The ongoing loss of the planet’s forests to logging and agriculture is emerging as a key ESG risk in the financial sector, Fitch Ratings says.
In a new report, the rating agency said that the clearing of natural forests is increasing on a global basis, contributing to carbon emissions, climate change and degrading biodiversity.
Amid growing concern from governments and activists, deforestation will increasingly affect banks’ financing activities, and investors’ portfolios, it said.
The leading cause of forest loss is various types of commodity production — including beef, palm oil, and soy, along with timber and pulp — Fitch noted.
“Beef and palm oil account for more than half of the annual greenhouse gases from deforestation, although other crops such as maize, rice, soybeans and rubber are also significant contributors,” it said.
Increasingly, institutional investors are being pushed to divest companies involved in deforestation for commodity production.
“Several large pension funds and investors have engaged in pressure campaigns on such companies, resulting in some significant corporate policy changes and, in some cases, government policy changes,” Fitch said.
Additionally, the rating agency said that global investment banks are also becoming increasingly sensitive to the issue of deforestation — which they’re addressing in their ESG policies.
“Banks have signed onto various voluntary commitments and are aligning their policies with these standards,” it said.
“We expect attention on deforestation to remain high in the short term, with the formal establishment of the Task Force on Nature-Related Finance Disclosures and the UN Climate Change Conference both scheduled for 2021,” it added.