With the world engulfed in escalating social and environmental crises the EU could be about to show how major markets can fix one of the most pressing: global deforestation.
Last year 3.75 million hectares of tropical primary rainforests (those that had until then remained relatively undisturbed by human activity) were lost, the equivalent of about ten football pitches a minute. We cannot hope to keep global heating under 1.5C without keeping these climate-critical forests standing. While the world’s rainforests are being destroyed in regions such as the Amazon, Congo Basin and Papua New Guinea, the chainsaws are often encouraged by the high street companies of the Global North that, financed by banks, create the market for products such as coffee and palm oil that can be grown on deforested land.
In Brussels and national capitals around the EU, there is consensus on the need to rein in the supply chain companies. Under an anti-deforestation law set to be concluded over the next few months, imports of cocoa, coffee, timber, beef, soy and palm oil that cannot be shown to be deforestation-free would be banned. And that may just be the start – the European Parliament wants to go further by including several other products such as rubber and maize.
The European Parliament is also leading the way on cutting off the financial pipeline for deforestation from European banks. The European Commission backed down from including such a proposal in its original draft legislation, and national environment ministers followed suit. This month, however, MEPs voted to oblige financial institutions based in the EU to conduct due diligence to prevent investments that cause deforestation. In other words, if a company cannot ensure that its products or activities are free of deforestation, a bank should not invest in it.
This change is vital for the protection of forests. Companies will continue to enable deforestation if they can get the financial backing to make it profitable and banks will not stop financing deforestation unless they are compelled to. As revealed in Global Witness’s investigations, despite voluntary commitments to tackle deforestation, many banks and investors choose to invest in companies with supply chains that put forests at risk and a history of deforestation. Too often deforestation carries little reputational or financial risk for investors, and a lack of regulation makes it easier for them to turn a blind eye. Last year we showed how EU-based financial institutions struck deals worth €30.6bn in total with 20 agribusiness companies accused of deforestation between 2016 and 2020.
As negotiations on the final legislation begin, the European Parliament has set the standard. It has also written a blueprint for how other major markets could tackle this crisis, with the UK, the US and China either exploring or having recently agreed similar laws. Together with the EU, these economies control a significant share of the money that funds tropical deforestation. Banks and asset managers based in these economies have made deals worth $157bn with firms accused of destroying tropical forests in Brazil, Southeast Asia and Africa in the five years following the Paris Agreement on climate change in 2015, gaining an estimated $1.74bn dollars in interest, dividends and fees.
The action being taken by other major markets is mixed. The UK Environment Act, passed late last year, contains an important provision to cut market access for commodities produced on illegally deforested land, but this is more limited than the EU’s approach because it only refers to what is deemed illegal under local laws. We also still don’t know which products it will apply to and there is a real risk it could exclude the cattle sector, which accounts for the UK’s biggest deforestation footprint by land area. The UK government also missed the opportunity to stipulate that supply chains should not be linked to violations of the rights of indigenous peoples and local communities. The financial sector remains untouched despite support from MPs from across the political spectrum.
In the US, although it is unlikely to progress without wider political support, the Forest Act (Fostering Overseas Rule of Law and Environmentally Sound Trade) sets out measures to prohibit agricultural commodities produced on illegally deforested land from entering the market. It touches on the financial sector, albeit in a less comprehensive way than the European Parliament’s position: it would prevent the proceeds of illegal deforestation being laundered through US banks. A recent executive order made by Joe Biden, the president, commissioned a report to look at legislative options for further action.
China, the world’s largest importer of pulp and paper, timber, soy and beef, is also exploring ways to address its global forest footprint. An official think tank has recommended that the Chinese government strengthen measures to reduce imports associated with illegal deforestation. Advisers to the Chinese environment ministry are looking into the feasibility that China could adopt legislation similar to the EU.
Attention now turns to the European Commission and the national governments of EU members to see whether they will fold to the banking lobby or follow the European Parliament’s recommendations and lead the way in fighting the destruction of tropical forests.