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Cambridge Institute for Sustainability Leadership (CISL)


12 January 2021 – A new report outlines how banks can take steps to accelerate the reduction and reversal of deforestation leading to greater stability for nature, climate and the economy.

The action plan set out by the University of Cambridge Institute for Sustainability Leadership (CISL) highlights the opportunities for banks to grow the supply of soft commodities that are deforestation-free or forest restorative. Underpinned by a set of five actions, the new report aims to act as a catalyst for banks to respond to the biodiversity crisis.

Soft commodities such as palm oil, soy, beef and timber products are responsible for the majority of deforestation caused by commercial agriculture. Banks provide finance and financial services to enterprises along these soft commodity supply chains, indirectly contributing to deforestation.

Banking beyond deforestation suggests it is this very positioning of financial services along the supply chain that means banks are well-placed to support activities that can halt and reverse deforestation.

Nick Villiers, Director, Centre for Sustainable Finance, CISL said:

“More collaboration is needed between local and global banks and their clients if we are to halt and reverse deforestation. Our Action Plan maps out the unique part banks can play in tackling deforestation and aims to catalyse further action by the banking industry and beyond. By acting together, banks can help rewire the economy, mobilising and structuring finance so that it supports deforestation-free and forest restorative soft commodity production.”

Bank services along commercial agriculture supply chains include term loans, trade finance, bond and fund structuring, capital raising, project finance. As a result, they can act as intermediaries for financial incentives that can increase the supply of deforestation-free and forest-restorative soft commodities because they have:

  • access to businesses along the supply chain and to impact investors;
  • expertise to assess counterparty risk and structure capital; and
  • data about client operations.

A supportive context also exists for ambitious action. From remote sensing to the mandated disclosure of financed emissions, to a growing appetite from banks’ clients, there are today factors enabling banks to support a transition to deforestation-free commodities.

More than 50 per cent of global GDP relies upon services provided by nature, including freshwater, healthy soil and clean air. Despite this, nature is experiencing a precipitous decline. Every six seconds, a football pitch of primary forest is lost. The Covid-19 pandemic has underscored the urgency of tackling this decline, with habitat loss increasing the likelihood that viruses transmit from animals to humans.

CISL’s Action Plan outlined below can help banks become part of creating the solution to deforestation rather than waiting for others to define standards and regulation:

  • Action 1: Alignment and traceability – align anti-deforestation policies to a best practice standard and support improvement to supply traceability
  • Action 2: Scaling sustainability supply – structure financing facilities that offer benefits to producers of deforestation-free and forest-restorative soft commodities
  • Action 3: Measurable targets – set time-bound targets that enable progress towards deforestation reversal, with performance measured and managed
  • Action 4: Accountability – identify a team responsible for delivering against time-bound targets, with C-suite accountability and expertise to implement
  • Action 5: Systemic support – advocate for government action that makes deforestation commercially unattractive or illegal

The bedrock of the action plan is collaboration between local, regional and global banks along the supply chain. By collaborating, these banks share costs and expertise, reduce the likelihood that deforestation leaks to another financier and can create standardised, scalable financial solutions that reduce transaction costs and enable scale. The proposal also acknowledges the need for banks to engage with external stakeholders.

Banking beyond deforestation marks the close of the Soft Commodities Compact project - a company-led alliance between CISL’s Banking Environment Initiative (BEI) and the Consumer Goods Forum (CGF), the goal of which was to lead the banking industry in aligning with the CGF’s resolution to help achieve zero net deforestation by 2020.

As a result of the ambitious public commitment, Compact banks lead the industry. Using Technical Guidance developed in consultation with banks and other stakeholders, banks established anti-deforestation policies and began reporting compliance levels. Today, Forest 500 ranks Compact adopters amongst the most advanced in terms of ‘policy’ – all are in the top 30 of 150 financial institutions.

Simon Connell, Head of Sustainability Strategy, Standard Chartered and Chair of the BEI said:

“By sharing both the successes and lessons from the ‘Soft Commodities’ Compact, CISL shows what role the banking industry as a whole could play, working with business and government, to tackle the ongoing challenge of deforestation. As protecting and restoring nature rightfully moves up the agenda, the CISL Action Plan provides the wider banking industry, including local banks, with a way to engage with tangible methods for collective action on deforestation.”

Click here to read the report Banking beyond deforestation.

Find out more about the Banking Environment Initiative.

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