March-April , 2021 | @ Forest

31

Among a host of ecosystem services they provide , forests also form a buffer to reduce zoonotic diseases spillover risk . Considering the current Covid-19 pandemic , the need to protect and restore the world ’ s forests has never been more evident .

Global environmental non-profit CDP unveiled the findings of their Financial Services Climate Change and Forests Pilot Questionnaire : the first structured , self-reported disclosure framework for banks to report climate and forest lending .

The report was launched at a virtual webinar moderated by Corrado Forcellati , Sustainability Services Director , KPMG Singapore , with panellists Rizal Mohamed Ali , Responsible Investment Vice President , KWAP ; Felia Salim , Director , AndGreen Fund and Meixi Gan , Sustainability Deputy Director , Singapore Institute of International Affairs .

Key findings from these unique disclosures highlight that whilst banks have started to integrate environmental concerns into their structures and processes , there is significant progress to be made on long-term strategy and financing of FRCs .

The results also confirmed that banks ’ loan books have a vastly larger impact than their operations , with portfolio emissions potentially some 400 times higher than direct emissions .

Although the participating banks can describe their environmental risks well , their responses suggest they are currently more focused on one side of the ‘ double materiality approach ’.

This means that while banks generally assess how environmental issues could affect their portfolios , they are less likely to determine how their portfolios would impact the environment .

While global banks are ahead of Southeast Asian banks in many areas , CDP notes that forests ’ disclosure must improve overall . This primarily relates to the financing of FRCs like timber , palm oil , cattle and soy – which are the most significant cause of forests degradation and loss globally .

Only one bank participating in the pilot disclosed their financing of FRCs . Banks can demonstrate that their funding of FRCs is sustainable by increasing transparency .

Also , the disclosures revealed great opportunities for banks in financing the transition to a low-carbon , forest-positive future . The potential financial impacts of environmental options disclosed outweigh the potential effects of risks disclosed , as well as the anticipated costs to achieve those opportunities .

One area of opportunity highlighted by almost all banks was providing financing to agricultural smallholders . Despite their significance in palm oil and rubber production , a lack of access to credit for smallholder producers is driving behaviours that result in forest loss and increased emissions .

The smallholder financing and other engagement approaches disclosed by the banks represent opportunities to advance the environmental aspect of sustainability and the social part .

CDP ’ s report recognises the financial services sector is crucial in achieving the transition to a low-carbon and forest-positive economy . Financial services companies ’ influence extends far beyond their immediate operations to enable activities on the broader economy , which places them in a unique position to catalyse change by engaging with the companies they lend to , investing in , and insuring .

To this end , CDP concludes with recommendations for banks to trigger a leap forward to sustainable economies , starting from standardised , tailored disclosure of their impacts as the critical first step . Other recommendations include :

• implementing board-level oversight across environmental issues ;

• ensuring time horizons , assessments and processes around ecological issues are of a long-term nature ;

• strengthening reporting frameworks and fully disclosing lending practices ;

• considering the interconnectivity of forests with climate change , water and the natural world properly assess risks , opportunities , and impacts . Pratima Divgi , Director , Hong Kong , Southeast Asia , Australia & New Zealand at CDP commented : “ The financial services sector is the missing link to sustainable economies and plays a crucial role in mitigating climate change , driving the next evolution in CDP disclosure : pioneering forest-related indicators specifically for banks .

“ Those that are leading the transition to sustainable financing activities will gain competitive advantage and improved long-term returns . CDP is a key partner in the journey toward corporate responsibility , and disclosure is a positive first step to achieving a sustainable future for people and planet .”

Over the coming years , CDP will develop the financial services questionnaire to expand reporting globally to investors and insurers and integrate a comprehensive range of environmental themes . — @ Forest

The results also confirmed that banks ’ loan books have a vastly larger impact than their operations , with portfolio emissions potentially some 400 times higher than direct emissions .”