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How are pensions and deforestation linked?

Explainer / 23 Feb 2022

A new report from SYSTEMIQ, Make My Money Matter and Global Canopy shows that £300 billion of UK pension money is invested in companies and financial institutions that drive tropical deforestation.

Pensions could play a role in protecting nature and tackling the climate crisis, but the UK pension industry has a substantial level of exposure to deforestation.

Pension funds are exposed to deforestation, conversion and the associated human rights abuses through the companies they invest in. For example, where companies are involved in manufacturing and producing food, they can be exposed to deforestation risks in the palm oil, soy and beef products they use. A fashion company can be exposed to deforestation risks if it is using fabrics such as viscose, or leather, which may be sourced from recently deforested land.

Global Canopy’s Forest 500 ranking identifies the 350 companies with the greatest influence on tropical deforestation and assesses them on their approach to removing deforestation from their supply chain. Our 8th annual assessment found that most companies were still not doing enough to ensure their supply chains were deforestation-free.

How big is the problem?

For an average pension saver in the UK, £2 of every £10 saved is invested in businesses with high deforestation risk*.

Furthermore, almost one third (31%) of UK pension public equity and corporate bond investments are financing companies with high deforestation risk.

Pension funds have a powerful influence over sectors and industries that are strongly connected to deforestation, conversion, and associated human rights abuses. They have the ability to help drive change not just within their own investments but across the finance sector more broadly.

But, a lack of information for pension holders and employers makes it difficult to find out where pensions are being invested, and a lack of transparency for pension funds means it is difficult to trace investments linked to deforestation.

Bad for people and planet

Forests are crucial to maintaining biodiversity and are home to 80% of the world’s life on land. Of the people living in extreme poverty, 9 out of 10 are dependent on forests for their livelihoods.
Yet, every minute, 30 football fields of forest are being destroyed, which is the equivalent to an area the size of London every week.

This destruction is also accelerating climate change with deforestation responsible for some 15% of global carbon emissions. Clearing and burning forests releases the carbon stored in soils and vegetation and means trees can no longer help remove carbon dioxide from the atmosphere. If deforestation was a country, it would be the third biggest emitter after China and the United States.

Pensions are supposed to provide for the future, but instead they are putting the future at risk. We cannot achieve our collective climate goals or meet the commitments made at COP26 in Glasgow without drastically reducing tropical deforestation.

Greening your pension is

21x more powerful

at cutting your carbon footprint than giving up flying, going vegetarian, and switching your energy provider combined.

Bad for savers too

Climate change is also a risk for the future returns from many of the companies linked to deforestation, as the warming world impacts on agricultural harvests. These companies also face regulatory risks as governments seek to introduce legislation to reduce climate impacts. The new UK Environment Act requires companies to carry out due diligence on their supply chains to ensure products are not linked to illegal deforestation and the European Union is considering similar measures.

Polling commissioned by Make My Money Matter revealed that the vast majority (77%) of pension holders in the UK would be unhappy to discover that their savings were contributing to deforestation.

Links to deforestation are savers’ top concern when it comes to their pension investments – surpassing worries around fossil fuels, labour rights violations and weapons manufacturing.

The road to deforestation-free pensions

Pension funds that act to stop deforestation can help tackle climate change, protect nature and communities, and reduce investment risk for savers.

Make My Money Matter, Global Canopy and SYSTEMIQ are partnering to call on pension funds to commit to becoming deforestation-free. This means assessing the deforestation risk in their portfolios, setting a clear policy to address those risks and engaging with the companies in their portfolio to ensure they are taking action.

Global Canopy is consulting with pension funds to develop detailed guidance to help pension funds integrate deforestation-free requirements into their activities.

What next?

Greening your pension is 21x more powerful at cutting your carbon footprint than giving up flying, going vegetarian, and switching your energy provider combined.

  • Read and share the report from SYSTEMIQ, Make My Money Matter and Global Canopy about the links between deforestation and UK pensions.
  • Call on your pension provider to commit to going deforestation-free.
  • Pension funds should 1) commit to achieving deforestation-free portfolios, and 2) take immediate action to start eliminating deforestation by understanding their exposure, setting effective policies, monitoring and engaging investee companies and asset managers, and disclosing progress against goals.
  • Pension funds should respond to Global Canopy’s consultation on pension funds guidance that is open until 21 March 2022.
  • Government and regulators should take urgent steps to ensure that the UK is a global leader in achieving deforestation -free pension funds by setting out mandatory requirements for the finance sector on deforestation – including due diligence and disclosure.

*Findings are based on an average defined contribution pension scheme pot of £30,000 according to the Office for National Statistics, containing 70% public equity and corporate bonds.

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