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Too few financial institutions are taking the necessary action to ensure they are not financing human rights abuses linked to deforestation.

The need for urgent action on deforestation is creeping up the agenda for the finance sector, with more than 500 financial institutions now facing targets for action on deforestation following the launch of updated criteria from Race to Zero. Deforestation contributes up to 10% of global greenhouse gas emissions, and must urgently be eliminated if we are to achieve the 1.5 degree global warming target. To do this, financial institutions must recognise and address human rights abuses, but too many are failing to take the action needed.

Human rights abuses often go hand-in-hand with deforestation, especially when communities’ customary rights to land, resources, and territory are ignored or disregarded. Land defenders and Indigenous leaders can face threats of violence and even death, while workers’ rights are also at risk with bonded and child labour common across forest-risk commodity supply chains. Too often the companies in these supply chains are not doing enough to prevent human rights abuses, as our latest briefing revealed. But what are the financial institutions that finance these companies doing to help drive change?

The power of finance

Financial institutions can exercise leverage over the companies they finance, using policies to set clear expectations and engaging companies to ensure their supply chains are free from deforestation, conversion and associated human rights abuses. Yet Forest 500 analysis of the 150 financial institutions that provide the most finance to the 350 companies with the greatest exposure to tropical deforestation found that too few are taking action on human rights.

Just 37% of the 150 had published a human rights policy for at least one of the highest forest risk commodities (cattle products including beef, timber products including paper, soy, and palm oil). None had published a policy for all of the human rights indicators for all four of the commodities they’re assessed for.

Free, prior and informed consent

To respect the rights of Indigenous peoples and local communities, companies need to secure their free, prior, and informed consent (FPIC) ahead of land conversion or development – and financial institutions can require the companies they finance to ensure this happens.

Yet 110 of the 150 financial institutions analysed do not encourage or require the companies they finance to do this, including some of the world’s largest asset managers – such as Blackrock, Vanguard, and State Street.

Land use conflict

Just 4% of the financial institutions assessed have a policy to encourage or require the companies they finance to refrain from land acquisition or development until existing land conflicts have been resolved. This is important because in many cases, the rights of Indigenous peoples and local communities are not formally recognised (and so FPIC does not apply). 

Only two financial institutions – Westpac and Mitsubishi UFJ Financial Group – encouraged this for all four commodities, but these policies should go even further and require this of their companies to really motivate them to change.

Labour rights

Labour rights are a key concern in commodity supply chains, including cases of forced and bonded labour. Sixty percent of all child labourers (aged 5-17) work in agriculture.

Yet 80% of the financial institutions assessed didn’t have a labour rights policy for financing any of the four forest-risk commodities that they’re assessed for, including HSBC, J.P. Morgan Chase Bank, and the Agricultural Bank of China.

Source: Forest 500

Twenty seven financial institutions had a policy on labour rights for all four of the highest forest risk commodities, including Nordea, Rabobank, BMO Financial Group and Morgan Stanley. 

This leaves most financial institutions at risk of financing companies in supply chains linked to forced labour, child labour, and discrimination, or violations of workers’ rights to freedom of association.

What needs to happen?

Financial institutions need to use their leverage to require their clients/holdings to address human rights linked to deforestation and conversion by setting their own policies on human rights, and engaging the companies they finance to check they are taking action to eliminate human rights abuses.

It will be impossible for financial institutions to deliver on climate goals, including net zero, without addressing the deforestation risks in their portfolios. And any effective approach on deforestation must include comprehensive action on associated human rights abuses. 

Indigenous peoples and local communities are the best stewards of forests, and their rights must be respected and upheld if deforestation is to be eliminated.

See the table of all financial insitutions assessed

This insight was originally published on Forest 500.

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