Deforestation Gains Long-Overdue Recognition in Financial Climate Standards – But Key Loopholes Remain

Today, the Forests & Finance Coalition (of which BankTrack is a member) welcomes the long-overdue recognition in the new Science Based Targets initiative (SBTi) standard for the financial sector (FINZ) that financial institutions (FIs) addressing climate emissions must address deforestation, not just fossil fuels. The SBTi was established by a group of NGOs in 2015 to support companies in setting emission reduction targets in line with climate sciences and the Paris Agreement goals.
This marks a significant shift. Despite the role of forests in climate stability, cooling and carbon sequestration, deforestation – a major source of global greenhouse gas emissions – has been largely overlooked in financial climate commitments. Thanks to persistent advocacy, the standard now demands: “At initial validation, FIs shall commit to assess, monitor and publicly disclose the amount of their deforestation exposure”.
The inclusion of action-based requirements is another step forward. FIs with significant deforestation exposure are expected to “publicly disclose an engagement plan for addressing deforestation as well as progress on this plan if they identify significant deforestation exposure in their portfolio”. But again, the timeline is concerning: the plan is only required “at renewal validation” of their climate plans by SBTi. This can be five years after initial approval – far too late to drive meaningful change.
However, this shift could be compromised by the long timelines which give financial institutions up to two years after validation of their climate plans by SBTi – or until 2030 at the latest – to meet these disclosure requirements. In a decade that is critical for urgent, meaningful action, such leniency risks weakening the impact of the standard.
Even more problematic is a loophole that allows financial institutions to choose how they assess whether their exposure to deforestation is “significant”. FIs can either assess this based on “high deforestation exposure” or “high financial materiality.” The latter does not actually look at the deforestation footprint of a FI, but only looks at whether that footprint can have a material impact on the FI. So financial institutions can claim deforestation is not financially relevant for them, and thereby avoid meaningful action altogether.
While the Forests & Finance Coalition acknowledges the progress made by the SBTI to promote corporate action to address climate change, the current level of ambition is not sufficient to meet the urgency of the climate and nature crises. Stronger and faster action is essential. The Forests & Finance Coalition will continue to advocate for robust standards that hold FIs accountable for eliminating deforestation from their portfolios.