How Trase Finance will bring transparency to the hundreds of billions of dollars financing deforestation

Explainer / 2 Jun 2020

Global Canopy and our partners at Stockholm Environment Institute and Neural Alpha are delighted to announce details of our groundbreaking new data initiative

Since we launched Trase back in 2016, it has brought a new level of transparency to the trade in commodities driving tropical deforestation. But the global financing of this trade – worth hundreds of billions of dollars – has remained opaque.

This lack of information, data and mapping of company ownership and financing has been a major barrier to action. That’s why Global Canopy and our partners at Stockholm Environment Institute (SEI) and Neural Alpha are delighted to share with you a preview of our groundbreaking new data initiative, Trase Finance, which brings unprecedented transparency to the financing of tropical deforestation.

The tool itself – which, like the rest of the work of Trase, will be open source – will be launched in the summer. Click here to see the preview and stay updated.

Drawing on more than 30 disparate data sources that combine Trase’s unique deforestation risk data with data on company ownership and legal structures, tax registrations, and a wide range of capital raising mechanisms, Trase Finance will enable financial institutions to understand and mitigate their exposure to deforestation in their portfolios. And it will allow civil society and governments to better hold to account those failing to act.

The preview page features three examples of the kinds of insights that we’ll be regularly surfacing, with more to come in the weeks ahead.

Revenue at (deforestation) risk

For example, we show how Trase Finance can assess the direct risk exposure associated with the financing of commodity traders, giving the example of Minerva, one of Brazil’s big three meatpackers, at least a third of whose gross revenue is from its Brazilian beef exports that were linked to 10,900 ha of deforestation risk from the expansion of cattle pasture in 2017. Using Trase Finance it is possible to assess the exposure of Minerva’s shareholders to this deforestation, which include major global investors that currently have no deforestation commitments such as Morgan Stanley (4.94%), Vanguard (2.21%) and BlackRock (0.4%), as well as financial institutions who have publicly recognised deforestation risk as an issue including BNP Paribas (2.26%), BNY Mellon, a signatory to the Soft Commodities Compact (0.78%), and Robeco (0.39%) – some of whom are more actively engaging in improving sustainability practices.

Risks via regional banks

Trase Finance will also allow users to identify indirect deforestation risk faced by financial institutions linked to commodity trade. To illustrate this, we highlight the example of Malayan Bank (Maybank), which is one of the largest financiers of palm oil companies in south east Asia. Corporate lending, structuring and bookrunning data show that Maybank has assisted over 90 Southeast Asian companies throughout the palm oil supply chain mostly in Malaysia and Indonesia. We highlight one specific example of exposure within the Maybank loan portfolio in Indonesia, where over the past five years Maybank has provided at least $386m to three trading companies whose palm oil exports were associated with 26,000 ha of oil palm-associated deforestation in 2015 alone. Trase Finance data show the shareholders and debt holders in Maybank that have indirect exposure to this risk.

Trase Finance on laptop

Sleepwalking into deforestation

Trase Finance also enables better understanding of macro trends that are shaping the environmental, social and governance (ESG) investing landscape. This understanding can help avoid emerging risks and identify opportunities for positive action. One such risk comes from the rapid increase in passive ESG investments. Take the example of PT Sawit Sumbermas Sarana (SSMS), an Indonesian palm oil producer, which Trase Finance data show is significantly exposed to oil palm-driven deforestation in Indonesia. Passive exchange traded fund (ETF) holders of shares in SSMS increased from just 5% of shareholders in 2014 to 57% in 2020, whilst mutual fund holders declined from 95% to 42% between 2014 and 2020. If the growth in passive investment is simply replacing active management assets as they divest from higher risk companies, then countless investors are in effect sleepwalking into deforestation. Trase Finance enables these macro trends shaping the ESG investing landscape to be better understood, and risks like these avoided.

Because it builds upon the unique deforestation-risk data provided by Trase, Trase Finance is highly scalable across additional commodities and countries of production – meaning that in time it will cover the majority of trade in soft commodities linked to deforestation and associated environmental and social impacts.

The tool is currently being used as part of an early adopter programme by banks, asset managers and civil society organisations, and is already helping to underpin independent initiatives working on transparency of the financing of deforestation-risk commodities.

We and our partners at SEI and Neural Alpha are excited by what Trase Finance is capable of, and the difference it can make. We hope you enjoy the new site, and look forward to keeping in touch as we publish further insights and updates in the weeks leading up to launch this summer.

Banner image: da-kuk/

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