Tackling deforestation is a critical step towards achieving the Paris climate goals, but 40% of companies reliant on commodities linked to it, and the financial institutions behind them, do not have a policy to address it, according to non-profit Global Canopy.
Its Forest 500 list looks at 350 companies with the greatest exposure to palm oil, soy, beef, leather, timber and pulp and paper, and 150 banks and asset managers which lend to or invest in them.
Asset managers and other financial institutions on the list provide $6.1 trillion in finance to companies in forest-risk supply chains, but few are addressing deforestation as a systemic risk, including the reputational, regulatory and physical risks to investment assets, according to the report.
"It is becoming ever more difficult for the finance sector to ignore the role they play," the Global Canopy Forest 500 report says.
Only 11% of the financial institutions most exposed to deforestation have policies for all four commodities with the greatest impact: palm oil, soy, beef and paper, and 61% that are most exposed to deforestation do not have a deforestation policy covering their lending and investments.
Schroders, one of five financial institutions scoring the highest — 3 out of 5 — has considered deforestation risk for years, but also "acknowledge more needs to be done," said Andrew Howard, global head of sustainable investment, in a statement on the Forest 500 report.
The other financial institutions scoring highest were BNP Paribas, Rabobank, SMBC Group and Standard Chartered.
"With more than half of global GDP at moderate or severe risk due to nature loss, nature risk has become a more prominent factor to investment risk and returns. We firmly believe that managing nature risk is part of our responsibility to clients and key to us continuing to deliver robust, long-term returns," Mr. Howard said.
In 2022, Schroders launched a formal deforestation plan and an engagement blueprint that expands expectations of companies.