Majority of financial institutions still failing to address deforestation as part of their net-zero commitments

Global Canopy publishes its 2023 Deforestation Action Tracker report of action on deforestation by more than 700 financial institutions

Ahead of COP28, Global Canopy has released our first full Deforestation Action Tracker findings following the baseline assessment published last year. The Tracker, which has assessed 713 financial institutions with high-profile climate commitments on their action to eliminate deforestation, conversion and associated human rights abuses from their portfolios, paints a poor picture of performance.

Overall, it shows that deforestation policies are all too frequently missing. While there is a slight increase on the baseline from 2022, three-quarters (536) of the financial institutions assessed still do not have a deforestation policy and just 10% (69) have a deforestation policy in place for all highest risk commodities.

The assessments include all of the financial institutions that are members of initiatives that make up GFANZ (Glasgow Financial Alliance for Net Zero) or Race to Zero coalitions, with individual analysis of how the member initiatives are performing. It shows that the majority of financial institutions in the initiatives that make up GFANZ including Baillie Gifford, Blackrock, Royal Bank of Canada, Royal London Mutual Insurance Society, and Vanguard do not have a deforestation policy.

What’s more, only 21% (152) of the financial institutions with net-zero targets even recognise deforestation as a business risk.

“The great majority of financial institutions with strong net-zero targets have an inexplicable blind spot on deforestation, conversion, and associated human rights abuses.”

Niki Mardas, Executive Director, Global Canopy

This year, Global Canopy also assessed where the finance to companies with a known high exposure to tropical deforestation risk was coming from. We found that financial institutions headquartered in just five countries (United States, United Kingdom, Japan, Canada, and France) represent 85% of the total finance being provided to 230¹ companies with a known-deforestation risk in palm oil, soy, beef, leather, timber, pulp and paper, rubber, and cocoa supply chains.

Although progress has been slow, with only 6% (41) of financial institutions having published a new ‘required’ deforestation policy for at least one commodity (meaning that they require their clients/holdings to be compliant with their new policy, as opposed to encouraging or advising their clients/holdings to be compliant) since the baseline assessment in 2022, there are some pockets of progress.

Nearly half (44% – 317) of the financial institutions assessed are involved in collaborative sector initiatives on deforestation, or advocating for legislation focussed on deforestation, conversion and associated human rights abuses. This is encouraging and an important lever to help amplify action.

“More and more financial institutions are joining networks that can help them get going on what they can longer avoid: rapid, transparent action and corporate engagement to move their portfolios away from deforestation as part of an urgent sector-wide transition to net zero.”

Niki Mardas, Executive Director, Global Canopy

This essential stocktake of finance sector action on deforestation is published at a crucial time for global climate targets, with the 2025 deadline set by the UNHLEG (United Nations High Level Expert Group) at COP27, which says that financial institutions need to eliminate agricultural commodity-driven deforestation by 2025 as part of their climate commitments, only two years away.

Whilst time is limited, change is both possible and achievable. The improved tools, stepwise guidance and data now available to financial institutions means that they can make rapid progress on deforestation, conversion, and associated human rights abuses in a relatively short space of time. This can be done through greater transparency of processes already in place internally, conducting risk assessments, setting policies, and being transparent around early stages of implementation.

In the wake of the UN’s recent warning that the world is heading towards a warming of nearly 3 degrees, we need to end deforestation and conversion as rapidly as possible. Yet none of the financial institutions assessed are currently on-track² to eliminate commodity-driven deforestation by 2025 in line with the expectations of the UN High Level Expert Group.

We urge financial institutions and the relevant climate initiatives and coalitions to implement the following recommendations as outlined in the report –

GFANZ and other net-zero coalitions should:

• require both transition planning and progress reporting on action on deforestation, conversion and human rights – and include deforestation in their relevant guidance, tools and data offerings.

Financial institutions should:

• Join ambitious alliances
• Set strong policies
• Actively engage portfolio companies
• Report transparently

The Deforestation Action Tracker will publicly assess progress linked to these recommendations in future years.

Find out more about the methodology behind the Deforestation Action Tracker.

A recording of the Deforestation Action Tracker 2023 launch webinar is now available.

The previous DAT dataset prior to 18:00 GMT on 29 November 2023 was incorrect due to an error. If you downloaded it prior to this time, please re-download it for the accurate data.

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¹Although more than 230 companies are identified as having a high deforestation risk across the Forest 500 and Forests&Finance datasets, only 230 are receiving finance from at least one of the 713 financial institutions included in the 2023 Deforestation Action Tracker.

²To be on-track to eliminate commodity-driven deforestation by 2025, financial institutions should be at Phase 3 of the Finance Sector Roadmap. This means they must recognise deforestation, conversion and associated human rights abuses as a business risk, be involved in a collaborative finance sector initiative and legislative advocacy on deforestation, and a publicly available deforestation policy covering all four high risk commodities with a 2025 or earlier target date. Additionally, they must also have a process to assess the exposure of clients/holdings to deforestation, conversion, and associated human rights abuse risks, and to identify and engage non-compliant clients/holdings in place for each of the four commodities.