Deforestation puts investors with portfolio exposure to forest-linked commodities—such as cocoa, beef, soy and palm oil—at financial risk from regulatory, market, and reputation-related shifts. This is because deforestation poses systemic economic risks as the second-largest source of annual greenhouse gas emissions, a threat to ecological tipping points, and a diminisher of carbon sinks.
Asset owners are uniquely positioned to drive systemic change by aligning portfolios to net-zero targets and phasing out deforestation. This is why the Net-Zero Asset Owner Alliance (NZAOA) published a four-step pathway for investors to phase out deforestation and forest conversion. The steps include:
- Assessment: Evaluate portfolio exposure to deforestation and linked human rights abuses.
- Commitments: Phase out deforestation and forest conversion risks for forest-risk commodities by 2030.
- Stewardship: Actively engage with companies, asset managers, and policymakers.
- Transparency: Disclose actions, risks, and progress with measurable data.
Within the guidelines, NZAOA also offers accompanying recommendations for companies, policymakers and data providers to take corresponding action to phase out deforestation risk exposures.