bright spot in the Forest 500 assessment was the move by a UK-based investment manager to extend its deforestation policies to cover cocoa, coffee and rubber. With this move the investment manager now has policies for all nine high risk forest commodities that are in scope for the incoming EUDR. Full scores are available here.

These examples of progress are notable – they make it clear that action is feasible. But a broader look at the 150 assessed financial institutions is not encouraging.  A majority – 59% of institutions – lack a deforestation policy for any of the high risk forest commodities. Included in this group are three of the world’s largest assets managers: BlackRock, State Street and Vanguard. In 2025, four institutions dropped a commodity deforestation policy. 

Only 10 (7%) of the 150 financial institutions have set deforestation policies for all nine high-risk commodities. The slow pace of progress, concentrated in a small group of leaders, underscores the limits of voluntary action. The impetus to act decisively is missing for most of the sector. Policy and regulatory leadership is needed to drive change across the finance sector by creating a level playing field.  

Beyond the EU, the UK is also regulating on deforestation, which could have direct implications for the finance sector. Now that the government has indicated that it will lay secondary legislation to implement the forest risk commodities regime under the Environment Act 2021, the Treasury will be required to assess the extent to which regulation of the UK financial system is adequate for the purpose of eliminating the financing of the use of prohibited commodities that drive deforestation.  

At this moment of global uncertainty, politicians and the private sector may be tempted to neglect nature and deforestation, but this is short-sighted. Nature is a fundamental economic engine and healthy ecosystems are vital to economic resilience. We will all suffer when the impacts of deforestation and nature loss become more severe and frequent, as extreme weather and crop failures threaten food security. Now is the time for action.

Find out more about DEFT Pathway.