Open letter: Don't leave finance out of a future law on imported deforestation

We welcome the UK government’s current consultation on a possible future law to address the UK’s contribution to global deforestation through its forest-risk supply chains, including products such as palm oil, soy and beef. A range of serious concerns have been raised about the government's proposal, which several signatories of this letter will outline in individual consultation submissions to Defra. One important area for improvement is that we believe it is imperative that a future law should include finance and end the billions of pounds flowing from UK-based banks into companies linked to deforestation.  

The government’s own Global Resource Initiative taskforce report, recommended that a due diligence obligation should cover finance.

Global Witness’s Money to Burn report examining the financing behind six agribusiness companies involved in, or closely linked to, deforestation in climate-critical forests found the UK to be the single-largest provider of international credit and investment between 2013-2019, providing £5 billion in financing. This includes major banks like HSBC, Barclays and Standard Chartered. A number of major UK banks have also funnelled around USD$9.5 billion into forest-risk commodity companies between 2013 and 2020, according to the recently launched Forests & Finance dataset.

This shows that the UK’s considerable global deforestation footprint is not only coming from the trade of commodities, but also the financial flows to companies driving the deforestation in biodiverse tropical forests. A law intended to halt the UK’s contribution to global deforestation should apply strict extended liability for financial institutions who, through their financing and investments, cause or contribute to deforestation. 

Currently, financial institutions can profit from operations linked to deforestation and related human rights abuses, without any fear of meaningful consequences. So long as financial institutions can only ever profit from deforestation and never lose, the rules will be rigged against safeguarding the world’s remaining climate-critical forests. Including finance under a future law is necessary to creating an equal playing field among financial institutions. We need markets that recognise financial institutions that act responsibly and penalise those that don’t. Otherwise, there’s a risk that companies will be hearing one set of priorities from UK government, while the financiers that determine their company’s share price and loan repayments will fail to take forest destruction into account.

Voluntary financial sector initiatives have failed to tackle deforestation. Current climate and finance initiatives also have a blind spot when it comes to deforestation. Initiatives such as the Taskforce on Climate-related Financial Disclosures (TCFD) and proposed Taskforce on Nature-Related Financial Disclosures, rely on a business reporting on its total net carbon exposures based on the emissions from planned activities. Many of the businesses linked to deforestation already have zero deforestation commitments and their exposure to deforestation often isn’t planned, but arises from a failure to undertake adequate due diligence to identify, mitigate and prevent the risk of deforestation in their supply chains or financing. They are therefore not captured by TCFD reporting. Only by legislating to require rigorous due diligence will companies be required to take action to tackle their deforestation risks.

Addressing the UK’s mainstream financing linked to deforestation is also important if the UK is to realise its aspirations to be seen as a green finance leader. Trust in these efforts is undermined when UK-based financial institutions are making headlines for backing companies implicated in forest destruction in their mainstream operations. Similarly, green financial products will remain niche if market-rules are weighted against responsible environmental and human rights choices.

To end the flow of UK-finance to deforestation, the law needs to ensure that UK-based financial institutions are not enabling, encouraging, incentivising or financially rewarding companies involved in forest destruction and forest-related human rights abuses. Financial institutions that are providing services to companies in forest-risk sectors should be required to ensure that their clients are not engaged in deforestation and related harmful practices, with clear repercussions should they fail to do so.

Financial institutions are providing a vital lifeline to businesses implicated in deforestation. This has devastating impacts on our climate, biodiversity and forest communities. It also increases the risks of new pandemics, at a time where COVID-19 has already cost the global economy at least USD$12 trillion. As the UK prepares to host the UNFCCC COP 26 next year, taking a strong stance to end UK complicity in global forest destruction, including through finance, would show global leadership and help realise the UK’s ambition to create a ‘world-leading’ law.

In light of the continued role of UK finance in backing companies associated with deforestation, we hope the UK government will ensure that legislation covers financial institutions. We would also appreciate the opportunity to discuss how the UK government can tackle the UK finance fuelling global deforestation.

Signed by,

• Global Witness
• BankTrack
• Amazon Watch
• Australasian Centre for Corporate Responsibility
• Centre for Research on Multinational Corporations (SOMO)
• Feedback
• Fern
• Finance for Biodiversity
• First Peoples Worldwide
• Fund Our Future UK
• Global Canopy
• Greenpeace UK
• Inclusive Development International
• Institute for Innovation and Public Purpose, University of College London (UCL)
• Make My Money Matter
  
• OECD Watch
• Profundo
• Rivers without Boundaries International Coalition
• Share Action
• Stand.earth
• TuK INDONESIA