Five learnings for businesses and financial institutions from the latest UN report on climate change

Explainer / 14 Mar 2022

The UN’s Intergovernmental Panel on Climate Change (IPCC) report is damning. It warns “any further delay in concerted global action will miss a brief and rapidly closing window to secure a liveable future.” But it is clear there is still an opportunity for change, if businesses and financial institutions act quickly.

IPCC reports examine the impacts of climate change on nature and people around the globe. Ten months ago the UN Secretary-General António Guterres said the last report was “a code red for humanity.” This time, the IPCC warns that many of the impacts of global warming are now “irreversible”. It focuses attention on forests and nature, making it clear that the next decade is crucial for the world to have any chance to avert disaster. This means businesses, financial institutions and governments need to step up, urgently.

1. “Nature can be the saviour”

Those are the words of Inger Anderson, the Executive Director of the UN Environment programme. Her full quote “nature can be our saviour, but only if we save it first” should be a call to arms. The report makes clear that nature is a crucial weapon in our fight against our carbon emissions because our land, freshwater and oceans absorb and store that carbon. About forests in particular, the report says “they are amongst the most important regulators of regional and global climate, natural carbon sinks… of immeasurable value to climate change adaptation and mitigation.” 

Globally we spend 40 times more money harming nature than we do protecting it. Businesses must recognise that the value of tropical forests far outweighs the commodities for which they are cleared. Our latest Forest 500 report found that a third of the companies most exposed to deforestation have no commitments to end deforestation in their supply chains. 93 of the 150 most exposed financial institutions do not have a deforestation policy covering their investments and lending.

Too many companies and financial institutions are ignoring their complicity in the destruction. At COP26 in Glasgow ending deforestation was high on the agenda. As we move towards COP27 in Egypt, all businesses and financial institutions need to recognise the problem and turn commitments into real changes on the ground.

2. We’re not meeting our own deadlines

The biggest driver of tropical deforestation is agricultural expansion for commodity crops such as palm oil and soy, cattle pasture and timber plantations. Those commodities then become the products we buy. Over the last 15 years many companies, governments and other organisations have recognised the problem and set themselves deadlines to force change. These deadlines have never been met. In fact the IPCC report highlights Global Canopy’s analysis of the failure of the Consumer Goods Forum resolution for its members to become deforestation-free by 2020.

Between 1990 and 2020 an area of forest the size of Sweden was lost across the globe. Due to the failure of voluntary action, mandatory legislation is being introduced to tackle tropical deforestation in supply chains. Secondary legislation for new due diligence laws is being considered in the UK that will force corporate due diligence for forest risk commodities. Similar laws have been proposed by the EU.

3. Deforestation makes it harder to grow crops

Tropical forests are being cleared for agribusiness, but the IPCC report shows that in the long-term, tropical deforestation could make it harder for those businesses to turn a profit. That’s because rainforests like the Amazon are crucial in regulating the climate – they create rain. Brazil as a whole recorded its lowest amount of rainfall in the last 91 years during the period from September 2020 to June 2021. The report is clear that “changes in timing and magnitude of precipitation and extreme temperatures are impacting agricultural production.” Continued deforestation combined with the warming climate is likely to increase droughts in the region significantly. So what we’re seeing in Brazil is trees being cleared to make space for a soy crop that is harder to grow because of that deforestation.

Across the globe the report notes that drought-related crop loss has “increased in recent years” and has affected “about 75% of the global harvested area.”

4. Accountability and transparency are key

The IPCC report states with “very high confidence” that “accelerating commitment and follow through is promoted by rising public awareness, building business cases for adaptation, accountability and transparency mechanisms.”  That means to drive change, accountability and transparency are key and consumer trust is relying on it. 

For the last eight years Global Canopy’s Forest 500 has been using publicly available data to hold businesses and financial institutions to account, highlighting good practice and exposing poor performers. Key tools like Trase – which maps the international trade of agricultural commodities, connecting consumer markets to deforestation and other impacts in producer countries – and Trase Finance – which links the trade in commodities to investors and lenders worldwide – can help drive transparency and accountability.

The IPCC report also recognises that initiatives like the Taskforce on Nature-related Financial Disclosures (TNFD), which Global Canopy helped found, will be crucial to setting clear goals and defining responsibilities and commitments.

5. Local communities and Indigenous peoples must be part of the solution

Deforestation and human rights abuses are closely linked – with Indigenous and local communities often losing access to land and resources when forests are cleared, their rights and voices ignored.

The IPCC report makes clear that Indigenous and local knowledge is essential in tackling climate change. The report calls this knowledge “crucial for the adaptation and resilience of social ecological systems.”

This year’s Forest 500 report found that over a third of the companies assessed do not have commitments on human rights for any of the commodities for which they are assessed – allowing them to overlook any abuses that could have been committed. 

The IPCC report stipulates that Indigenous and local communities must be seen as partners, because when they are excluded from decision-making, climate adaptation measures will fail. 

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