Public and private action on deforestation takes shape

Countries, agricultural commodity firms and financial institutions signed separate deforestation pledges at the UN Cop 26 climate summit in Glasgow in November 2021. Countries promised funding and to develop policies that conserved forests and ensured sustainable trade, while agricultural commodity companies committed to accelerating their work to halt forest loss.

The pledge from countries, to halt and reverse forest loss and land degradation by 2030, has gained new signatories since Cop 26, taking the total to 145 and covering almost 91pc of the world's forest cover. And the World Economic Forum-hosted Tropical Forest Alliance is working with the agricultural trading firm signatories to build a roadmap, promised for Cop 27.

Global rates of deforestation have shown little improvement in recent years, holding broadly stable. Annual tree cover loss worldwide averaged 24.8mn hectares (ha) between 2018 and 2021, according to Global Forest Watch data. Humid primary forest loss remained roughly flat over 2018-21 at an average of 3.84mn ha/yr, although it increased slightly in 2020. And commodity-driven deforestation accounted for just over a fifth of total forest loss on average over the same timeframe, Global Forest Watch data show.

The EU recently moved ahead with more stringent legislation to tackle the bloc's role in deforestation, primarily through commodity supply chains. The UN's Food and Agriculture Organisation estimates that EU consumption represents around 10pc of global deforestation.

Members of parliament (MEPs) overwhelmingly voted in early July to require companies to verify that products sold in the EU have not been produced on deforested or degraded land. Traceability will be key, encompassing the use of tools including satellite monitoring and isotope testing, the EU said.

The proposed legislation, on which a common position has been adopted by the council of environment ministers, focuses on timber, coffee, cocoa, palm oil, beef and leather, soy and derivative products as high forest-risk commodities. But parliament wants to broaden the scope to include pork, sheep, goat, poultry, maize, rubber, charcoal and printed paper products. The regulation will be further negotiated with member states before it is finalised.

And further action is on the cards. MEPs want the commission to look into whether to extend the rules to sugar cane, ethanol and mining products, within two years of the legislation coming into force. And they have called for financial institutions to be subject to additional requirements to ensure that their activities do not contribute to deforestation.

Finance sector releases guidelines

The finance sector has taken concrete steps since its Cop 26 pledge, releasing a framework to help financial institutions ensure that portfolios are free from activity or investments that might contribute to forest loss. There is separate guidance for pension funds from the Deforestation Free Finance Initiative — a collaboration between several partners including Global Canopy, the Tropical Forest Alliance and UN climate champions, among others.

The main roadmap is freely available, so it is not possible to find out how many institutions are using it, or to measure progress from this standpoint. But the pensions fund guidance requires a login, so usage is tracked, Global Canopy tells Argus. The roadmap's timeframe is relatively tight. It aims to act as a "practical pathway for all types of financial institutions to eliminate commodity-driven deforestation, conversion, and associated human rights abuses from their financial portfolios by 2025, or within four years of using the roadmap". It is focused on institutions that provide finance to clients that "produce, process, procure and finance the highest-risk agricultural commodities".

Eliminating deforestation will mean that institutions continue to engage with clients and holdings that are making little progress on tackling deforestation or are high risk. Institutions should eventually stop financing clients that have not made progress, according to the roadmap. The original pledge, made by 30 financial institutions representing around $8.7 trillion in assets, laid out plans for signatories to assess their exposure to deforestation risk and to disclose this and any mitigation activity by 2023. And the institutions agreed to by 2025 publicly report "credible progress" on the path to eliminate deforestation and to only finance clients that have met risk-reduction criteria. Given the timeframe in place, it is difficult to measure progress at this stage.

Action pledged by the agricultural commodity firms — ADM, Amaggi, Bunge, Cargill, COFCO, Golden Agri-Resources, JBS, Louis Dreyfus, Marfrig, Olam International, Viterra and Wilmar International — was less definitive. The companies, which have a combined annual revenue of nearly $500bn and key market share of forest-risk commodities, said that they would "lay out a shared roadmap" for their supply chains by Cop 27, set for November. Beyond the roadmap delivery, the agricultural firms' pledge had no firm deadline, simply committing to a Paris agreement-aligned pathway of limiting global warming to 1.5°C.

Information on the shared pathway is minimal — it aims to accelerate supply chain action by reporting progress, raise climate ambition by reducing emissions and to "support forest positive sectoral transformation through collaboration", according to the Tropical Forest Alliance, which leads the work. Separately, information available on the firms' plans to tackle deforestation is heavily varied. Some signatories — such as ADM and Bunge — have individually strengthened their commitments to address forest loss and have outlined detailed plans. Others, including Golden Agri-Resources, make comprehensive climate-related disclosures.

Nature-based solution

The finance sector committed to increasing investment in so-called "nature-based solutions" — often in the form of voluntary carbon offsets — as part of its Cop 26 pledge. Interest in these has soared as part of the private-sector push towards net zero — including from oil and gas majors. Forest-based carbon offsets are by far the frontrunners in the sector. Data from the four main registries — Verified Carbon Standard, Climate Action Reserve, American Carbon Registry and Gold Standard — up to 31 March show that forestry and land use credits issued make up 44.3pc of total credits issued. Retired forestry credits, at nearly 334mn, account for 40.6pc of all credits retired.

While some schemes issue credits for forest conservation, others are linked to new planting. But afforestation cannot replace primary forest loss. Environmental groups have cautioned that the rise in the use of forest-based carbon offsets is contributing to a loss in biodiversity and an increase in monoculture forests. These need time to develop into carbon sinks and provide fewer defences against rising temperatures and disease. And dead wood left by outbreaks of disease can worsen forest fires, incidences of which reached the highest on record last year, Global Forest Watch found.

Very early progress to address and halt deforestation is under way and Cop 27 will prove both a reckoning and an opportunity to display any further advancements. But action from individual firms coincides with tightened regulation, suggesting that if some companies fail to take necessary steps, governments may make the decision for them.

By Georgia Gratton