Busting myths for investors tackling biodiversity and deforestation

Key points:

• The deforestation battle is not yet won. The issue persists and is relevant for financial institutions
• Setting targets for both deforestation and biodiversity remains a difficult task, but a mix of viable tools and approaches has emerged
• Despite the complexity of the biodiversity topic, it is possible to act now and in a meaningful way

Our society is currently facing two interlinked emergencies: Climate change and biodiversity loss.

Biodiversity is now deteriorating at such an alarming rate that the phenomenon has been referred to as the sixth mass extinction – and is expected to cause new organisational and subsistence challenges to human societies.¹

The 2022 global Living Planet Index gives a good idea of the magnitude of this collapse as it shows an average 69% decrease in monitored wildlife populations between 1970 and 2018.² Every organisation is at risk of being destabilised as this phenomenon continues.

This decline in biodiversity is mainly caused by human activities through five key drivers: Land use change, climate change, over-exploitation of resources, introduction of invasive species and pollution.³

Land use intensification and modification are considered the main causes of biodiversity loss as the major drivers of destruction or fragmentation of natural habitats.⁴ Change in land use is mainly due to the increase of demand for agricultural land and often happens through deforestation and forest degradation.⁵

Many actors are now trying to reduce their negative impacts on nature and biodiversity by introducing targets on deforestation, but setting these targets is no easy task, never mind wider targets on biodiversity in general.

Below, we will address some of the myths related to current strategies on deforestation and biodiversity.

Deforestation target setting

Many companies are willing to seek to eliminate deforestation from their operations and supply chains and are increasingly eager to restore forest ecosystems. A common first step is to focus on eliminating commodity-based deforestation and then to adopt new practices such as sustainable agroforestry (mix of species, increased lifespan of plantations, parcels of re-wilding).

Myth 1: Everybody now knows how to set effective targets on deforestation and work towards achieving them

It could appear the deforestation topic is well managed now as activity around the subject has increased. However, it is estimated that despite many commitments and targets on deforestation, the net loss in forests globally was 4.7 million hectares per year during the last decade.⁶

The most common approach to set these targets is to start with the most material commodities and geographies for a company’s activities. The seven commodities often used are palm oil, soy, timber products, cattle products, natural rubber, cocoa and coffee. The main geographical hotspots related to the production of these commodities are in South-East Asia and South America.

Following this approach, setting a deforestation target can be done by stating a straightforward ambition such as: “Reach 100% deforestation-free beef from Brazil by 2025, and work towards 100% deforestation-free beef globally by 2030”.

However, the implementation of these targets is not that simple as it is difficult to find a good balance between ambition and achievability, and to address knock-on effects of current methodologies for evaluating deforestation.

This may explain, at least in part, the continued deterioration of forests. Having said that, a wider use of strong measurement, reporting and verification (MRV) approaches should help moving forward.

Myth 2: Full top-to-bottom traceability of supply chains is a now easily achievable prerequisite for zero deforestation targets

It can be very difficult to understand the impact of a company’s activities on deforestation as it is often necessary to understand the individual effects from all stages along its supply chain. However, for many corporates, their supply chain can be a matter of business confidentiality, especially for intermediary actors who do not want to be bypassed by customers who could build direct relationships with their suppliers. Consequently, it can often be the case that a company lacks the necessary data to properly assess its impact on forests.

To limit this risk, corporates often look for certifications and deploy sustainable sourcing practices. These certifications will help prove the recycled content of a company’s products or prove that no high-value land was transformed due to those products,⁷ but there are still many risks or side-effects from this uneven spread of information such as a difficulty or an inability to verify effective implementation.

Myth 3: Geolocation data solves the traceability problem

As one potential solution to the problems described above, and in an effort to go beyond certification programmes, new tools and datasets have emerged to help understand deforestation rates and perform assessments of the risk levels. These include the GMAP Tool to estimate human footprint,⁸ geoFootprint to understand the footprints of key commodity crops,⁹ or the European Union’s Copernicus Land Monitoring Service.¹⁰ All these and many more aim to track land use through satellite observations.

These tools are very helpful to offer an estimate of the risk levels, but it remains very difficult to attribute direct responsibility for deforestation to corporates as these tools can only give an idea of the degradation of some regions and the footprint of some generic activities.

Myth 4: Set protected areas = save the world

Another important risk is leakage, notably when mitigation actions are too tightly focused. Indeed, protecting key areas or implementing sustainable practices in some regions – even if they are active measures against biodiversity loss or to mitigate climate change – can potentially lead to the emergence of new pressures in areas very close by, at the country level or further afield.^{11 , 12}  It has been shown that 42% to 95% of reduced forestry production implemented in a country or region can be transferred to other locations at a global scale.¹³ In all cases, inter-regional and international cooperation can be a great vector to get significant results in preventing leakage.

How can we move forward, despite these challenges, to set accurate targets and reduce the overall deforestation footprint? It remains very difficult to understand and incorporate all the effects of a deforestation reduction strategy and, consequently, best-in-class approaches tend to go beyond the company’s activities to also build partnership with local governments and stakeholders to limit the potential side-effects of well-intentioned strategies.

Finally, forest landscape restoration must complement efforts to halt deforestation if we want to achieve ambitious targets to not only limit losses, but also recover some of the lost ecosystem services of cleared forests. Restored forests can indeed enhance biodiversity and absorb carbon, providing an interesting solution to tackle two of our main environmental challenges. Deforestation targets, and their link with carbon objectives, raise the question of biodiversity targets too.