10 September 2021
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UK Government must regulate the finance sector to protect rainforests - new WWF report
- UK-based financiers exposed to£40billion of funding to companies trading in commodities that risk causing deforestation in Brazil and Indonesia
- UK finance of forest-risk commodities has not significantly reduced since Paris Climate Agreement in 2015
- WWF calls for Environment Bill to includethe finance sector to protect rainforests
WWF’s Risky Finance report, published today (10 Sept), is the first study to examine the UK finance industry’s exposure to forest-risk commodities. It finds that 300 UK-based financiers directly fund companies whose activities threaten rainforests in Brazil and Indonesia with £40billion of investments and loans.
This threatens the UK Government’s ambitions for the City of London to be the green finance capital of the world and its credibility to demonstrate global leadership in the run-up to the COP26 climate talks in November.
At the heart of this deforestation risk is the production of agricultural commodities, particularly beef, palm oil, soy and cocoa, as well as timber, paper and rubber, which is driving the destruction of nature in some of the most biodiverse places on earth – including the Brazilian Cerrado and Indonesian forests. The UK finance sector plays a major role in facilitating the trade of these commodities, both for products bound for the UK and for foreign markets.
Trade in these commodities can and must be done in a way that does not drive deforestation, but only a few financiers are taking action in this space. For this reason, the UK Government must implement strong, robust due diligence processes to ensure a level playing field for all companies that finance forest-risk commodities.
At present, a lack of clear standards and transparency requirements make it difficult accurately assess the level of risk, so we urgently need to improve transparency and accountability, and the financial sector has a critical role to play in achieving that.
While the finance sector is increasingly aware of the impacts and risks of investment in fossil fuels, this study finds that the UK financial sector is still highly exposed to deforestation and land conversion through its investment and lending. Despite deforestation being a major cause of climate change, the level of UK investment in forest-risk commodities, especially palm oil and soy, remained largely consistent in the five years following the Paris Climate Agreement, between 2015 – 2020.
The report concludes that voluntary commitments from companies are not sufficient to curb deforestation and habitat destruction and that the finance sector needs to undertake more robust investigations before investing in and lending to firms engaged in trading forest-risk commodities.
While many sustainability reporting frameworks cover carbon emissions, all those that address forest risks are voluntary and have not been adopted at the scale needed. The Environment Bill, which is currently passing through the House of Lords, includes measures for traders in forest-risk commodities to undertake due diligence investigations to protect forests; WWF is calling on the UK Government to apply the same provisions to the finance sector.
Karen Ellis, Director of Sustainable Economy at WWF-UK said:
“Deforestation is one of the biggest threats to our climate, to wildlife and to the local people who rely on forests for their livelihoods. Every hectare of rainforest that is destroyed makes it harder to limit global warming to below the 1.5oC target set out in the 2015 Paris Climate Agreement. Alarmingly, UK investments in forest-risk commodities have not significantly reduced since then.
“The UK Government committed to protect forests and address nature loss impacts from financial decision making – we won’t forget if they fail us on this promise. The Environment Bill will require companies trading in palm oil, soy, and other forest-risk commodities to undertake due diligence checks. This must equally apply to firms that finance forest-risk commodities as voluntary measures clearly aren’t giving forests the protection they urgently need.”
In the UK, there is currently no requirement for products to be sourced sustainably – there are only voluntary commitments - leaving the UK and its value chains highly exposed to deforestation risk.
WWF calls on the UK government to develop a consistent, coherent and robust due diligence obligation that covers both the trade and financing of UK forest risk commodity value chains. Enhanced due diligence on deforestation and conversion should be an integral part of any net-zero transition plans. The Government should therefore implement the recommendations of the Global Resources Initiative and develop a pathway for mandatory due diligence of the financial sector in the run up to the COP26 climate talks in Glasgow.
NOTES TO EDITORS
The full report is available here.
More than a quarter (27%) of deforestation results from agricultural commodities1. Halting deforestation and conversion is therefore a priority if the UK is to achieve net zero emissions and not simply continue to ‘import’ climate emissions through other products.
Parts of the Amazon are already emitting more carbon than they absorb, mainly due to increased deforestation and deliberate forest fires2.
Transparency issues and complex national laws make differentiating legal and illegal clearance challenging. In Brazil, an assessment of clearance permits over 11 different states showed that only 5% corresponded with the actual deforestation observed in these states, leaving the remainder at risk of exposure to illegal deforestation3.
In Indonesia, 81% of palm oil operations, particularly in large, commercial plantations, were found to breach national laws and regulations4. This study therefore calls on all deforestation and conversion to be addressed through due diligence processes, not just that defined as illegal under national laws.
In 2019, the government convened a task force as part of the Global Resources Initiative (GRI) to explore how to manage the UK's overseas environmental impact. A key recommendation was for mandatory due diligence to apply to all companies trading and financing forest-risk commodities. It aims to convene the GRI Finance Working Group to outline what such a due diligence framework would look like for the financial sector.
The new Environment Bill will require companies trading in forest-risk commodities to implement additional due diligence to ensure they are not exposed to illegal deforestation. However, the Bill does not include the financial sector and only applies to deforestation occurring in breach of national laws, which can leave many biologically irreplaceable ecosystems vulnerable.
In 2014, over 200 parties endorsed the New York Forests Declaration (NYFD) at the United Nations Climate Summit, with the aim to halve global forest loss by 2020. Nevertheless by 2020, the NYFD Progress Report showed that rates of forest loss have actually increased. This is despite initiatives like the 2006 Amazon Soy Moratorium and 2017 Cerrado Manifesto, signed by over 100 signatories including retailers, manufacturers, livestock producers and investors, including the Consumer Goods Forum (CGF).
The Banking Environment Initiative set out a net-zero deforestation ambition by 2020 to scale up transformative palm oil, timber, soy and beef supply chain finance, starting with certification of such products and raising industry-wide banking standards. These companies are improving their standards and policies, but without comprehensive tracking and definitions, assessing coordinated efforts will be impossible. Despite stronger voluntary commitments for commodities like palm oil, financing to the largest agricultural commodity conglomerates is at similar levels to 2015.