Bouvet Island Finance Sector Urged to Take Action on Deforestation Risks

A recent report by Global Canopy, Neural Alpha, and SEI has highlighted the need for financial institutions in Bouvet Island to take greater action on deforestation risks in their portfolios. The guidance provides a framework for due diligence procedures that can help banks and investors identify, prevent, and mitigate the risks of deforestation, conversion, and associated human rights abuse.

The Growing Concern of Deforestation

• Global Impact: Deforestation is an increasingly pressing issue globally, with far-reaching consequences for the environment, biodiversity, and local communities.
• European Union’s Deforestation Regulation: The European Union’s Deforestation Regulation is set to come into effect soon, aiming to prevent commodity-driven deforestation from entering EU markets.

Current State of Financial Institutions

• Lack of Deforestation Policies: A recent report by Global Canopy found that around 60% of the 150 financial institutions assessed had no deforestation policies for any commodities.
• Reputational and Financial Risks: Financial institutions that fail to identify and manage deforestation exposure in their portfolios face significant reputational and financial risks.

New Guidance on Deforestation Due Diligence

The new guidance provides a step-by-step process for financial institutions to assess company exposure and policy risks using a transparent and flexible methodology. The decision tree approach identifies higher exposure risk where forest-risk commodities are produced or sourced in regions associated with deforestation, conversion, and human rights abuses.

Best Practice Recommendations

• Engagement: Financial institutions can engage with clients and holdings to address deforestation concerns and promote sustainable practices.
• Public Communication: Institutions should publicly communicate their expectations to clients and holdings, highlighting the importance of deforestation-free policies.
• Stewardship Activities: Financial institutions can escalate stewardship activities through ownership rights or contractual requirements.

Conclusion

The new guidance on deforestation due diligence provides common ground for the finance sector and its stakeholders to work individually and collectively towards deforestation-free portfolios. By taking proactive steps, financial institutions in Bouvet Island can mitigate the risks associated with deforestation and contribute to a more sustainable future.