Sustainable land use

Deforestation as a systemic risk: An opportunity for investors collective action

2021-05-20T08:00:00+01:00

We all know climate change is happening. But do investors understand the role that deforestation plays, and the impact on their portfolios?

Land use change represents significant operational and climate-related risks to companies and investors looking to create long-term value. To minimise these risks, investors can engage with their investee companies about eliminating deforestation from their direct operations and supply chains.

Investor action on deforestation

Biodiversity loss and climate change are two of the most pressing sustainability challenges for investors, with deforestation being the most tangible and critical element of these twin threats. Agriculture is responsible for 23% of greenhouse gas emissions globally and its expansion accounts for 73% of deforestation worldwide. Forests are not only the source of livelihoods for 22% of humanity, but they also absorb 40% of greenhouse emissions.

Deforestation is a very material risk for investors. It drives reputational risks related to consumers and environmental organisations as well as legal risks as new legislation for climate-related financial disclosure is expected. Traceability technology can identify investors and companies along the supply chain connected to deforestation and expose them to liability and rapid loss of market share.

Investor Initiatives

Practitioners Group

The Practitioners Group includes more than 40 PRI signatories who will participate in 10 workshops over 12 months to understand opportunities to address deforestation as a systemic risk with inputs from technical experts.

Registrations have now closed.

PRI Investor Working Group on Sustainable Commodities

The PRI has coordinated collaborative investor engagement on sustainable commodities since 2011 on palm oil, and more recently on soy and cattle supply chains. Later this year, the PRI plans to relaunch these engagements in a centralised stewardship initiative.

six Principles

Investor expectations statements

Investors have set out their expectations of companies operating within these supply chains in public expectations statements. These documents highlight investor expectations of disclosure and practice, and have each been signed by more than 50 investors representing more than US $6 trillion in assets under management.