Business fails to hear the alarm on deforestation

Insight / 13 Jan 2022

The latest Forest 500 report needs to act as a wake-up call to companies and financial institutions who are still ignoring the deforestation they are causing.

It is easy to blame deforestation on irresponsible governments. China is the world’s biggest importer of products linked to deforestation, and in Brazil under the Presidency of Jair Bolsonaro, forest loss is at its highest level for 15 years. But when we focus only on governments we miss a big part of the picture, because ultimately deforestation is caused by the global system of trade in which we’re all complicit.

From the companies that provide our food to the financial institutions that manage our pensions, deforestation is on our dinner plates and in our investments. And as the major players continue to ignore the deforestation they cause and finance, they undermine global action on climate change.

For eight years, Forest 500 has tracked the policies and performance of the 350 largest companies and 150 financial institutions linked to deforestation. The latest data, published today, finds that a third of companies and almost two thirds of financial institutions still have no deforestation policies or commitments. And this has hardly changed since last year.

Tropical deforestation is largely driven by the expansion of agriculture for commodities such as palm oil, soy, cattle and timber. The companies behind this trade are financed by US$5.5 trillion dollars – twice the GDP of the UK – in loans and investments by financial institutions who are not taking adequate steps to address the risk this represents.

Take soy for example. It is produced across South America when rainforests like the Amazon and savannah like the Cerrado are destroyed and converted into soy fields. 75% of that soy becomes animal feed, the majority of which is exported to China or the EU. This means any company that produces or sells animal products (meat, fish, eggs, dairy) is exposed to deforestation risk. General Mills – the owner of Betty Crocker and Haagen Daz – and Kraft Heinz – owner of Heinz mayonnaise and Heinz chicken soup – have no deforestation commitments for their soy supply chains. Nor do the dairy companies behind President cheese and butter or Coeur de Lion.

Banks and asset managers that finance these companies have a key role to play in halting deforestation but are failing to use their influence to pressure the companies in which they invest to build deforestation-free supply chains. While banks such as Barclays, HSBC, and JP Morgan have their own deforestation policies, they are still providing financing to companies that have no policies whatsoever. These institutions do not report on their engagement with these companies, so we cannot be sure they are implementing their deforestation commitments at all.

Troublingly, only a quarter of companies and a fifth of financial institutions in the Forest 500 recognise that deforestation poses any sort of risk to their business activities or reputation, notwithstanding that deforestation exacerbates climate impacts, drives biodiversity loss and affects water supplies.

If the annual Forest 500 data tells a very familiar story, the legal context in which companies operate is changing in a way that will have far-reaching consequences. Regulation – already passed in the UK, and in train in the EU and US – that prohibits companies from using commodities that have been produced on deforested land (although only if this is illegally deforested in the UK and US) – will be significant. These new regulations will require companies to implement due diligence systems to ensure their compliance and to report on their actions.

While China does remain the dominant market for forest risk commodities, these moves may influence its actions in future, as already seen with illegal timber and its joint Declaration with the US at COP26 to work together to address illegal deforestation.

For the past eight years, the Forest 500 has been a story of a handful of leaders on halting deforestation and many laggards. However, with the most recent data demonstrating how far behind this group really is, it will more likely begin to represent a catalogue of hundreds of large companies and financial institutions that are very poorly prepared for the legislative changes coming down the line.

The world is at last moving on tropical deforestation, but those companies and financial institutions that have year-on-year underperformed will have an awful lot of catching up to do, and quickly.

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