Using pensions to halt deforestation

BY Emma Thomson, Global Canopy

Urgent action to address deforestation risks is needed across the financial sector. But with more than £300 billion (US$ 401 billion) of UK pension money alone invested in companies and financial institutions with high deforestation risk, pension funds are a great place to start.

Pension fundholders’ expectations are clear on the issue. Although up to £2 for every 10 currently invested in an average UK pension is linked to deforestation risk, recent research shows that 77% of pension fundholders say that they would be unhappy to discover their savings were contributing to deforestation.

Global Canopy is working with Make My Money Matter and SYSTEMIQ to create practical guidance for pension funds to identify, address, and eliminate deforestation, ecosystem conversion, and associated human rights abuses from their portfolios in line with fund holders’ expectations.

Alongside a Working Group of 13 pension funds, we have developed draft guidance, which builds on the Finance Sector Roadmap endorsed by the Accountability Framework initiative and launched in partnership with the Finance & Deforestation Advisory Group at COP26. Like the Roadmap, the pension fund guidance will be aligned with Accountability Framework principles and best practice guidelines.

The guidance takes into account the many ways in which pension funds can be exposed to deforestation risks, including through the different asset classes they may invest in (e.g. public equity, private equity, sovereign debt).

The processes they need to follow to eliminate deforestation, conversion, and associated human rights abuses from their portfolios will also vary depending on what type of pension fund they are. For instance, best practices may differ depending on whether the pension fund is a defined contribution or defined benefit fund; whether it is an individual fund or works as part of a pool; and whether it manages its own assets or invests solely through asset managers.

To ensure the pension fund guidance meets the needs of users, the Working Group of pension funds is providing detailed inputs throughout the drafting process. But for this guidance to be as effective as possible, it must also incorporate the views and feedback of other key stakeholders, in particular, asset managers, civil society organisations, and indigenous peoples and local communities who may be directly affected by deforestation.

Global Canopy is holding a consultation on a detailed outline of the guidance until 5 April 2022. We invite you to review the outline, provide feedback, and share it with your colleagues and networks.

Emma Thomson manages the annual Forest 500 assessment process for Global Canopy.