Leading experts unite to strengthen finance sector engagement on deforestation

Transition pathway will help financial institutions to better engage with companies on deforestation

When a financial institution engages with its portfolio companies grappling with the climate and nature transitions, action on deforestation offers an opportunity to progress on both fronts at once.

But financial institutions striving for effective action can face uncertainty. What should they ask of their portfolio companies, and how should these asks be prioritised?

Leading experts on deforestation across the NGO and investment community are attempting to change this, so that financial institutions can make unified, concrete requirements on companies. 

As part of London Climate Action Week, these experts are announcing Deforestation-free Transition (DEFT) Pathway, which will launch in beta later this year.

Deforestation-free Transition Pathway

DEFT Pathway will categorise companies according to their level of progress on deforestation and conversion of natural ecosystems and highlight priority, timebound next actions. It will synthesise existing frameworks, guidance and metrics and align with climate and nature transition plans.

The Pathway is being developed by leading institutions and experts who bring together decades of expertise working to end market-driven deforestation. This includes Global Canopy, the UN Climate Champions, Global Optimism, the Accountability Framework initiative (AFi), the Tropical Forest Alliance, Proforest and ZSL, in consultation with leading finance sector networks including Ceres, IIGCC, PRI and the Finance Sector Deforestation Action Group.

“Setting out priority, timebound next steps, DEFT Pathway enables financial institutions to maximise effective engagement with their portfolio companies most exposed to deforestation.”

Niki Mardas, Executive Director, Global Canopy

There is no solution to the climate and nature crisis without a solution to deforestation, which accounts for around 11% of global greenhouse gas emissions annually. For financial institutions, effective action on deforestation is central to achieving net zero targets, and is a vital step in managing growing compliance risk associated with deforestation in major markets.

Despite the vital role that the finance sector has to play in ending deforestation worldwide, only a very small minority of financial institutions are currently taking substantive action on this issue.

DEFT Pathway aims to change this by helping financial institutions to more effectively target their company engagement – thereby scaling up action on this critical issue.

Tim Steinweg, Head of Stewardship, Nature at PRI

 “DEFT Pathway provides a useful tool that allows investors to gain insights in supply chain exposure to deforestation, based on longstanding and high-quality research. Consistent asks on supply chain management, in addition to asks on business operations and political engagement, are crucial in supporting investors’ management of nature-related risks to their portfolios.”

Ruth Nussbaum, Proforest Group and Europe Director

“We’re seeing the increasing impact of regulation and investor pressure on companies, which has the potential to be a positive driver of sector transformation. Many companies are making progress, but there is still a need to align on approaches and methodologies to be fully transparent on that progress, including for the finance sector, a key player.

“Ensuring the finance sector is aligned on how to report and track progress is an important step in supporting sectoral transformation over the long term and what must be a just transition to deforestation-free supply chains.”

Sagarika Chattarjee, Department Director, Climate Finance, Climate Champions Team

“COP28’s Global Stocktake highlighted nature’s crucial role in combating climate change, with every country in the world coming together to call for an end to deforestation and forest degradation by 2030. By acting on deforestation, financial institutions will make progress towards meeting both climate and nature targets, and address associated human rights and social issues. Deforestation-Free Transition Pathway is a promising tool that can enable implementation and alignment across the ecosystem to advance action on deforestation.” 

Sue Reid, Climate Finance Advisor to Christiana Figueres, Global Optimism

“In the Global Stocktake under the Paris Agreement, all countries came together in 2023 to underscore that stepped-up action is needed to halt deforestation and forest degradation globally by 2030. Buttressed by an ever more robust foundation of rules, tools and pockets of investor leadership, the financial sector has a crucial role to play engaging companies to eliminate deforestation in this decisive decade. The Deforestation-free Transition (DEFT) Pathway – developed with an ethos of radical collaboration and harmonisation – has tremendous potential to enable widespread action by financial institutions to catalyse rapid step-wise corporate progress on the pathway to deforestation-free value chains.”

Jeff Milder, Director, Accountability Framework initiative, Rainforest Alliance

“Deforestation is a growing business risk, but it can be challenging for financial institutions to tackle this risk across a diverse portfolio. The DEFT Pathway is a game-changer because it provides a standardized and streamlined process for financial institutions to assess deforestation risk and engage with their clients and holdings to address this risk systematically across their portfolio.”

If you are interested in learning more about DEFT Pathway, or are a financial institution who would like to take part in the beta phase, please get in touch.