Global banks are investing more than US $300 Billion into industries that supercharge deforestation, biodiversity loss, climate chaos and human rights violations, driving destruction across Southeast Asia, Central and West Africa and parts of South America.
They provide credit, underwriting, bondholding, and shareholding services for businesses directly involved in timber supply chains and pulp, paper, rubber, palm oil, soy, and beef.
That is according to a new report, Banking on Biodiversity Collapse: Tracking the Banks and Investors Driving Tropical Deforestation, which tracks commercial flows to the forest-sector operations of 300 companies which collectively cause most tropical deforestation globally.
It claims that the push by big banks to set up the Taskforce for Nature-related Financial Disclosures (TNFD) is inherently flawed “because a task force of 40 corporations developed the “reporting framework, many with problematic environmental and social track records.”
The report’s author, Forests & Finance, is a coalition of eight campaign, grassroots, and research organisations, including Rainforest Action Network, TuK Indonesia, Profundo, Amazon Watch, Repórter Brasil, BankTrack, Sahabat Alam Malaysia, and Friends of the Earth US.
According to Merel van der Mark, the Forests & Finance Coordinator, “many people may be shocked to know that in many, if not most, jurisdictions, it is perfectly legal for a financial institution to finance a company engaged in environmental crime.”
“This data shows the blatant hypocrisy of financial institutions that are members of sustainability initiatives like the Principles for Responsible Investment or Principles for Responsible Banking or that have Net Zero commitments but are continuing to finance companies that make these goals impossible to meet.”
It found that since the Paris Agreement in late 2015, the primary culprits were 30 banks, with 73% of credit coming from Brazil ($127 Billion), Indonesia ($31 Billion), China ($25 billion), the USA ($22 billion) and Japan (US$ 20 billion). At the same time, 66% of investment came from just two countries: the USA ($14 billion) and Malaysia ($11 billion).
More than $91.5 billion has been allocated to pulp and paper, followed by $84 billion in beef-related industries, $75.8 billion in palm oil, $64.5 billion in soy, $22.4 billion in rubber and $6.8 billion in timber.
However, when looking at credit flows, investment in pulp and paper linked to tropical deforestation has reduced considerably from 2018 (upwards of 40%), with the majority of credit now allocated to beef and soy interests.
Almost 65% of identified credit flowed to South America, and 35% into Southeast Asia, with the balance (10%) channelled into Chinese investment activities in Central and West Africa.
Of the $200 Billion invested in South America, more than 70% of the investment was in Beef and Soy interests, whilst 55% of the “at-risk” credit issued in Southeast Asia was in Palm Oil production (with pulp and paper accounting for 31% of the forest-risk period over the seven years).
In Central and Western Africa, Chinese companies connected to the Belt and Road Initiative dominate with almost 98% of the credit financing, with “at-risk” credit issued for rubber (70%), palm oil (17%) and timber (13%) accounting for the region’s accelerating deforestation crisis.
Up to September 2023, the report found that institutional investors held more than $38 billion in forest-risk bonds, with more than half of these investments attributable to palm oil and a quarter to pulp and paper alone.
“Many companies active in palm oil are listed on stock exchanges in Singapore, Malaysia, Indonesia, Hong Kong, and London, among others,” the report said, “including the big three US asset managers – BlackRock, Vanguard, and State Street – who have increased their positions by more than 150%.”
It alleges that the US “Big Three” are accelerated investment interests in at-risk economies “with BlackRock (168% increase), Vanguard (153% increase) and State Street (209% increase)” among the global leaders for “investing in biodiversity collapse.”
In addition, “Wall Street giants JPMorgan Chase, Bank of America and Citigroup play a major role in pulp and paper, and palm oil but are failing to safeguard forests, biodiversity, or human rights in their policies,” the report said.
The problem, according to Mr van der Mark, is that “leaving financial institutions to set their own ESG standards will not be enough to shift financial flows towards sustainable practices. Ultimately, governments must establish the policies and penalties necessary to safeguard society and the ecosystems on which we depend.”
To support the report, Forests & Finance has categorised the world’s largest banks and investors and scored their exposure to tropical deforestation.
“We assessed the strength of their Environmental, Social and Governance policies for key forest-risk sectors,” according to Forests & Finance.
It includes Australian financial giant Westpac, which released its Nature Positive Statement last month.
According to Forests & Finance, Westpac scored 36 points out of 100 for “investment” and “credit issue” – which compares to ANZ – also one of Australia’s big banks, at 19.7 points out of 100, and the World Bank at 24. points.
