Managing deforestation risks: Crucial for investment resilience

13 March 2024
Now into its second year, AIGCC’s Forest and Land Use workstream will start focusing on implementation, with an emphasis on actions to phase out deforestation and land use conversion risks in investors’ portfolios. This year, the workstream aims to support investors in developing their forest commitment and policies and enable them to understand opportunities in the sustainable commodities supply chain.

The workstream builds on progress over the past year, as detailed in its inaugural Year in Review report. Last year, the workstream focussed on building investor capacity by increasing knowledge of deforestation risk. For example, understanding interlinkages between climate change and forests, the global drivers of deforestation and commodity-driven deforestation issues in the region. This year, the workstream will continue to expand the scope on nature and biodiversity themes, including launching an online course on deforestation for investment managers.

Deforestation risk is financial risk

Deforestation risks mean material risks for investors. Deforestation is now becoming a mainstream issue for investors as they are becoming increasingly aware of the interlinkages between climate and forest as well as the impact of deforestation on nature and biodiversity. At the same time, there is growing reputational, market, and regulatory risks related to deforestation.

To effectively manage these risks, investors need to assess and integrate deforestation issues into their investment strategy. For investors in Asia, understanding and assessing deforestation and its impact on supply chains in the region is the first step to address these risks. At the same time, investors must be cognisant of significant deforestation-related regulatory risks, which will have impacts on companies and their supply chains.

AIGCC helps to build investors’ understanding of deforestation risks and supports the assessment and integration of deforestation issues into the investment process via the Forest & Land Use workstream. Last year, investors participated in working group sessions, closed-door peer-to-peer dialogues and masterclasses on these issues, as well as understanding investors’ role in corporate and policy engagement.

Scaling up company and policy engagement

A landmark framework launched at the 15th Conference of Parties to the UN Convention on Biological Diversity (COP15) in 2022 aims to halt and reverse nature loss by 2030. Now, there is urgency to accelerate action amongst governments, investors, and companies to tackle nature loss. Through company and policy engagement, investors can support companies’ actions and regulatory developments that will enable a transition to sustainable commodity production and consumption and achieve a nature-positive future.

As the Asian investor network, AIGCC helps to connect investors in Asia, especially those participating in the Forest & Land Use working group, to existing collaborative corporate and policy engagement global initiatives that are working towards this transition. This includes PRI SpringNature Action 100, and the Investor Policy Dialogue on Deforestation (IPDD). AIGCC also aims to facilitate investor-policy dialogue on nature in the region.

AIGCC Director of Investor Practice Monica Bae said: “Investors need to start accounting for and integrating nature risks, including deforestation risks, to ensure resilience of their investment portfolios.

“There is huge investment potential for the taking in the sustainable commodity supply chain, including investing in nature-based solutions to climate change. Investors and companies with sound sustainable land management strategies can seize these opportunities.

“AIGCC will continue to build investor capacity to identify, take action to manage and phase-out risks related to deforestation and land use within their portfolios. We will also continue to support investors in developing their deforestation and land use commitments and policies.”

Read the 2023 Year in Review