Findings

The report reviews links between global financial institutions and major corporate players in agricultural commodities associated with deforestation risk, such as palm oil and soya. Sectors using large volumes of such commodities to produce animal feed, aquafeed, or consuming significant amounts of this feed and timber and wood pulp are also included. It finds that EU-based financial institutions provided US$278b of the US$1.26t, and the EU FIs holds U$65b of investment in corporate groups operating in the ecosystem risk sectors since 2015.

Recommendations

The report recommends that EU regulation should align finance with global biodiversity targets by ending all new provision of financial services to groups that contribute to nature destruction. Furthermore, the report calls on the EU to incorporate a group-level approach applied to both receiving corporate groups and FIs that operate in the EU to comply with regulations on ecosystem risk finance.

At a minimum, FIs should be required to perform due diligence before carrying out the following transactions:

• Future credit arrangements and underwriting services
• Renewal of existing credit arrangements or underwriting services
• New investment Any groups found to carry a non-negligible risk of contributing to ecosystem destruction should be excluded from finance.

Conclusion

The report highlights the need for legislative action to prevent EU financial institutions from contributing to forest and ecosystem destruction for commodities. This demand has already been made by the European Parliament, financial sector, NGOs, and almost 1.2 million Europeans who took part in the European Commission’s online consultation in 2020. The report provides a proposed definition of ecosystem risk finance, analysis of financial flows from EU-based FIs to major corporate players in ecosystem risk sectors, and preliminary suggestions on addressing the financial sector’s impacts within legislative frameworks.