Most pension funds are lost in the woods when it comes to deforestation

For most pension funds deforestation is not a priority. At least, based on a vast majority not having any plans with regards to this net zero issue.

In fact, the majority of pension funds and providers within the Glasgow Financial Alliance for Net Zero (GFANZ) and the UN-backed Race to Zero campaign have not issued comprehensive policies or commitments to tackle deforestation, according to research by Global Canopy.

Global Canopy found that fewer than one in five (19 percent) of the 77 pension providers that are members of these net-zero coalitions have a current comprehensive policy or commitment to tackle this crucial climate issue. 

Its latest report conducted a baseline review of the 557 financial institutions in GFANZ and Race to Zero; 77 were classed as pension funds/providers, alongside additional data from the Finance Sector Deforestation Action initiative. 

The 15 funds/providers pinpointed in the research have either signed up to the Financial Sector Commitment Letter on Eliminating Commodity-Driven Deforestation or have a deforestation policy across all of the four highest forest-risk commodities, namely beef, soy, palm and timber.

Deforestation driven by the four highest forest-risk commodities currently accounts for 11 percent of the world’s greenhouse gas emissions; reaching true net zero won’t be possible without addressing it. 

Yet, the majority of pension institutions committed to these net zero initiatives have not followed the path set by governments and leading financial institutions at COP26 in Glasgow to halt and reverse forest loss.

Both Race to Zero and GFANZ have acknowledged that eliminating deforestation is fundamental to credible net-zero transition plans and the findings follow the latest IPCC report, which issued a final warning that the world is set to use up its remaining carbon budget and exceed 1.5° if we do not take urgent action.

“Report after report has told us that if we’re serious about meeting our Paris climate goals, our window of opportunity is closing fast,” said Niki Mardas, executive director at Global Canopy.

“Forests are a key part of the solution. Destroying them both adds to climate change and makes it more difficult to tackle it."

Mardas stressed that "finance is key to driving change and pension funds — as the largest group of asset owners in the world — have real power to take a lead. Currently, our data shows too many are ignoring the deforestation their investments cause.”

While initiatives such as the Fossil Free Banking Alliance have emerged to help steer individual investors toward funds that more closely align with their values, employees tend to have less input into where their employers direct their retirement funds.

A survey commissioned by Make My Money Matter in March 2023 of UK pension holders found that savers do care about this: Over half (55 percent) do not want their savings invested in companies at risk of driving deforestation and the topic consistently ranks as the top concern among savers, alongside other issues such as labour rights abuses and investments into arms manufacturing.

With the IPCC stating in no uncertain terms that this is our last chance to act to achieve the internationally agreed target of 1.5°, Mardas is urging the finance industry to heed this call, to take action to tackling deforestation and take the necessary first steps of mapping portfolio exposure and implementing effective policies on deforestation as soon as possible.

“Inaction on deforestation is a risk to the planet, a risk to life and a risk to business,” Mardas added. 

“We know that net-zero policies without action on deforestation will not work and regulations and global demand for action will intensify. The best time for pension funds to take deforestation seriously was yesterday — the second-best time is now," he concluded.