Financial Markets

We perform sustainability risk analysis to identify climate and sustainability risks

Climate-Related Forest, Food, and Land Risks Threaten US Financial Stability

With 40% of US GDP exposed to climate-related risks from the land use sector, this report analyzes the source of these risks and shares recommendations for the federal government to protect US financial stability (more…)

Tackling Deforestation and Protecting Investors: Material Financial Risks From Tropical Commodities

The US imported $618 billion in tropical commodities in 2020 ($76 billion in tropical agricultural commodities). Here’s why that matters as the Securities and Exchange Commission (SEC) deliberates on climate-related financial disclosures. (more…)

Deforestation Risks and German Financial Institutions

Deforestation Risks, Climate Finance Risks, Climate Transition Risks

Meeting the goals of the Paris Agreement will require transformations in every sector of the global economy. Commodity producers and traders are in the spotlight due to their direct links to activities causing deforestation which drives climate-changing emissions. High-profile investors are increasingly pushing for action on deforestation from both companies and governments. However, deforestation risk is far from limited to direct investments in upstream agricultural producers and midstream traders. Despite this and the fact that climate-related risks affect almost all capital providers to a greater or lesser extent, agricultural sectors are often overlooked by investors working to mitigate climate risks. In order to better understand the exposure of the German financial sector to unmitigated deforestation risk, this report quantifies German loans to and holdings in two categories of companies that operate within forest risk commodity sectors, those with weak deforestation policies and those with outsized stranded asset risk.

Financing of Cattle Production in Colombia

Colombia is home to the fifth-largest rainforest in the world but deforestation, driven largely by cattle production, is driving nearly 60% of Colombia's greenhouse gas emissions. Between 2005 and 2018, Colombia lost 32,821 square kilometers of forest cover, a land area about three times the size of Jamaica.

This report, developed in partnership with Fundación Natura, reviews the fundamentals of the cattle sector in Colombia, the main banks that fund the sector, and the appropriate actions needed from financial actors to contribute to sustainable livestock expansion in the country.

Climate Advisers wishes to express gratitude to Henry Garay and Maria Helena Cendales for their efforts as co-authors for this report.

A Spotlight on Exponential Peruvian Palm Oil Growth: ESG Risks for Cargill Subsidiary, Cargill Americas Peru SPL

A sharp uptick in deforestation rates over the past decade has put Peru in the spotlight for illegal mining and agricultural expansion. This report explores the exponential growth of the Peruvian palm oil industry in recent years and its relationship to deforestation in the Amazon. Through a case study of a key player in the palm oil market, Cargill Americas Peru SPL, the report provides insight into international dynamics driving local development.

Shifting Grey to Green: Climate Advisers Deforestation Risk Rankings

An Environmental, Social, and Governance (ESG) ranking with a deforestation lens

Key takeaways from Climate Advisers Deforestation Risk Rankings:

  • Companies with high rankings have policies in place to mitigate material risks of being linked to ESG issues, and specifically, deforestation. Meanwhile, companies with low rankings should consider conducting an ESG risk assessment and strengthening policies to prevent negative ESG impacts.
  • Material financial risk is a key driver in the grey to green shift: Companies are improving deforestation policies, disclosures, and actions at differing paces and in line with regional dynamics and supply chains.
  • In North America, above-average rankings in consumer-facing companies operating in industries closely associated with commodity-driven deforestation likely reflect company actions to mitigate financial risks related to changing consumer preferences and reputation damage.
  • In Latin America and Asia (excluding Japan), subsidiaries of Western companies tend to have above-average rankings, which correspond to faster adoption of ESG investing and reporting in parent countries.
  • Upstream producers in Latin America and Asia (excluding Japan) show mixed results: Some may be benefitting from a lack of transparency in global supply chains, lower scrutiny from consumers, and leakage markets, while others have been under pressure to improve policies and disclosures.
  • Large companies may have stronger policies in place, while still having an outsized impact on deforestation in supply chains, due to the materiality of risks and current gaps in traceability.

In collaboration with S-Network Indexes, Climate Advisers created the Deforestation Risk Rankings to combine a holistic picture of a company’s ESG policies and disclosures with a specific deforestation focus. Deforestation has historically received comparatively less attention than other ESG issues in ratings, primarily due to the research-intensive nature of supply chain transparency and monitoring data. However, as transparency increases, companies are under growing pressure to mitigate deforestation risk. Advancements in the quality and availability of satellite imagery are quickly increasing transparency into real-time deforestation activities at commodity suppliers, leading to more informed customers, financiers, campaigners, journalists, and eventually, end-consumers. These technological innovations are emerging in the midst of disruptive change in consumer preferences and investor priorities. The growing consumer demand for sustainable products is exemplified by a survey of 18,980 consumers in 28 countries: 57 percent were willing to alter purchasing habits to prevent environmental harm, 77 percent rated sustainability as important, and over 70 percent were willing to pay an average premium of 35 percent for sustainable products.

Similarly, financiers are incorporating ESG issues into decision-making priorities. The scale of the change can be seen through the USD 103 Trillion in assets managed by signatories to the UN Principles of Responsible Investment, up 75 percent since 2015. ESG funds have grown at a record-breaking pace since 2015. In the 2020 McKinsey Global Survey, C Suite leaders reported being willing to pay about a 10 percent medium premium for an acquisition with a positive record in ESG. Interestingly, leaders from consumer-facing companies were more likely to agree that ESG programs drive shareholder value than business-to-business companies by about 10 percent, indicating that changing consumer preferences are having a ripple effect on supply chains and likely impact the pace of change depending on supply chain role.

As company leaders grow increasingly concerned about ESG impacts, the financial risks associated with deforestation are materializing. After a 12-year record in deforestation rates in the Brazilian Amazon between August 2019 and July 2020, companies with operations in the region face especially high risks of being linked to deforestation and encroachment onto indigenous territories. In fact, some financiers have expressed concern around intensifying country-level risk, due to rising deforestation rates, citing “widespread uncertainty about the conditions for investing in or providing financial services to Brazil.” Financial risks for companies linked to deforestation vary from market access to increasingly regulated European supply chains to reputational damage to stranded assets in countries with plans to meet Nationally Determined Contributions outlined in the Paris Agreement. Consumer-facing companies face escalating risks of being left behind as consumer preferences favor more sustainable alternatives, and their suppliers face market access risk as customers tighten policy requirements. Moreover, as financiers increasingly incorporate deforestation into risk assessments, companies without policies and mechanisms in place to prevent deforestation are exposed to financial risks.

According to the Intergovernmental Panel on Climate Change (IPCC), deforestation is responsible for about 15 percent of greenhouse gases. When tropical forests are conserved, they act as a carbon sink and play a vital role in mitigating the worst impacts of climate change. However, rampant deforestation rates lead to greenhouse gas emissions, biodiversity loss, infectious disease emergence, and changes to water cycles that impact energy production and the availability of clean drinking water. Companies, shareholders, and consumers all have a role to play in ensuring that sourcing, financing, and consumption practices are consistent with the goals of the Paris Agreement, and these actions have a reverberating impact as government and private sector policies are likely to further increase the financial risk of deforestation linkages. Disruptive change is gaining momentum, and this ranking can be seen as a regional indicator of company progress in policy and disclosures that mitigate ESG risk. For companies with low rankings, it is the perfect time to improve policies and conduct risk assessments. On the other hand, the high achievers have the opportunity to shape industry ESG practices and to share best practices.

To incorporate a deforestation focus into company ESG scores, the Climate Advisers Deforestation Risk Ranking weights 80 percent of scores to ESG policies and disclosures and 20 percent to reputable deforestation-specific ratings and certifications. From an overall ESG perspective, the companies are evaluated against 93 of the 424 indicators available from Thomson Reuters Asset4 ESG data. The selection includes 25 “social” indicators, 33 “environmental” indicators, 25 “controversy” indicators, and the published Thomson Reuters/S-Network ESG Best Practices Governance Score. On the deforestation front, Climate Advisers has calculated universal and commodity-specific scores using reputable ratings like Forest 500, CDP, and SPOTT, along with relevant company participation in the Roundtable on Sustainable Palm Oil (RSPO), the Roundtable on Responsible Soy Association (RTRS), and the Global Roundtable for Sustainable Beef (GRSB) certifications. The Climate Advisers Deforestation Risk Ranking is calculated by region for companies in Latin America, North America, and Asia (excluding Japan). Particular consideration was given to company actions, policies, and certifications in palm oil, soy, timber, and beef supply chains.

For more on the methodology and results click here

This research is intended to encourage low performing companies to incorporate more robust efforts to limit deforestation and other climate risks, produce commodities legally and sustainably and protect local communities. Companies ranked highly are more likely to have integrated supply chain best practices into their operations and have lower incidences of public controversies than those ranked lower. The rankings consider companies in a wide variety of sectors, including: Beverages, chemicals, construction & engineering, construction materials, containers & packaging, diversified retail, food & drug retailing, food & tobacco, holding companies, homebuilding & construction supplies, hotels & entertainment services, industrial conglomerates, paper & forest products, personal & household products & services, pharmaceuticals, real estate operations, specialty retailers, and textiles & apparel. Companies not covered in reputable deforestation ratings from peer organizations or commodity certifications were excluded, due to a lack of relevance.

The results are included by region below:

Figure 1: Latin America Deforestation Risk Rankings

In Latin America, the risk of exposure to deforestation can be high because the Amazon rainforest stretches across nine countries. Cattle ranching is responsible for about 80 percent of deforestation and has significant impacts on ecosystems, soil erosion, and drinking water supplies. Brazil, in particular, is home to about 88 percent of the cattle in the Amazon, followed by Peru and Bolivia. The three largest meatpackers are JBS SA, Minerva SA, and Marfrig Global Foods SA. All three companies have made significant efforts to exclude direct suppliers linked to deforestation. However, they have a long way to go to achieve transparency and mitigate deforestation risk in indirect supply chains and have been linked to both deforestation and fires in the Amazon. One takeaway here is that large companies may have stronger policies in place, while still having an outsized impact on deforestation in supply chains, due to the materiality of risks and current gaps in traceability.

Brazil is also home to the Cerrado biome, which has become a hotspot for soy production after the Amazon Soy Moratorium in 2006 drastically reduced soy-driven deforestation in the Amazon. Notably, many soy producers and traders do not have No-Deforestation policies in place for soy production, primarily due to the prevalence of legal deforestation in the Cerrado.

Figure 2: North America Deforestation Risk Rankings

In North America, higher rankings likely reflect the increased risk of reputation damage as a result of involvement with deforestation and other negative ESG impacts. According to the Governance & Accountability Institute, 90 percent of companies in the S&P 500 publish sustainability reports, up from 20 percent in 2011. Consumer-facing companies are under particular pressure to prioritize sustainability to keep up with changing customer preferences.

Figure 3: Asia (Excluding Japan) Deforestation Risk Rankings

The companies ranked in the Asian (excluding Japan) region primarily have links to palm oil and timber commodities. Roughly 85 percent of palm oil comes from oil palm plantations in Indonesia and Malaysia. Combined, these countries have lost about 800,000 ha of primary forest per year for the past decade. Palm oil groups operating in Indonesia and Malaysia have often been linked to deforestation and human rights abuses, and many have used complex ownership structures to mask ESG issues. However, increasing financial pressure for market access to customers with No Deforestation, No Peat, and No Exploitation (NDPE) policies has prompted some groups to improve sustainability policies and practices to meet customer requirements.


We would like to express our sincere appreciation and gratitude to the Norwegian Agency for Development Cooperation (NORAD) who funded this analysis and report.

Sustainability Lessons Learned From Palm Oil

The palm oil industry has recently made progress on sustainability issues, but as producers emerge in Latin America, how can they use past lessons to continue improving the industry?

This report reviews past lessons and the current state of the industry to provide clear recommendations for producers and civil society to protect forests.






JPMorgan’s Opportunity to Address Deforestation

Where can JPMorgan find opportunities to address its exposure to deforestation?


Spotlight on JPMorgan’s Deforestation Risk Exposure

U.S.-based investment bank JPMorgan has become increasingly vocal about its growing ambition to reduce exposure to climate change risks and foster positive change among its customers, investees, and peers. The bank has warned of widespread, destructive droughts, wildfires, and higher sea levels, along with negative impacts on economic growth.

But what are its plans for deforestation and how much investment exposure does with companies/sectors tied to deforestation?

In this report, we dive into JPMorgan’s ties to deforestation, vulnerable sectors like Brazilian soy and cattle, and recommended next steps for the bank to walk-the-walk when it comes to setting meaningful climate goals.


Tropical Commodity Risks Concern Latin American Banks. They Need Tools to Navigate Climate Transitions.

Originally published on the Orbitas website: COVID and climate will challenge tropical country sovereign bondholders. (more…)

Share This