A coalition of pension funds and insurance companies holding a combined $9.5 trillion of assets has called on investors to ensure their portfolios aren’t supporting or enabling deforestation.
The Net-Zero Asset Owner Alliance, whose signatories include Allianz SE and the California Public Employees’ Retirement System, said in a report published Wednesday that investors should make certain they have a firm grasp of their exposure to deforestation and take steps to “phase out” any harms to forests stemming from their investments in commodities such as beef, cocoa and palm oil by 2030.
The clearing of the world’s forests, which continues at an alarming pace despite global commitments to halt the practice, is a major contributor to global warming. In November, financing forest protection will be a central theme at the United Nations COP30 climate summit in Brazil.
Tamsin Ballard, chief investor initiatives officer at the Principles for Responsible Investment, which co-convened the NZAOA, said in an interview that the group’s new report is intended to highlight “the absolute linkage between climate change and deforestation.” For investors, there’s a clear fiduciary duty to identify the associated risks, she said.
“It’s drawing the pieces together to say, ‘hey, come on, investors can act, there’s enough on the table to be working on this,'” Ballard said. “Let’s not forget the costs and implications if we don’t address this.”
The NZAOA said investors are exposed to transition and physical risks via their investments, services and loans to companies with so-called forest-risk commodities in their operations and supply chains. To mitigate these risks, investors should assess their exposure to deforestation and accompanying human-rights abuses, with a particular focus on the value chains of forest-risk commodities, including beef, coffee, soya, palm oil, rubber and timber.
Investors should use “reasonable efforts” to phase out deforestation associated with forest-risk commodities in their portfolios by 2030, NZAOA said. They should take steps such as engaging directly with portfolio companies and policymakers, and issuing reports on the progress they’re making.
“Forests have an outsize positive influence on protecting our planetary boundaries and securing economic prosperity,” said Jan Kaeraa Rasmussen, head of sustainability at PensionDanmark. “Conversely, failing to safeguard these ecosystems will be highly destructive, not only to our forests, but to our financial markets.”
Due to their longer-term investment horizons, asset owners depend on the long-term health and stability of economies and financial markets, NZAOA said. Deforestation threatens both and with it, people’s access to insurance and retirement income.
Photograph: Aerial view of deforestation, near La Paz, Guaviare department, Colombia, on Sunday, July 30, 2023. Photo credit: Ivan Valencia/Bloomberg
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