Introduction

The report evaluates how financial regulation can support the Global Biodiversity Framework by aligning financial flows with biodiversity objectives, particularly by reducing financing linked to deforestation and forest-risk commodities such as palm oil, soy, beef, pulp and paper. It assesses regulatory frameworks across major financial jurisdictions to determine whether existing rules effectively address biodiversity risks within financial decision-making.

Key jurisdictions and forms of financing of forest-risk commodities

The analysis draws on the Forests & Finance database to examine financial flows from banks and investors to companies involved in forest-risk commodity supply chains. Financing occurs primarily through corporate loans, revolving credit facilities, bond underwriting and equity investments.

Financial institutions headquartered in Indonesia, Brazil, China, the European Union and the United States play a major role in providing capital to companies operating in agricultural and forestry sectors associated with deforestation. The report highlights that these financing relationships enable the expansion of commodity production linked to forest loss. Regulatory frameworks rarely require biodiversity risk assessments, meaning financial institutions largely rely on voluntary environmental, social and governance policies.

Types of financial regulation

The report categorises financial regulation into several types relevant to biodiversity outcomes. These include prudential banking regulations governing risk management, capital market regulations affecting investment and underwriting, transparency and disclosure requirements for financial institutions, and due diligence rules that require investors or lenders to assess environmental risks.

Across jurisdictions, many regulatory measures focus on disclosure and transparency rather than restricting harmful financial flows. While sustainable finance initiatives are expanding, biodiversity risks are generally not integrated into binding prudential rules or supervisory expectations. The report emphasises that stronger regulatory integration is needed to align financial systems with biodiversity protection goals.

Banking regulations in Indonesia

Indonesia has implemented sustainable finance initiatives through the Financial Services Authority (OJK), including a Sustainable Finance Roadmap and sustainability reporting requirements for financial institutions. These measures aim to increase transparency and encourage financial institutions to consider environmental risks.

However, the report finds that the framework remains largely voluntary and disclosure-based. Banks are not required to conduct mandatory due diligence on deforestation risks associated with lending to forest-risk commodity sectors. Strengthening biodiversity risk management requirements and integrating these risks into supervisory oversight are identified as potential regulatory improvements.

Banking and investment regulations in Brazil

Brazil’s regulatory framework includes environmental risk management rules overseen by the Central Bank of Brazil and the National Monetary Council. Financial institutions must incorporate environmental risks into credit risk management processes and ensure compliance with environmental legislation.

Despite these requirements, the report finds that biodiversity and deforestation risks are not consistently addressed. Existing rules focus mainly on compliance with environmental laws rather than proactive biodiversity protection. Strengthening due diligence obligations and linking financing decisions to verified environmental compliance are identified as potential policy improvements.

Capital market regulations in China

China has introduced green finance policies including green credit guidelines, green bond standards and disclosure frameworks aimed at promoting environmentally sustainable investment. These initiatives support the development of green financial products and encourage financial institutions to consider environmental factors.

However, the report notes that these frameworks focus mainly on climate mitigation and pollution reduction rather than biodiversity protection. Environmental risk screening for overseas investments remains limited. Integrating biodiversity safeguards into green finance standards and strengthening oversight of overseas financing linked to deforestation are suggested improvements.

Transparency and due diligence regulations for investors in the EU

The European Union has established an extensive sustainable finance framework, including the EU Taxonomy for Sustainable Activities and the Sustainable Finance Disclosure Regulation. These instruments aim to improve transparency and guide capital towards environmentally sustainable activities.

The report finds that although these measures improve disclosure, they do not consistently prevent financing linked to deforestation. The EU Deforestation Regulation introduces supply chain due diligence requirements, representing a more direct regulatory approach. Further integration of biodiversity criteria within financial regulation is recommended.

Transparency and due diligence regulations for investors in the United States

The United States hosts major financial institutions that provide capital to companies involved in forest-risk commodity production. Financial regulation in the United States focuses primarily on financial stability and consumer protection rather than biodiversity outcomes.

Existing initiatives related to environmental disclosure and ESG practices are largely voluntary or emerging. The report suggests that stronger transparency requirements and the integration of biodiversity risks into supervisory frameworks could improve oversight of financing linked to deforestation.

Conclusions and recommendations

The report concludes that current financial regulations in key jurisdictions do not adequately address biodiversity loss linked to forest-risk commodity financing. Most frameworks rely on voluntary commitments or disclosure-based measures rather than binding restrictions.

To align financial flows with biodiversity goals, the report recommends integrating biodiversity risks into prudential supervision, strengthening environmental due diligence requirements, expanding transparency obligations and ensuring that financial institutions assess and manage deforestation risks when providing capital to companies operating in forest-risk sectors.