Using data to assess deforestation risks

Global Canopy’s new Aligned Accountability project brings together crucial data to allow investors to better understand and act on their exposure to deforestation, as a case study with Storebrand shows

As more and more financial institutions seek to make their financing deforestation-free, there is a growing need for better information to identify the climate and nature risks in their portfolios. But, much of this information is already available – and Global Canopy’s Aligned Accountability project will bring it into one place.

Financial institutions seeking to turn zero-deforestation targets into a reality, need to understand where the companies in their portfolios could be linked to deforestation, whether through investments in companies in beef, soy or palm oil supply chains, or through loans to companies using leather for car seats or pulp for viscose, used in clothing.

Norwegian financial services company, Storebrand, for example, has set a target for its portfolio to be deforestation-free by 2025 and set out to map its exposure to deforestation risk last year.

“To fulfill our commitment to have a deforestation-free portfolio by 2025, we need quality data on companies’ exposure to and management of deforestation risk. We have found that using a combination of data from Forest 500 and Trase allows us to identify companies at risk in our portfolio and to develop company-specific engagement strategies.”

Vemund Olsen, Senior Sustainability Analyst, Storebrand Asset Management

With no comprehensive data on deforestation available from traditional financial data providers, Storebrand turned to Global Canopy’s Forest 500 project, alongside Trase and Trase Finance (developed by the Stockholm Environment Institute, Global Canopy and Neural Alpha) to assess which companies were most exposed to deforestation and which were taking steps to minimise those risks.

Read full case study

Company screening for direct engagement

Acting on the information provided by our Forest 500 assessments, Storebrand categorised companies into three groups: green, yellow and red, and used these groups to inform its approach to engagement.

Companies scoring over 80 points in the Forest 500 assessments were classed as “Green”, meaning that they had demonstrated compliance with Storebrand’s deforestation policy.

Companies scoring between 40 and 80 points were classed as “Yellow” and companies scoring below 40 points were classed as “Red”, and the financial services provider used Trase data to identify the extent of the deforestation risk faced by these companies.

Forty investee companies were categorised as red following this exercise, and targeted for direct engagement to encourage them to demonstrate a commitment to eliminating deforestation from their production and supply chains.

This includes showing:

• Stronger awareness and governance regarding deforestation risks, including oversight at the board of directors level;
• A publicly-disclosed commodity-specific deforestation policy with quantifiable, time bound commitments covering the entire supply chain and sourcing geographies;
• Traceability across the entire commodities supply chain;
• Monitoring and verification processes to ensure that suppliers are complying with the company’s deforestation policy.

Storebrand uses engagement to encourage change, and has previously said that divestment is the last resort – although this has been considered necessary for a number of palm oil companies linked to deforestation.

It also carries out collective engagement through participation in the UN Principles for Responsible Investment (UNPRI) investor groups, and has worked with other investors to file investor resolutions with soft commodity trading companies.

Aligning data to maximise impact

Work is now underway to bring the different data sets on deforestation together as part of the Aligned Accountability project, with partners including ZSL SPOTT, Trase Finance and financial data experts Neural Alpha.

As well as ensuring key data sets are all in the same place, helping financial institutions like Storebrand to access everything they need, the project will also identify standard metrics around deforestation – allowing key measurements to be compared between a larger sample of different companies than each of the initiatives currently cover alone. With easier access to this data, assessing deforestation risk can become standard practice for financial institutions that are serious about addressing deforestation and climate risks.

Find out more about how Storebrand used Trase and Forest 500 data.