Investors Policy Dialogue on Deforestation (IPDD) Initiative

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About 

The Investors Policy Dialogue on Deforestation (IPDD) is a collaborative investor initiative set up in July 2020 to engage with public agencies and industry associations in selected countries on the issue of deforestation.

The goal of the initiative is to coordinate a public policy dialogue on halting deforestation. The IPDD seeks to ensure long-term financial sustainability of investments in the countries they are invested in by promoting sustainable land use and forest management and respect for human rights, with an initial focus on tropical forests and natural vegetation. It will work with key stakeholders to encourage adoption and implementation of regulatory frameworks that ensure protection of such natural assets and human rights.

Secretariat support is provided by the Tropical Forest Alliance (TFA), an initiative hosted by the World Economic Forum. IPDD is an initiative supported by the Principles for Responsible Investment (PRI).

The Investment Case for Halting Deforestation

As financial institutions, who have a fiduciary duty to act in the best long-term interests of our beneficiaries, investors recognize the crucial role that tropical forests and other types of natural vegetation play in tackling climate change, protecting biodiversity and ensuring ecosystem services.

Most countries do have some measures in place to combat deforestation, while at the same time providing favorable conditions for business and investments. However, escalating deforestation in recent years in countries rich in such natural resources, combined with concerns about weakening environmental and human rights policies as well as lack of effective enforcement are creating widespread uncertainty about the conditions for investing in or providing financial services to these countries.

Investors are concerned about the financial impact that deforestation and the violation of the rights of indigenous peoples and local communities may have on their clients and investee companies, by potentially increasing reputational, operational and regulatory risks. Investors are concerned that companies exposed to potential deforestation in their direct operations and supply chains in these countries will face increasing difficulty accessing international markets.  The sovereign bonds of these countries are also likely to be deemed high risk if deforestation continues.

Investors want to continue to invest in many of the countries where deforestation is a concern and help show that economic development and protection of the environment need not be mutually exclusive. 

INFOGRAPHIC: ESG/SUPPLY CHAIN/FINANCE SECTOR RISKS

Engaging on Deforestation in Brazil

The IPDD initiative was formed in response to the increasing rates of deforestation being observed in Brazil and other countries. 

The goal of the IPDD Brazil workstream is to coordinate a public policy dialogue with Brazilian government related authorities and associations, as well as other stakeholders on halting deforestation.   It marks the start of an ongoing process of investor engagement with Brazilian authorities and associations, and others on the systematic and sustainable management of Brazil’s forest assets and to ensure respect for human rights. 

Evidence of escalating rates of deforestation in recent years are creating widespread uncertainty about the conditions for investing in or providing financial services to Brazil. Investors want to continue to invest in Brazil and contribute with its economic development and protection of the environment. Brazil is, therefore, the first country to be engaged within the IPDD initiative.

IPDD Brazil: Desired Outcomes

Investors are urging the government of Brazil to demonstrate clear commitment to eliminating deforestation and protecting the rights of indigenous peoples, and via this dialogue, they desire five outcomes from the Brazilian government:

1. Significant reduction in deforestation rates, i.e. showing credible efforts to comply with the commitment set down in Brazil’s Climate Law, article 19.
2. Enforcement of Brazil’s Forest Code.
3. Reinforcement of Brazil’s agencies tasked with implementing environmental and human rights legislation, and avoidance of any legislative developments that may negatively impact forest protection.
4. Prevention of fires in or near forest areas, in order to avoid a repetition of fires like in 2019.
5. Public access to data on deforestation, forest cover, tenure and traceability of commodity supply chains.

Engaging on Deforestation in Indonesia

IPDD’s Indonesia workstream was officially launched in January 2021 to engage with Indonesian authorities on the issue of deforestation. Indonesia has registered a decrease in deforestation over the past years. Investors recognize the progress the country has made in protecting its tropical forests and acknowledge the potential for growth in Indonesia. To facilitate taking part in this growth, investors seek to better understand the government’s efforts and advances on tackling deforestation and broader nature-related risks and opportunities.

The Indonesia working group aims to work constructively with, among others, relevant government authorities and financial market regulators to promote social and environmental governance and to reduce financial risks arising from deforestation and land degradation. Additionally, given tropical forests’ vital role in Indonesia’s nationally determined contribution (NDC), the group seeks to support the government in ensuring its climate targets are met.

Since IPDD Indonesia’s inception, members have been engaging with various government and non-state actors in the country. Non-governmental organizations, civil society, and academia have also been in dialogue with IPDD, providing educational support and knowledge sharing sessions for the group to inform their work. Investors seek to continue engaging and constructively collaborating with relevant authorities in their mutual goal of reducing deforestation in Indonesia.

Governance and Members

IPDD is governed through an Advisory Committee, currently co-chaired by Storebrand Asset Management and BlueBay Asset Management. This Advisory Committee sets IPDD's strategy and direction, with input and support from, oversees the strategy and work programme, with input from the wider investor coalition and various country workstreams. These formal workstreams lead country-specific activities under a work programme. The Tropical Forest Alliance provides secretariat support to IPDD.

The IPDD is supported by a membership of 69 financial institutions from 19 countries with approximately US$10 trillion in assets under management (as of December 2022). Institutional investors (investment managers or asset owners) are welcome to join the IPDD. Interested financial institutions are required to sign the Investors Participation Form and confirm their acceptance of the Terms of Reference of the initiative. There is no cost to become a member. If you are interested, please contact the IPDD secretariat.

Frequently Asked Questions

Q: Why was the IPDD initiative formed?

Agriculture, forestry and land use account for 24% of the greenhouse gas emissions arising from human activity, with the majority of this coming from land use change and tropical deforestation and degradation. On the other hand, as per IPCC report, the mitigation potential of reduced deforestation is about one-third of total global GHG emissions. 

Beyond climate-related risks, land use change also affects agricultural productivity, through a loss of biodiversity and ecosystem services, soil degradation and disruption of hydrological cycles, creating a further risk to the food security of a growing global population. 

Q: Which stakeholders is the IPDD seeking to engage with?

The IPDD will engage with relevant government authorities, and industry associations and other relevant stakeholders (which may include companies) to encourage adoption and implementation of regulatory frameworks that ensure protection of forests, native vegetation and human rights. 

Q: How will investors measure the progress of the initiative?

Members of country-specific working groups will define activities (as part of a formal work programme) required so objectives identified for each country are met.  

Progress will be measured against each of these objectives and where relevant, outcomes of key dialogues will be used to support the assessment of progress or lack of it.

Q: What happens if the IPDD is unsuccessful with its engagement with a specific country?  Will it automatically lead to divestment?

No. The IPDD initiative does not prescribe a set of action for investors members to follow resulting from its engagement activities.  Investors are free to incorporate the insights from its activities as it sees fit. All investors’ decisions that relate to the countries that participate in the engagement initiative shall be part of each institution’s own decision-making process.

Q: How many investors are currently part of the IPDD initiative?

To date (as of December 2022), the IPDD is comprised by 69 global investors (asset owners as well as asset managers), who collectively manage approximately USD $10 trillion of assets under management. 

Q: Is the IPDD initiative still open for new investors to join?

Yes. The IPDD is currently open to join until further notice. Institutional investors (investment managers or asset owners) are welcome to join the IPDD. Interested financial institutions are required to sign the Investors Participation Form and confirm their acceptance of the Terms of Reference of the initiative. 

Q: Is there a cost for investors to participate in the IPDD initiative?

No, there is no financial cost to participate.

Q: What are investors’ obligations if they sign up to IPDD?

Investors obligations depend on the role they have in the engagement: co-chairs, advisory committee members or supporting investors. Supporting investors’ obligations are the following:

• Signing joint letters upon their approval.
• Indicating specific dialogues where they are prepared to join meetings or calls, and providing feedback, information and input to the leading investor.
• Participating in regular group update calls to provide input, the frequency of which will be based on project needs.
• Joining meetings led by other group members when of interest and appropriate according to the leading investors involved.
• Sharing information with the group (e.g. on issues, countries and companies).
• Outreach and engagement with peers in relation to the work of the group. The co-chairs can provide supporting material.

For other roles, please refer to the IPDD Term of Reference, available on request from the secretariat. 

Q:  Does being an IPDD member formally obligate my organization to abide by specific investment decision such as divestment from a country if engagement efforts are successful? 

No. The IPDD initiative does not prescribe a set of action for investors members to follow resulting from its engagement activities.  Investors are free to incorporate the insights from its activities as it sees fit. All investors’ decisions that relate to the countries that participate in the engagement initiative shall be part of each institution’s own decision-making process.

Contact Us

If you are interested to know more about the work of the IPDD, please contact the IPDD secretariat.