Global Canopy has warned that the finance sector is making limited progress on deforestation risk, with many major financial institutions still lacking policies covering high-risk commodities despite growing scrutiny of nature-related exposure.
The non-profit’s latest Forest 500 finance assessment reviewed 150 financial institutions most responsible for supporting companies with significant exposure to global deforestation risk. Only 61 institutions, or 41%, had published a deforestation policy for one or more of the seven highest-risk commodities in 2025.
The assessment said progress had stalled and identified continued gaps among some of the world’s largest asset managers. Global Canopy highlighted commodities including leather and soy, where policies remain absent or incomplete across many portfolios.
Deforestation risk affects companies through regulation, litigation, supply disruption, customer pressure, investor activism, and reputational exposure. It is especially relevant to food, agriculture, retail, apparel, automotive, consumer goods, and financial services. Banks, insurers, asset managers, and pension funds may be exposed through lending, underwriting, investment holdings, and stewardship responsibilities.
Climate disruption is already being felt in commercial operations, as explored in Climate disruption hits UK businesses. Nature risk sits alongside that challenge because land-use change affects emissions, ecosystem resilience, agricultural productivity, water systems, and long-term supply stability.
Financial institutions increasingly need to treat deforestation as a governance and risk issue. Companies linked to deforestation can face import restrictions, customer contract requirements, supply chain disclosure rules, and changing market-access conditions. Lenders and investors that cannot identify exposure may misprice risk or fall short of stewardship expectations.
The challenge is partly technical. Commodity supply chains are complex, often spanning multiple countries, intermediaries, farms, processing facilities, and traders. A financial institution may hold shares in a consumer goods group, lend to an agricultural producer, insure logistics infrastructure, or finance a retailer without direct visibility over land-use practices several steps back in the chain.
Public and regulatory expectations are nonetheless shifting towards traceability and accountability. Financial institutions cannot always exit every company with exposure to high-risk commodities, but they can set policies, require disclosure, support engagement, and escalate where companies fail to act. The strength of those policies will depend on whether they influence lending, underwriting, voting, and investment decisions.
Asset managers face close scrutiny because stewardship is central to their public role. Voting, engagement, escalation, and exclusion policies all become relevant when portfolio companies are exposed to land conversion. Banks and insurers face separate questions around lending covenants, underwriting standards, and client transition plans.
High-risk commodities are embedded in global consumption and industrial systems. Soy is used in animal feed and food production. Leather connects agriculture, fashion, and automotive interiors. Palm oil, timber, beef, pulp, and rubber supply chains create broad exposure across consumer and industrial markets. Managing the risk requires sector knowledge, data, and consistent engagement.
Climate risk has gradually entered board papers, disclosure frameworks, and investor engagement. Nature risk remains less developed, even though the financial channels are becoming clearer. Institutions that move earlier will be better placed to assess exposure, engage clients, and respond to regulation. Those without policies risk discovering the scale of exposure only after controversies, enforcement action, or supply disruption has already damaged value.
You must be logged in to post a comment.