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New tool allows investors to analyse their deforestation risk

The tool suggests criteria for financial institutions to benchmark their investments against their peers.

A new tool from the United Nations Environment Programme (UNEP) allows investors and financial institutions to benchmark their deforestation impact.

Agriculture is responsible for 55 to 80 percent of land clearance, and soy, palm oil and livestock (mostly beef) accounted for a third of the total between 1990 to 2008.

Lending to or funding companies responsible for deforestation can expose investors to risk: operational, regulatory, legal, market and reputational, and ultimately financial risk.

A Soft Commodity Forest-risk Assessment tool has been developed “to evaluate banks and fund managers’ policies and processes to manage deforestation and forest degradation risk”, assessing weighted criteria for policy scope; policy strength; and implementation, monitoring and reporting.

Financial institutions can use the tool to evaluate how their policies compare to peers in addressing deforestation or forest degradation risks

Investors can also capitalise on the situation by financing the transition to sustainable production, the report says. Examples include “providing advisory services and creating products and services that build capacity for and incentivise the production and consumption of commodities produced in accordance with relevant environmental and social standards.”

The tool is available for free on the UNEP website.

Read the research and the analysis.