New research shows €185 Billion Flows into Deforestation
By Frederike Potts of Facing Finance
In a new evaluation, Fair Finance Germany member Facing Finance has revealed that institutional investors have invested €185 billion in companies involved in deforestation. Of this amount, €91 billion comes from ESG funds listed under Article 8 or 9 of the EU Disclosure Regulation.
The results of the research were published on the Faire Fonds platform, a project of Facing Finance and Urgewald, which lists investment funds based on sustainability criteria, among other things, in Germany. The database captures companies that do not acknowledge deforestation as a significant contributor to the climate crisis or fail to provide sufficient evidence of implementing a deforestation policy for forest-risk commodities. The platform has now been expanded to include 136 companies from OECD countries that are collectively responsible for deforestation and thus climate change. This means that the database currently covers 1,350 companies and 3,605 funds examined with a volume of 3.7 trillion euros.
The results of the evaluation demonstrate that the impact of deforestation on climate change has been insufficiently acknowledged by major investors. This is particular evident in the case of the largest investors in the field of deforestation: BlackRock (52 billion), Amundi (21 billion), Vanguard (13 billion). German investors also play a significant role, with DWS (18 billion), Union Investment (8 billion), Deka (6 billion) and Allianz (6 billion) being notable examples.
Downstream companies such as manufacturers and retailers, are a favored investment target for German investors. These companies are involved in almost all of the forest risk products studied, including palm oil, soy, paper, pulp and leather. L'Oréal, a cosmetics company, leads the list with 746 funds involved, followed by Amazon, a prominent retailer, with 724 funds, and Louis Vuitton, a luxury goods brand, with 673 funds.
In June 2023, the EU Deforestation Regulation (EUDR) was agreed with the objective of reducing or minimizing the EU's contribution to deforestation and forest degradation, as well as to greenhouse gas emissions and biodiversity loss. This regulation will enter into force on 30 December 2024 and specifies that any product placed on the EU, made available in the EU or exported from the EU must (1) be free of deforestation, (2) must have been manufactured in accordance with the national legislation of the country of production and (3) must be covered by a due diligence declaration.
The Regulation allows only products produced after 31 December 2020 on land not subject to deforestation or forest degradation to be marketed on or exported from the EU market. At the same time, the following raw materials must comply with mandatory due diligence obligations in order to be marketed: palm oil, cattle, wood, coffee, cocoa, rubber and soy, as well as those products made from them such as leather, chocolate or printed paper. This means that both domestically manufactured products and imports into and exports from any member country are covered by this regulation.
The release of this update aims to promote transparency and accountability in the financial world and to demand more sustainable decisions from companies and financial institutions in order to comply with international commitments to protect forests and combat climate change.
A longer version of this article with information on the Methodology used to assess companies can be found here https://www.faire-fonds.info/2024/07/02/entwaldungs-update-2024/
