Pension funds are working to identify and mitigate the deforestation-related risks in their portfolios, as new frameworks and regulations take shape. Forests are natural carbon sinks, and therefore a key nature-based solution that can contribute to efforts to limit global warming to 1.5°C by 2050.
Research shows that forests absorbed twice the amount of CO2 they emitted between 2001 and 2019, sequestering 7.6 million metric tonnes of CO2 a year – one and a half times more CO2 than annual emissions in the US. But the increasing rate of global deforestation threatens to upset the balance.
Since 1990, around 420 million hectares of forest has been destroyed, with ten million hectares a year cleared between 2015-2020 alone. In Q1 2022, forest destruction covered 941 km², which is a 64% increase compared to Q1 the previous year. As a growing number of asset owners commit to transitioning their investments to net zero, they are becoming increasingly aware of how deforestation threatens the realisation of their decarbonisation targets.
“We can’t achieve net zero without looking into forests and the role they play in mitigating the effects of climate change,” says Alison Lee, Responsible Investment Manager at London CIV, one of eight UK local government pension schemes. “How can we achieve real world decarbonisation without also slowing down and eventually stopping deforestation?”
Forests further play a vital role in maintaining the world’s biodiversity, with deforestation leading to the extinction of wild species of plants and animals. Continued deforestation will also expose the human populace to new zoonotic diseases.
However, with 95% of deforestation taking place in emerging markets, such as Brazil and Indonesia, it can be difficult for asset owners based elsewhere in the world – the UK, for example – to fully understand the extent to which their investments are contributing to the degradation of forests.
London CIV, which was one of the pension funds involved in the consultation process, called for the guidance to prioritise “practicality”, says Alison. “A problem with a lot of existing guidance from regulators or other organisations is that they publish big and complex documents that take a lot of time [for trustees] to understand. [This guidance] provides helpful and practical resources and tools which pension funds can use to identify their [deforestation] exposure.”
You can read the full article in ESG Investor here: https://www.esginvestor.net/safeguarding-our-forests/
Photo courtesy of ESG Investor
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