Ending tropical deforestation is critical to achieving the objectives of both the Paris Climate Agreement and the UN Sustainable Development Goals. First though, it requires a substantive transformation of the supply chains of four major commodities – beef, soy, palm oil and pulp and paper. These are increasingly sourced from tropical forest regions, where their production has contributed catastrophically to deforestation.
The production of these commodities in tropical forest countries is worth roughly US$ 180 billion annually, and transforming their supply chains to full sustainability is an investment opportunity to the tune of roughly $200 billion a year, according to a new report by the World Economic Forum and Tropical Forest Alliance 2020, an opportunity that the financial sector can embrace by scaling up emerging models of deforestation-free finance.
The last few years have seen an exponential increase in commitments to take action to halt global deforestation by private sector companies in the consumer sector. Through voluntary declarations such the New York Declaration on Forests, well over 400 companies active in one or more of the four key commodities have made at least one relevant commitment to help eliminate deforestation from their value chains. A shift that must not come at the cost of economic prosperity, but can instead generate new investment opportunities, with sustainable land use and local economic prosperity going hand in hand.
Deforestation-free supply chains
Financial sector actor have very important roles to play in the shift to deforestation-free supply chains presents challenges, where they can kick off a virtuous cycle of attractive returns, reduced risk and greater access to cheaper capital by growers big and small. Much of what is required to capture this opportunity is similar to that of traditional finance to date, with similar counter-parties, collateral and cash-flow conditions, as well as risks related to weather and commodity-market volatility. Moreover, while publicly driven mechanisms sometimes play an essential role in enabling this transition, emerging financing models could drive change at scale, minimizing the need for large scale public funding.