Deforestation – what banks can do
A new study conducted by Mikaela Ring at KTH in cooperation with Swedwatch presents four recommendations on how banks can maximise their leverage and use their influence to halt deforestation and biodiversity loss.
The earth is facing a sixth mass extinction of animals, plants and trees in its history. Banks around the world finance and invest in companies that operate in or depend on the earth’s tropical forests, known to contain some of the richest ecosystems in the world. Companies in question are typically active within logging/pulp and paper industry or within beef, soy or palm oil. Their presence often results in the irreparable damage of not only the ecosystem itself, but also leads to a number of human rights violations to local communities in the area.
The study presents results from in-depth interviews with Rabobank in the Netherlands, and with UBS and Credit Suisse – both registered in Switzerland. It includes recommendations that can help other banks who would like to ensure that their finance and investment activities do not contribute to the extinction of plant and animal species and the destruction of forests, wetlands and pristine environments.
First of all, there are a number of voluntary industry initiatives, which can help banks communicate, define and implement an improved commitment to protect forests and biodiversity, such as the UNEP Finance Initiative (UNEP FI), the Carbon Disclosure Project (CDP), the Roundtable on Sustainable Palm Oil (RSPO), the Forest Stewardship Council (FSC) and the ‘Soft Commodities’ Compact.
Moreover, the examples provided by Rabobank, UBS and Credit Suisse serve as illustrations of how banks develop internal policies, processes and methods to confront forest and biodiversity issues. These policies often include the commitment to refrain from finance and/or investment deals that contribute to deforestation in primary forests, in areas that support so-called “high conservation values” (HCVs), as well as in formally protected areas and national parks. To ensure that prospective bank clients live up to these standards, a common approach is to make sure they are certified according to the RTRS, the RSPO and the FSC.
Today’s best-praxis is not good enough
However, Rabobank, UBS and Credit Suisse have all been subject to some alarming criticism which suggests that the banks’ policies, methods and processes are not always sufficiently comprehensive or well-defined. For example, the NGO Bank Track alleges that Credit Suisse has given a 50 million dollar loan to a logging company which Greenpeace describes as “the greatest threat to the Indonesian rain forest”. UBS is accused of financing Indonesia’s largest coal mine with over 170 million dollars, and here the open pit extraction affects 90 000 hectares of sensitive tropical forest and wetlands. The organization Global Witness also accuses UBS of laundering dirty deforestation money for the dictator of Equatorial Guinea.
One of the main weaknesses is that the interviewed banks rely too heavily on audits by certification schemes which have been exposed to strong criticism – such as for example the RSPO – without performing their own validation checks in the field.
The study recommends banks who genuinely want to make a difference to go beyond the examples provided by Rabobank, UBS and Credit Suisse and establish even stricter and broader commitments. The most important recommendations include the call to i) avoid using vague terminology when defining commitments, processes and methods ii) make sure these commitments, processes and methods cover all sectors associated with high forest risks iii) make sure these commitments, processes and methods apply not only to finance deals but also to investment banking services iv) use the RTRS, RSPO and FSC certification schemes as a basis for screening and monitoring processes, but be sure to complement these schemes with research, due diligence and sample audits performed by the bank itself.
Low ranking for Swedish banks
In Sweden the sustainability ranking “the Fair Finance Guide” showed that – in 2014 – all seven participating banks (Swedbank, SEB, Nordea, Danske Bank, Skandia, Länsförsäkringar and Handelsbanken) received low rankings in the themes ”forest” and “biodiversity”. The study concludes that the fast disappearance of ecosystems, forests, and animals threatens to undermine the very life support system of the planet, and the need for banks to take on a greater responsibility for the impacts of their finance and investment activities is more acute than ever. It remains to be seen whether the 2015 Fair Finance Guide ranking which is to be released on October 21st will show that Swedish banks are facing up to their important and urgent task.
See also Swedwatch’s op-ed in Veckans Affärer with summary recommendations to Swedish banks.
Download the full version of the study here, or open the file to the right.