Back to TFA 2020 Publications Previous Next

The Roadmap to Financing Deforestation-Free Commodities

The Roadmap to Financing Deforestation-Free Commodities

The Paris Agreement on climate change, which entered into force in November 2016, saw 195 countries agree to keep the rise in global temperature to below 2°C to avert dangerous climate change. Crucial in the fight against climate change, tropical forests could provide up to one-third of the greenhouse gas (GHG) savings needed.

Despite their globally acknowledged importance, forests have lost more than 120 million hectares since 1990. Commercial agriculture is responsible for nearly 70% of tropical deforestation, and most agriculture-driven deforestation results from the production of four soft (grown, not mined) commodities (“forest risk commodities”): palm oil, soy, cattle products (beef and leather) and timber products (including paper).

Financial institutions are exposed to the risks associated with deforestation through their investments in and lending to companies involved with soft commodities. However, while a number of financial institutions have made progress in integrating the environmental and social impacts of soft commodities into their risk management frameworks, a larger number are not taking action, with only 30% having public policies on these commodities, according to Global Canopy’s Forest 500’s annual report for 2017.

This White Paper looks at why financial institutions globally are not taking sufficient action or are finding it more difficult to do so than envisaged, and recommends ways forward for the various groups concerned. The recommendations are targeted first at financial institutions and second at other stakeholders in the soft commodity value chain, namely those who can provide the enabling environment for financial institutions to act. The paper contains sections on the four biggest areas of challenge to financial institutions in this space.

English PDF