UK fails to curb deforestation bankrolling. What's next?

The UK government has rejected on 29 June an amendment to the Financial Services and Markets Bill that would have prevented UK banks and asset managers from funding illegal deforestation in the Amazon and other climate-critical forests.

Instead, the government inserted a compromise amendment into the bill, which has now passed into law. 

The compromise amendment requires the Treasury to conduct a nine-month review of deforestation finance, "to assess the extent to which regulation of the UK financial system is adequate for the purpose of eliminating the financing of the use of prohibited forest risk commodities."

Once the review has been finalised, the Treasury must present a report to Parliament outlining their conclusions, and recommending appropriate steps to prevent the financing of prohibited forest risk commodities. 

The planet is our most precious asset

Alexandria Reid, Senior Global Policy Adviser at Global Witness, feels the compromise amendment falls far short of what is required. "The government has already spent the time and money analysing how to stop the financing of deforestation, with their own expert taskforce recommending the exact due diligence law they voted down," she said. "We cannot afford to kick the urgent threat of biodiversity loss into the long grass."

She added, "We are treating the planet like a limitless resource, when really it is our most important asset. There are very few years left to turn the tide on nature loss, and deforestation is the first place we must start if we want to green the financial sector."

The original amendment, new clause 65, was proposed by a group of Peers led by Baroness Boycott, a British journalist and member of the House of Lords. It required financial institutions to carry out due diligence to ensure their investments are not funding illegal deforestation.

The House of Lords voted in favour of this amendment to the Financial Services and Markets Bill just days before the government threw the amendment out and replaced it with the weaker compromise amendment. 

"We must do everything we can to avoid our current descent into a nature-depleted chaos," Baroness Boycott said. "What is good for forests is good for the economy, and that is why MPs from across the political spectrum want to cut off the money pipeline to deforesting projects abroad."

"The mandatory due diligence law I’ve been fighting to introduce is long overdue," she added. "We must ensure UK finance uses the information already available to them to stop lending to the most egregious companies who deforest time and again."

The Baroness pointed out that British Prime Minister Rishi Sunak had vowed to act on biodiversity loss without delay at the G7, and stressed that both the public and private sectors expressed support for the law.

"Back in 2021, Rishi Sunak promised he would make London the world’s first net zero financial centre. When will he deliver, if not now?"

Widespread support for due diligence 

New clause 65 was initially recommended in 2020 by the Global Resource Initiative Taskforce, a group of experts set up to advise the government on how to reduce climate harms stemming from corporate activities. The clause had cross-party support in both the House of Commons and the House of Lords.

The British public are also broadly in favour of it: in 2021 a public poll found that two-thirds of respondents supported a new law to end the financing of deforestation. 

Sir Ian Cheshire, former Chairman of Barclays UK, together with financial institutions representing £1.18 trillion in assets under management and advice, have publicly endorsed mandatory due diligence.

The group said this action is necessary to achieve a reversal of global forest lost and land degradation by 2030, as required under the Glasgow Leaders’ Declaration on Forests and Land Use at COP26.

But despite such broad political, corporate and public support, the government has been consistently unwilling to support mandatory due diligence for banks and investors.

"It’s very disappointing that they’re not listening to their own advisors when it comes to the climate science and what the solutions to deforestation are," Alexandria Reid said. "The amendment was a very modest proposal. It should already be the case that financial institutions are prevented from investing in illegal deforestation. The existing financial regulations are clearly not stopping this."

Action to stop illegal imports

Schedule 17 of the Environment Act (2021) established new due diligence obligations for large corportations, to prevent the importation of forest risk commodities, such as palm oil, soy and beef pastured on land illegally deforested under local law. However, the Environment Act did nothing to stop UK-based banks and asset managers from continuing to invest in illegal deforestation. 

The government claims that further regulation is not necessary, as banks and asset managers could voluntarily choose not to invest in illegal deforestation based on the information available about corporate practices.

"But financial institutions are currently ignoring the comprehensive evidence base about what these companies are doing," said Alexandria Reid. "For some time at Global Witness we have been sending our reports, revealing the activities of corporations involved in illegal deforestation, to these financial institutions, but this doesn’t stop them from investing."

Western investors provide billions in funding for deforestation 

The UK is currently the world’s third-largest investor in deforestation projects, behind China and the United States. Between 2015 and 2020, UK-based banks and asset managers provided an estimated $16.6 billion in funding for organisations carrying out deforestation in the Amazon and other climate-critical forests.

These banks and asset managers, including HSBC, JP Morgan and others, raked in an estimated $192 million in profits from these harmful activities. According to Make My Money Matter, £2 of every £10 saved in a UK pension is invested in deforestation.

Tropical forests play a critical role in regulating the global climate by absorbing carbon and transpiring water into the atmosphere. According to Greenpeace, deforestation is one of the biggest threats to biodiversity, wildlife and the climate more broadly.

In the Amazonian rainforest, agribusinesses such as JBS and Cargill clear forested land for beef production and soya plantations used for animal feed. In Congo and Indonesia, companies primarily clear land to grow palm oil, which is used in processed food and cosmetics. 

The burning or cutting down of trees to make way for industrial activities destroys the ecosystem that plants and animals need to survive, and releases enormous amounts of carbon into the atmosphere.

The Accountability Framework initiative has warned that unless all deforestation ends by 2025 the Paris Agreement's of limiting global heating to 1.5 degrees above pre-industrial levels will not be met. 

The impact on indigenous communities

Deforestation also poses an immense threat to indigenous populations and land defenders.

"Our community has been greatly affected by deforestation," Nora, a 47-year-old land defender from Honduras, told FairPlanet. "It causes the rivers to go dry, which means we no longer have food security. Deforestation is putting our community into a situation where we are always fighting. Women and children too are having to fight to defend their land."

Nora added that her indigenous community often receives threatening letters from land grabbers – individuals from outside their community who try to force them off their land, in order to sell the land directly to corporations carrying out deforestation. 

Nora worries that western banks do not understand the serious consequences of their financial actions. "They seem to have a lack of understanding of the real impact of deforestation, and how it affects the local communities who live on the land," she said.

"Our forests are the lungs of the world. Protecting these lands holds the promise of defeating the climate crisis. That is why we do this work."

Image by Annie Spratt.