100 days since COP Deforestation Commitments – why every investor needs to act now

Tackling deforestation is an obvious place for financial institutions to begin their wider efforts to work towards net zero, writes Nigel Topping

The science makes clear that we won’t reach net zero emissions by 2050 unless we regenerate nature, reverse biodiversity loss by 2030 and enhance resilience to climate change impacts.

At the COP26 summit, world leaders finally recognised this imperative. Governments pledged to halt and reverse deforestation by 2030, and 33 financial institutions committed to actively tackle commodity driven deforestation impacts in their portfolios by 2025. Ending deforestation and implementing nature based solutions could provide a third of the solution to the Paris climate target of keeping the global temperature rise below 1.5C – meaning these commitments can turbocharge the economy’s race to a zero-emission economy.

But only if they’re fulfilled. People around the world, including our youngest generations, are asking if the commitments made in Glasgow are real, or just words. A hundred days after Glasgow, it’s time to show them that change really is coming – fast.

Net zero target = no excuse 

The expansion of commodity crops like palm oil, soy, beef and pulp and paper is by far the largest cause of forest clearance, so it makes sense to address these first in investors’ portfolios.

The financial sector commitment to tackle agricultural commodity-driven deforestation within three years does this by focusing on sustained engagement, active ownership and ongoing stewardship to catalyse actions to eliminate deforestation across commodity supply chains. It allows investors to finance commodity production in a way that supports the global transition towards sustainable economic development.

Even the few investors without a net zero target should be addressing deforestation. The conditions for investing in and providing financial services to forest-risk commodities operations and supply chains are increasingly uncertain, with ESG, market, regulatory, reputational and litigation-related issues on the rise, and companies reporting US$53.1 billion in deforestation risks.

100 days later…

Nature is still being destroyed at alarming rates. Deforestation in the Brazilian Amazon is at a record high. Global Canopy’s annual Forest 500 report showed that trillions of dollars flows into the companies most exposed to deforestation risks, and the vast majority of financial institutions most exposed to deforestation still do not have a policy covering their investments and are lending to companies in key forest-risk commodity supply chains.

The Glasgow climate conference delivered a necessary and significant shift in the understanding and expectations around addressing deforestation. But to keep those commitments credible, we need to act swiftly – both to mitigate climate change, and enhance resilience to its impacts.

Today, investors can make their portfolios more sustainable by using the Accountability Framework-aligned financial sector roadmap. Drawing on input from more than 60 institutions, this roadmap provides tailored guidance on mapping deforestation risks, setting policies and initiating engagement activity. It is a crucial first reference point in the journey to deforestation-free portfolios.

A number of leading investors are already well on the way towards achieving this goal. Some, such as Storebrand Asset Management, are already implementing a comprehensive deforestation policy and escalating dialogue with US agricultural traders for moving too slowly on deforestation risk.

The next 100 days 

While a commitment from 33 financial institutions is an important start, it falls far short of moving the market at scale. We need to see the number of investors publicly working to address deforestation far outnumber the laggards identified by the Forest 500, and soon.

But with $130trn in capital now racing to zero emissions, under the Glasgow Financial Alliance for Net Zero, financial institutions have no excuse not to act on deforestation, especially with pressure growing to report on nature-related risks and opportunities, with the first beta version of the Task Force on Nature-related Financial Disclosures to be released imminently.

At the same time, financial institutions need to recognise the power of nature to build resilience to extreme heat, flooding, drought and other climate change impacts within this decisive decade.

Time is short and the time for action is now 

Nature-based solutions can only deliver their full potential effect on emission reductions and removals if they are mobilised over the next 10 to 15 years. So if we are to realise the full benefits of ending deforestation and transitioning to sustainable production, we need to see more action now.

Addressing deforestation is an obvious place for financial institutions to begin their wider efforts to work towards net zero, build portfolio climate resilience, reverse biodiversity loss and reduce overall risk exposure.

We saw some bold and progressive announcements on deforestation at COP26, and this should be celebrated. But science tells us the window in which to limit global warming to 1.5°C and build resilience to climate impacts is shrinking.

Nature is essential to reach the 1.5°C  goal and it can buffer us from rising sea levels and extreme heat, provide food and medication and underpin a healthy, circular economy. A zero-emission world is a nature-positive world – and it’s time we start racing for it.

Nigel Topping is the UN High-Level Climate Champion for COP26