By Adele Chasson, Corporate Campaigner for the Wilderness Society

As the climate and biodiversity crises accelerate, more and more banks across the world are committing to rein in financing deforestation. Last month, this global wave of commitments reached Australia, with Westpac becoming the first bank in the country to announce a zero-deforestation target. The scope of Westpac’s target is partial, only applying to “larger areas” of “bush that’s been untouched for decades”, and not coming into effect until 2025.

Nonetheless, it is an important step for a major bank operating in a country which supports up to 10% of the Earth’s biodiversity, and yet remains a global deforestation hotspot. Across Australia, forests are still being cut down to make way for beef cattle, bauxite mining, or to turn the trees into paper, pulp, or timber products.

Westpac’s move is significant, and it is a step that all Australian banks and investors need to take because it is increasingly well known that Australia is a deforestation hotspot, and this is attracting the scrutiny of legislators, consumers, and investors. Paradoxically, while simultaneously claiming that agriculture and forestry don’t contribute to deforestation, some industry groups have decried the increased scrutiny from Westpac.

Under the pressure of legislation and voluntary initiatives, it’s only a matter of time before banks and investors confront their deforestation risks and impacts.

From 2024 onwards, the landmark EU Deforestation Regulation will ban the import of commodities linked to deforestation into the EU market. Meanwhile, the voluntary Science-Based Targets encourage companies to adopt emissions targets in line with climate science, including through halting deforestation. These new rules and initiatives are already impacting market access for sensitive commodities that are dependent on exports. They show that protecting nature is a key requirement to successfully do business globally.

Europe is at the forefront of this shift, and it is not just Westpac that has taken notice. During the recent big four banking inquiry, Shayne Elliott, CEO of ANZ, said “…biodiversity. It’s an emerging area of risk … In areas of climate or ESG issues in general, as a general observation, the UK and continental Europe are generally further advanced in some of these areas”.

If Australian banks and investors want to stay ahead of the curve, they need to face nature risk, starting with deforestation. A recent report published by EY concludes that in Australia, deforestation is a material risk for banks and investors. As one investor interviewed in the report plainly puts it, “Ultimately, companies dealing effectively with deforestation and sustainability issues will perform better than those that don’t”.

There are plenty of ways for financiers to mitigate deforestation risk, from setting commitments to mapping their links to deforestation and advocating for policy reform to limit deforestation, in order to eventually screen out all deforestation risk from their portfolios. Banks and investors can influence the activities of companies within their portfolios by strengthening their due diligence requirements to ensure they are not financing deforestation.

There is great potential for corporate Australia to be leaders in addressing Australian deforestation by setting and implementing strong deforestation-free commitments.

The Wilderness Society believes that its Corporate Deforestation Benchmark, ‘The Uncovered’, reveals thatkey  Australian companies in the beef, bauxite, pulp and paper, and timber supply chains are international laggards in terms of commitments to eliminate deforestation from their supply chains. Only half of the assessed companies in this benchmark, that have the ability to help protect Australia’s forests by addressing deforestation risk in their supply chains, had a commitment in place to protect forests, as of Aug. 31, 2023. Only a quarter had robust commitments that applied to their whole activities and aimed to protect all types of forests.

The global market is rapidly changing, but fortunately the tools required to keep up are within reach for many industries. Setting up satellite monitoring systems, supplier compliance programmes and selected reputable certification schemes are tools that can allow companies in the mining, agriculture, and forestry industries to effectively remove deforestation from their supply chains.

Groups and companies that claim they are already doing the right thing have nothing to fear from these new initiatives and regulations: instead, they should rejoice in them. If companies’ sustainability claims are genuine, and they can demonstrate the absence of deforestation in their activities, they stand to benefit from the increased scrutiny and rules from consumer markets and banks which will weed out actors who are not addressing deforestation in their supply chains. Banks and companies that choose not to tackle deforestation head on will be exposed to increasing risks, including reputational damage, legal risks and compromised market access.

Through working together to reach zero-deforestation targets in sectors like agriculture, forestry and mining, banks, investors, and civil society can play a major role in addressing Australia’s deforestation crisis and mitigating material deforestation risk.

Any opinions published in this commentary reflect the views of the author and not that of Carbon Pulse.