Banks urged to tighten lending rules to curb deforestation

Published 13:09 on July 29, 2015  /  Last updated at 13:09 on July 29, 2015  /  International  /  No Comments

Most banks are failing to ensure the agricultural commodities firms they lend money to are complying with forest protection laws, according to a UN-backed study of 30 financial institutions published on Wednesday.

Most banks are failing to ensure the agricultural commodities firms they lend money to are complying with forest protection laws, according to a UN-backed study of 30 financial institutions published on Wednesday.

Of those assessed, the majority did not have policies that explicitly require clients to comply with applicable local, national and ratified international laws and regulations related to forest conservation.

This increases the risk of tropical deforestation due to unsustainable trade in soft commodities, especially soy, palm oil and beef, according to study authors the Natural Capital Declaration (NCD), a finance-focused initiative from UNEP and think-thank Global Canopy Programme.

“Banks and investors who engage in the destruction of forests through their lending and investment practices expose themselves to potentially significant regulatory, reputational, legal, operational and market risks, which could affect the credit risks and market value of underlying assets,” said UNEP head Achim Steiner in a statement to launch the study.

While almost all the banks assessed had some sustainability practices for soft commodity lending, many did not disclose evidence that they monitored whether their clients complied.

The study found the banks that were leading the way in managing these risks were the African Development Bank, FMO Development Bank, the International Finance Corporation, Standard Chartered Bank and Sumitomo Mitsui Trust Bank.

To help improve lending practices in this sector, NCD has also produced guidelines for banks to evaluate and improve their policies alongside the study.

Around a fifth of global greenhouse gas emissions are from land use, either from farming or deforestation.

Last year dozens of governments, 30 major corporations and over 50 civil society groups signed the New York Declaration on Forests, pledging to halt deforestation by 2030.

This included large companies such as Kellogg’s, Marks & Spencer, Barclays, Nestle, the palm oil giant Cargill, and Asia Pulp and Paper, but is not binding and has not been signed by many smaller firms that operate in the sector.

By Ben Garside – ben@carbon-pulse.com

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