Majority of banks fail to encourage sustainable forestry, UN finds
The majority of financial institutions do not have policies requiring clients to comply with forestry regulations, according to a study by the United Nations Environment Programme (UNEP) revealed today (29 July).
Of the 30 major financial institutions assessed by UNEP, most had had no mechanisms to promote sustainable forest conservation and only 13% had developed financial products specifically aimed at promoting the production of sustainable commodities.
The study – Bank Investor Risk Policies for Soft Commodities – highlights policies banks and investors can adopt to reduce deforestation risks across supply chains at local, national and international levels.
The research carried out by UNEP and the Natural Capital Declaration scored the financial institutions out of 100 on the scope, strength and monitoring methods of the companies.
The top 12 institutions scored more than 67, with half scoring between 33 and 67 on the scale. With an average overall score of 58, the report suggested a future benchmark of 67/100 to judge effective forest sustainability.
The findings revealed that nearly all the financial institutions disclosed general sustainability policies, but a large number did not display evidence of specific activities to ensure companies’ compliance with their own sustainability policies.
The report also stress banks and investors dealing with deforestation could expose themselves to major risks.
UN under-secretary general Achim Steiner said addressing deforestation was high on the agenda for businesses and the international community: “The continuing loss of the world’s tropical rainforests represents a significant threat to the security of water, food, energy, health and climate for millions worldwide.
“Banks and investors who engage in the destruction of forests through their lending and investment practices expose themselves to potentially significant regulatory, reputational, legal, operational and market risks, which could affect the credit risks and market value of underlying assets,” he said.
The Natural Capital Declaration has launched a soft commodities forest-risk assessment tool to provide a framework to evaluate bank and investor policies to tackle the deforestation risk.
Natural Capital Declaration chief executive Andrew Mitchell said: “Financial institutions have a major role to play in curbing deforestation and in helping to accelerate the transition to new more sustainable practices.”
Mitchell added the new tool would give companies and banks the means to develop new policies to ensure best-practice.
Businesses have begun implementing deforestation pledges into their sustainability initiatives. Earlier this year, Unilever announced it was fast-tracking its deforestation pledge to 2015 after making huge progress in sustainably sourcing its wood and McDonald's introduced a commitment to ending deforestation across its supply chain.