Banks in firing line over deforestation investments

The world’s banks have been accused of wholesale investment in deforestation projects despite their public pledges around Environmental Social and Governance (ESG) programmes.

The investigation by Global Witness revealed how much financial institutions in UK, EU, US, and China could have made from deals with agribusiness firms linked to deforestation and associated abuses. HSBC, Deutsche Bank, JP Morgan, BNP Paribas, Rabobank, and Bank of China are among the worst offenders.

It found banks and investors headquartered in the UK, EU, US, and China made an estimated $1.74 billion in income from huge investments in agribusiness firms linked to the destruction of climate-critical forests in the five years following the Paris Climate Agreement.

It analysed over 70,000 share, bond, credit, and underwriting deals struck between financiers headquartered in the UK, EU, US, and China and twenty of the worst agribusiness companies between 2016 and 2020. These companies all have reported links to the destruction of tropical forests and associated human rights abuses in Southeast Asia, Central and West Africa, and Brazil.

The report, “Deforestation Dividends,” revealed “the true scale of banks’ financing of some of the world’s most destructive companies” and for the first time provided an estimate of how much income financiers could have made in interest, fees, and dividends from backing the parts of their business that carry the highest deforestation risk – primarily soy, beef, palm oil, pulp, and paper.

Many of the banks featured in the report have committed to align their investments with the goals of the Paris Climate Agreement and put in place voluntary environmental, no-deforestation and human rights policies. The findings published today suggest that banks’ actual financing decisions contradict their own public pledges and policies as they continue to profit from deforestation and associated abuses.

Shona Hawkes, Senior Global Policy Advisor on Forests at Global Witness said: “Our investigation followed the money to reveal, for the first time, how much top global banks are making from the destruction of climate-critical forests and associated human rights abuses.

“There is no more striking example of climate injustice than big financial institutions headquartered in banking centres like London, Paris and New York raking in eye-watering sums while they bankroll the destruction of the land, homes and livelihoods of communities who have safeguarded their forests for generations and are among the lowest greenhouse gas emitters in the world.

“Financiers’ deforestation-linked profits are toxic – for the planet, for the affected communities and ultimately, for the banks themselves as their investments in destructive agribusinesses increasingly risk becoming legal and financial liabilities.”

The analysis of financial data from 2016 to 2020 suggests that:

  • Financial institutions in the UK, EU, US, and China ploughed $157 billion into agribusiness firms linked to tropical deforestation and associated human rights abuses.
  • US financial institutions made $538 million through deals with some of the world’s the most destructive agribusinesses.
  • JPMorgan is the biggest deforestation financier in the US, EU, UK, and China, making $56.9 million from deals worth $9.38 billion with firms that have fuelled rainforest destruction over the past five years.
  • British financial institutions made deals worth $16.6 billion (£12.7 billion), raking in $192 million (£147 million) in deforestation-linked revenue along the way.

HSBC was identified as the UK’s biggest financier of “destructive agribusiness” and the second largest privately owned bank in our global dataset after JPMorgan. It provided $6.85 billion (£5.25 billion) of financing to some of the world’s worst deforesters – and likely made more than $36.4 million (£27.8 million) in revenues along the way. HSBC received $20.2 million (£15.5 million) of that total income in the three years following its “no deforestation” commitment in 2017.

Lenders based in the EU have raked in $455 million (€401 million) in deforestation-adjusted proceeds on $34.7 (€30.6 billion) billion worth of deals with top deforesters. Deal-making was dominated by big banks from the Netherlands, France, Spain, Germany, and Italy.

The report adds to growing pressure for banks to be regulated under new rules on deforestation and supply chains and reinforces affected communities’ calls for remedy and redress under international and national laws. As governments, shareholders and the public increasingly see money made on the back of environmental and human rights abuses as illegitimate, banks’ deforestation-linked profits could become major liabilities.

“Governments in major financial centres, including the EU, UK, US, and China must urgently pass strong laws that stop the finance industry profiting from deforestation and associated human rights abuses and penalise those who continue to do so,” the report stated. “Financial institutions must also immediately cut off ties with destructive agribusinesses and provide redress and remedy for affected communities.”

Hawkes added: “Banks are touting their green credentials with glossy voluntary policies and commitments, but our findings highlight that these amount to little more than pure greenwashing. Talk is cheap and money speaks louder than words – if we judge banks on their financing decisions since the Paris Climate Agreement, we see they are continuing to amass millions in illegitimate gains from deforestation and leaving affected communities high and dry.

“While we know that preserving forests is high on the agenda at COP26, there is a real risk that governments and the financial sector will continue peddling false and meaningless solutions that fail to effectively address global forest destruction. Global leaders must step up and commit to bringing in government regulation that prevents companies and financial institutions profiting from deforestation.”

The report, “Deforestation Dividends,” revealed “the true scale of banks’ financing of some of the world’s most destructive companies” and for the first time provided an estimate of how much income financiers could have made in interest, fees, and dividends from backing the parts of their business that carry the highest deforestation risk – primarily soy, beef, palm oil, pulp, and paper.

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