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Investors and banks get new tool to assess their ‘soft commodity’ deforestation exposure

New way to manage exposure to palm oil, soy and beef risks

Institutional investors and banks will now be able to assess and manage their exposure to deforestation and forest degradation risks associated with palm oil, soy and beef production via a new Excel-based software tool.

The Soft Commodity Forest-risk Assessment Tool (SCFA) has been developed for the Natural Capital Declaration, the global finance-led initiative to integrate natural capital considerations into finance whose members include the likes of Caisse des Dépôts, MN, Robeco and VicSuper among others. The NCD is supported by a secretariat formed by the United Nations Environment Programme Finance Initiative (UNEP FI) and the Global Canopy Programme.

Version 1.0 of SCFA, an open-source tool developed with ESG research house Sustainalytics, was released today (July 29).

It’s hoped it will provide financial institutions with a detailed insight into criteria to address risks and opportunities linked to soft commodity producers. The term soft commodities generally refers to those that are grown, rather than mined – such as coffee, cocoa, sugar, corn, wheat, soybean and so on.

In addition the new tool encourages users to improve the way they manage the risks of financing companies linked to deforestation.

It is a response to research – also released today – by the UN Environment Programme (UNEP) and the Natural Capital Declaration looking at how financial institutions tackle deforestation risks.

Of the 30 financial institutions assessed (list below), the majority did not have policies requiring clients to comply with forest conservation rules. The research is called “Bank and Investor Risk Policies for Soft Commodities”.

“Banks and investors who engage in the destruction of forests through their lending and investment practices expose themselves to potentially significant regulatory, reputational, legal, operational and market risks,” said UNEP Executive Director Achim Steiner. But they can be “part of the solution” if they adopt the right mechanisms.The report found the best performing financial institutions in this regard are the African Development Bank, the Netherlands’ FMO, the World Bank’s IFC, Standard Chartered and Sumitomo Mitsui Trust Bank.

Just 13% of the financial institutions assessed have developed financial products and services specifically aimed at promoting the production and trade of sustainable commodities, the research found.

List of financial institutions evaluated:
African Development Bank
ASN Bank
Banco Bilbao Vizcaya Argentaria
Banco Sudameris SAECA
Bank of America
Banorte – Ixe
BlackRock
BNP Paribas
Calvert Group
Credit Suisse
Ecobank
Financiera Rural
FMO
HSBC Holdings
Industrial and Commercial Bank of China
International Finance Corporation
JPMorgan Chase
MN Services
National Australia Bank
Norges Bank Investment Management
PAX World
PT Bank Mandiri
PT Bank Negara
Rabobank
Standard Chartered
State Street
Sumitomo Mitsui Trust
Goldman Sachs
UBS
Wells Fargo