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Increasing transparency for financial institutions

New Trase Finance tool highlights complex map of links to deforestation for financial institutions

Financial institutions can now identify the level of deforestation risk facing the companies that they invest in with a new open source data platform developed by Global Canopy, Stockholm Environment Institute and Neural Alpha. Trase Finance provides information on the commodity traders exporting and importing Brazilian beef, Brazilian soy and Indonesian palm oil - some of the commodities which have the highest risk of being linked to deforestation.

Toby Gardner, Trase Director

Data from the latest Forest 500 assessment of the 150 biggest financial institutions investing in companies in forest-risk supply chains shows that two thirds do not have policies in place to address this risk.

But evidence suggests a growing number of institutions are concerned about these links. Earlier this year, a group of 29 global investment firms wrote to the Brazilian government raising concerns about rising levels of deforestation in the Amazon, and in July 2020 Nordea Asset Management divested from the meat giant JBS because of concerns over the company’s links to deforestation.

Global Canopy’s Trase lead, Helen Bellfield said that Trase Finance brought a new level of transparency to commodity trading:

“We know that many financial institutions do not have access to the data they need to assess the level of risk faced by the companies in their investment portfolios, so we hope that by providing open access to some of that information, they will be better placed to assess and act on those risks.” 

For example, the tool shows how the Norwegian Government Pension Fund - Global has direct holdings in commodity traders linked to deforestation, including Bunge and Marfrig, as well as indirect exposure via holdings in other banks that are in turn financing commodity traders. 

It also shows that some US$379 billion of equity investments, US$250 billion held in bonds, and US$160 billion of loans are also linked to that deforestation risk, highlighting the specific financiers of the commodity trading companies, and mapping the links between.

Information from Forest 500 shows where both companies and financial institutions have deforestation commitments in place, and where, despite having policies in place, some banks are still exposed to deforestation-risk through their investments and holdings. 

For example, the Norwegian Government Pension Fund - Global, despite its links to commodity traders linked to deforestation has a deforestation policy for soy and commitments for beef, suggesting there is a need for greater engagement with some of the companies where it has holdings.

There are plans to expand the platform to cover the financing of other commodities mapped by the Trase initiative, allowing financial institutions to identify risks across their portfolios, and to engage with companies to ensure those risks are minimised. 

Forest 500 data used in new Trase Finance tool

Helen Bellfield added:

“These new tools provide financial institutions with the information they need to be able to understand and act on their exposure. They can do this by setting and implementing policies and by reporting on their progress.”

Image: Unsplash

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