Investors have recognised the essential role of tropical forests in combating climate change, protecting biodiversity and safeguarding ecosystem services. Companies causing deforestation risks, therefore, face potentially increasing reputational, operational and regulatory risks from investors. To address these risks, investors are forming numerous initiatives focused on identifying the common and specific requirements of global equity investors to manage deforestation risks, underpin the measurement of improvements, and to drive change throughout corporate supply chains.

Disclosed metrics and data from companies are inconsistent and can make it difficult to fully understand deforestation risks. Despite this, tools such as CDP Forests, WWF scorecards, Supply Change, and ZSL SPOTT were identified as the most widely supported among investors.

Although there are notable differences in the functionality offered by commercial ESG providers and NGOs; however, third-party verification services, controversy assessment tools, and data downloads are suggested as some of the possible means to integrate and cross-validate the data and output. Encouraging the Science-Based Targets initiative, and other organizations such as Quantis, and prioritising the estimation of greenhouse gas emissions from deforestation and land-use change can also support investors in assessing deforestation risk.

The report identified several gaps and areas where improvements in tools and datasets are needed. Although not a single tool covers investors’ specific requirements, there are possibilities to synthesise the various tools to produce a working assessment of deforestation risk for major downstream companies, which are likely to feature in a global portfolio. Information is considerably lacking, relevant links between upstream aggregators and farmers are weakened, and traceability deteriorates over the supply chain.

To assist in mitigating these risks, the report suggested a best practice assessment process. Initially, investors can scrutinise companies with material exposure and those identified under the CDP Forests universe across various sectors. They should also consider using the Accountability Framework Initiative to manage and ensure consistent formatting of the data. Assisting in managing this, investors should encourage companies to obtain third-party verification that its policies are being implemented and also to use the AFi Framework principles and guidance.

The report further recommends that NGOs should include consistent company-level identification, such as tickers such as Bloomberg and ISINs, in their outputs. It also recommends priority work on estimating greenhouse gas emissions from deforestation due to data gaps and high potential impact for investors in the climate change movement.

Managing deforestation risks presents a great challenge to investors due to complex supply chains and information gaps. This report provides investors insightful information on existing tools and datasets that they can synthesise into a working assessment model that efficiently manages deforestation risks. The suggested best practice assessment process, incorporating consistent company-level identification, third-party verification for policies, and prioritising emission estimates, is an efficient way for investors to manage deforestation risks in their global equity portfolios.