Without robust due diligence, financial institutions will continue to fund soy-driven deforestation. By Daniel Jones.

Late last year, the UK government announced “world-leading new measures” to protect rainforests. Enshrined in the Environment Bill, the proposed new law will require large businesses to ensure that products like cocoa, palm oil and soya come from supply chains free of illegal deforestation.

Demand for these products is growing fast and is driving legal and illegal deforestation in Asia, Africa, and South America. This is a big problem. Clearing forests for commodity production leads to the loss of critical habitats and biodiversity. And as trees fall, and their soils ploughed, their carbon-absorbing benefits disappear, further exacerbating the climate crisis. If it were a country, deforestation would rank third for carbon dioxide emissions, behind China and the US.

Public support for action is high; over three-quarters of recent respondents to a YouGov poll backed robust laws tackling deforestation within UK’s supply chain. But is the government’s proposal robust enough?

 The law would prohibit businesses from buying, trading, producing, or using products produced on illegally deforested land. Here is the first issue – around half of all deforestation is legal, so the law only covers half of the problem.

A recent investigation showed how routine legal deforestation is. The study tracked Brazilian soya from  deforested land owned by farm conglomerate, SLC Agricola, which was shipped to Liverpool by grain trader, Cargill, and fed to chickens supplied to Tesco, Asda, Lidl, Nando’s, and McDonald’s.

A better approach would be for the government to follow businesses’ lead and set out a clear deforestation-free standard.

Conscious of the reputational risks, Tesco and other retailers have gone one step further than the UK government. They want Brazilian soy traders to stop sourcing from all deforested land in the Cerrado. This is a positive step, but the history of similar voluntary commitments does not inspire confidence. A better approach would be for the government to follow businesses’ lead and set out a clear deforestation-free standard. This is an approach already taken for issues like corruption and wildlife trafficking, and could also ensure the rights of local communities are upheld.

But while the retailers have been quick out of the blocks, the financial sector has been keeping quiet. This hints at the second major flaw in the government’s proposal: those who bankroll deforestation are not mentioned at all.

From palm oil, to cocoa, to industrial meat, UK banks and investors fail to match their words with actions. The hypocrisy is shocking. Last year, 244 financial institutions signed a statement condemning destruction in the Amazon. Only seven had policies on deforestation.

Investigations by campaign group, Feedback, show  UK-based financial institutions fund Brazilian soya mega-farms with track records of deforestation. The largest shareholders of two of Brazil’s biggest soy producers are UK investors, Autonomy Capital and Odey Asset Management. Producers, Brasilagro and SLC Agricola, have business models geared towards the transformation of native Cerrado vegetation into “productive” farmland. A toxic business model that combines land speculation with extractive agriculture, and one that is completely legal under Brazilian law. Since 2015 over 50,000 acres of deforestation have been recorded on SLC Agrícola farms.

But the UK’s financial backing does not stop there. Data from Forests and Finance shows over $100 million in credit has been provided by UK banks over the past three years. Banks including HSBC, Barclays, and Standard Chartered are lending to soya traders, processors, and exporters like ADM, Bunge, and Cargill. All these companies carry a significant risk of legal and illegal deforestation. Cargill, with breath-taking insouciance, recently pushed its zero-deforestation commitment back from 2020, to 2030.

The reality is that both retailers and financial backers will find it hard to find sustainable players. Soy traders Cargill, Bunge, ADM, and Amaggi all have zero-deforestation commitments. But they are as much at risk of trading deforestation-linked commodities, as companies without them. And there are risks no matter how a company or financier views the appropriateness of local legislation. Up to 95% of deforestation on soy farms in some Brazilian regions is illegal, and existing legal protections are continually slashed.

Deforestation needs to cost financial institutions money.

Voluntary agreements and better reporting will not end the finance sector’s deforestation problem – Incentives are needed. Deforestation needs to cost financial institutions money or raise the risk of regulatory action.

Meeting the government’s ambition to “lead the world” in stopping deforestation requires a legal prohibition on financing soft commodities linked to deforestation – one that covers the whole supply chain and backed up by robust due diligence requirements. This is the approach recommended by the panel recruited by the UK government to advise on deforestation policy. And backed by the Conservative chair of the Environment Food and Rural Affairs Committee, Neil Parish.

By applying a consistent standard across all business and finance, the UK government can ensure that those profiting from deforestation hear a unified message: if UK retailers can’t sell a company’s product due to deforestation, UK financial institutions shouldn’t be able to lend that company money.

Stern words, voluntary declarations and roundtables clearly are not driving change. To tackle deforestation, governments must force financial institutions to step up.

Daniel Jones

Daniel is Food Finance Lead at Feedback, a UK-based charity working to transform the food system to regenerate nature. He holds a Ph.D. in the contested politics of the green …

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