COP26: Asset managers representing $87.trn in assets vow to stop financing deforestation

In tandem to announcements from governments and end-user businesses today at COP26

The UK’s COP26 Unit stated this morning (6 November) that, since 2010, roughly 40 times more finance has flowed into land-use practices that degrade nature than into conservation, restoration and sustainable agriculture.

With that in mind, several major announcements are coming from the financial space today, in tandem with commitments made by 45 nations on shared sustainable agri-food policy practices.

The largest, convened by the Race to Zero and Race to Resilience, has united 33 major financial institutions with more than $8.7trn in assets under management collectively. The firms have committed to stop financing deforestation driven by agricultural commodities by 2025. Risk exposure assessments should be completed by the end of 2022, in sectors including beef, palm oil, soy, leather, pulp and paper.

According to the Intergovernmental Panel on Climate Change (IPCC), agri-food has caused three-quarters of deforestation to date.

The new commitment statement reads: “We have a fiduciary duty to act in the best long-term interests of our investors, beneficiaries and clients and recognize the increasing urgency of addressing climate, biodiversity and food security-related risks and opportunities across our portfolios.

“The conditions for investing in, and providing financial services to, forest-risk agricultural commodities operations and supply chains are increasingly uncertain. We see that weakening environmental and human rights policies and lack of effective enforcement are exposing the sector to growing ESG, market, reputational and litigation-related risks, as well as regulatory uncertainty. We believe these risks should be addressed.

“In addition, many of us have set net-zero targets, made biodiversity commitments, and are taking immediate, results-driven action towards meeting them. We recognise the immense potential of addressing forest risk agricultural commodity-driven deforestation towards achieving our goals. We also recognise that forest-risk agricultural commodity supply chains and operations are critically important to economic development and livelihoods, particularly in countries and jurisdictions where production and processing take place.”

Businesses signing the commitment include AXA, Aviva, Fidelity, Federated Hermes, Robeco, Schroders and Legal & General Investment Management (LGIM). As well as addressing their own commodity portfolios, the commitment stipulates that the signatories should call on policymakers and regulators for changes that will affect the broader financial sector and agri-food value chain.

The announcement comes shortly after eight financial institutions and agribusinesses committed to mobilising $3bn to soy and beef production in South America free of deforestation and land-use conversion. A minimum of $200m will be delivered by the start of 2022. This commitment is called the Innovative Finance for the Amazon, Cerrado and Chaco (IFACC) initiative.

UK International Environment Minister Lord Zac Goldsmith said: “The high-level pledge by governments to stop deforestation, combined with unprecedented finance commitments, is hugely important. – but success also hinges on the private sector and the international financial institutions, and that’s why we have been working around the clock to persuade businesses, the big financial institutions and the multilateral development banks, like the World Bank and Inter-American Development Bank, to commit to reconciling their investments and portfolios with nature.

“Our future depends on them doing so.”

Nature-based solutions investment platforms

In related news, Capital for Nature has launched a new online investment platform that will guide institutional investors as they seek to increase their investments in nature-based solutions projects. These are conservation and restoration projects that increase the carbon sequestration capacity of landscapes and marine habitats.

Capital for Nature is urging investors with net-zero targets – including those participating in the Glasgow Financial Alliance for Net-Zero (GFANZ), which this week surpassed $130trn in assets under management – to ensure that they are supporting nature-based solutions as well as low-carbon sectors and innovations.

Separately, the Prince of Wales’ Sustainable Markets Initiative is announcing that 12 new members have joined its Natural Capital Investment  Alliance. The alliance is aiming to mobilise $10bn in private capital by the end of 2022, connecting investors with projects.

The US Government is additionally set to announce a new ‘Forest Investor Club’ platform later today.

Stay up-to-date with the latest news from COP26 with edie’s Live Blog. 

Sarah George

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