
Eliminating commodity-driven deforestation: Finance sector roadmap
The Finance and Deforestation advisory group provides a time-bound roadmap for all types of financial institutions, including asset owners, pension funds, asset managers, insurers and banks at any stage of the process, to start eliminating deforestation, conversion, and associated human rights abuses from their financial portfolios by 2025. This Roadmap covers all asset classes, including equity, fixed income, project finance, and real assets.
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OVERVIEW
Scope of this roadmap
The roadmap outlines the systemic risk deforestation poses to the finance sector and global economy through direct and indirect financing of high-risk commodities such as soy, cattle products, palm oil, timber, and pulp. These commodities account for over two-thirds of tropical deforestation. It emphasises the urgency for financial institutions (FIs) to eliminate deforestation and related human rights abuses from their portfolios by 2025. This effort aligns financial actions with global climate, biodiversity targets, and human rights objectives, leveraging expertise and tools from Conservation International, Global Canopy, and others.
How to tackle commodity-driven deforestation in your portfolio
The roadmap provides a phased strategy to address deforestation systematically:
- Mapping risk: FIs should assess exposure to deforestation risks, identifying high-, medium-, and low-risk clients. This phase involves understanding direct and indirect risks in financing activities.
- Setting policies: Develop comprehensive deforestation-free commitments that include zero tolerance for illegal or legal deforestation. Policies must also safeguard human rights, particularly for Indigenous communities, and address labour rights across supply chains.
- Monitoring and engagement: Implement robust monitoring systems, conduct annual due diligence, and actively engage non-compliant clients. This approach helps to ensure measurable progress toward deforestation-free portfolios.
- Disclosing progress: Regular and transparent reporting on policy compliance, deforestation exposure, and risk management efforts allows for accountability and sector-wide influence.
- Eliminating deforestation: Ensure portfolios are free from commodity-driven deforestation by 2025, addressing both primary commodities and secondary drivers of ecosystem conversion.
- Going above and beyond: Redirect financing to promote restoration, sustainable practices, and biodiversity conservation, positioning FIs as leaders in nature-positive financing.
Phase one: Mapping risk
Deforestation and related risks are categorised by assessing client activities linked to high-risk commodities. Tools such as Forest 500, Trase, and Global Forest Watch help estimate risk profiles. Financial institutions are encouraged to engage with Indigenous communities and local stakeholders to address human rights issues, which are often closely tied to deforestation.
Phase two: Setting an effective policy and managing risk
Policies must include clear, measurable targets, aligning with the Accountability Framework and requiring compliance across all supply chain stages, asset classes, and financing activities. Financial institutions should integrate grievance mechanisms, ensure traceability, and require remediation of human rights violations. The roadmap mandates that policies be publicly disclosed to enhance accountability.
Phase three: Monitoring and engagement
Annual due diligence processes assess compliance with deforestation-free commitments. Non-compliant clients must develop and implement remediation plans, which include addressing land-use conflicts and restoring deforested areas. Persistent non-compliance may result in termination of financing. Collaborations with ESG data providers and other stakeholders strengthen data quality and systemic impact.
Phase four: Disclosing
Transparency is critical for building trust and encouraging broader sectoral action. Institutions should publicly disclose the results of risk assessments and progress in implementing policies. Reporting should include detailed metrics such as the proportion of deforestation-free financing, client compliance rates, and grievance resolutions. Integrating deforestation impacts into financial and climate reporting frameworks, such as TCFD, enhances the roadmap’s alignment with net-zero and biodiversity goals.
Phase five: Eliminating deforestation
By 2025, all financial portfolios should be deforestation-free, encompassing both legal and illegal activities. Institutions should address secondary commodities like cocoa, coffee, and rubber, while simultaneously expanding restoration investments. Transitioning to sustainable practices mitigates systemic risks and supports biodiversity conservation.
Phase six: Going above and beyond
The roadmap encourages financial institutions to innovate with nature-positive financing mechanisms, such as green bonds, and advocate for sector-wide legislative frameworks that address deforestation. By engaging in policy advocacy, financial institutions can influence global standards and ensure collective progress towards deforestation-free goals.