7 November, 2023 / News
Tool launched for investors to eliminate deforestation from portfolios
By Holly Downes
Forest IQ scans portfolios to help finance firms 'asleep at the wheel' on deforestation
Three non-profit organisations – Global Canopy, Stockholm Environment Institute and The Zoological Society of London – have created a tool to help investors address deforestation in their portfolios, which they are “still ignoring…or perhaps are just asleep at the wheel.”
Forest IQ pulls data on more than 2,000 major companies and scans portfolios for links to deforestation using three indicators: exposure, materiality and reported performance.
The first metric looks at a chosen company’s deforestation and conversion of natural ecosystems exposure. The second scans the financial materiality of forest and ecosystem exposure; and the last indicator focuses on the company’s reporting on deforestation, conversion of natural ecosystems, and associated human rights abuses.
These indicators map a number of datasets, enabling banks and investors to undertake in-depth analysis and engage with high-risk companies.
The tool has been developed with the help of asset management firms such as BlackRock, BNP Paribas and HSBC, and is intended to be practical for financial institutions to use by providing an API to embed with their processes, and potentially being available on other ESG platforms that firms use.
“Financial institutions that are still ignoring deforestation in their portfolios are pursuing a dangerous strategy – or perhaps are just asleep at the wheel,” said Global Canopy executive director Niki Mardas.
Speaking at the launch of the tool, Mardas added: “There is a nature crisis alongside the climate crisis. Deforestation is a vital bridge between climate and nature, and so, it makes absolute sense as a priority area for the finance sector to act on. The message on this is a question of when for the finance sector, not if.”
Putting into practice
The launch event also heard firms’ experiences with deforestation data. Earth lead at Aviva Investors, Eugenie Mathieu, shared how Aviva and other financial institutions can use Forest IQ to identify and eliminate deforestation from their portfolios.
Mathieu said: “As of today, I’m not aware of any deforestation-linked company that is buying from supply chains that can actually say they have no deforestation in their supply chains.”
For example, Mathieu explained how Aviva attempted to match Unilever’s deforestation score to its databases, however because it is “ridiculously complicated”, Forest IQ could hugely benefit the firm.
Firms Robeco and Storebrand have also welcomed the applicability of the tool. “Robeco has spent a considerable time in recent years engaging ESG data providers to find the right deforestation screening data to help us manage deforestation risk in our portfolios,” said head of engagement Peter van der Werf.
“Forest IQ delivers an important contribution to the ESG landscape for investors with their continuous search for actionable data and assessments of companies on their performance in mitigating deforestation loss.”
Storebrand senior analyst Vemund Olsen added: “Storebrand has been screening our portfolios for deforestation risk since 2020, but the lack of comprehensive, high-quality data on companies’ exposure and management of deforestation risk has been a challenge. Forest IQ will enable us to improve and expand our screening, risk assessment and stewardship, and help us in our efforts to eliminate commodity-driven deforestation from our investment portfolios.”
The tool has launched amid growing policy and compliance pressure from groups, such as the Glasgow Finance Alliance on Net Zero, for financial institutions to eliminate deforestation from their portfolios.
Further, EU regulations, such as the EU anti-deforestation law, promote ‘deforestation-free’ products to reduce the EU’s impact on deforestation. This law ensures companies must undertake due diligence to manage and address the risks on deforestation. The non-profits said they will support financial institutions to meet requirements of emerging global reporting frameworks, such as the Taskforce for Nature Related-Financial Disclosures.
“Improved transparency is leading to growing public pressure, and new regulation in key jurisdictions will make it increasingly costly for those that drag their feet as competitors take action,” Mardas concluded.
“We hope that leading financial institutions will see Forest IQ as a powerful new ally on their journey to deforestation-free portfolios. And that laggards will see it as the end of the road for excuses.”
A part of the Mark Allen Group.