Top financial institutions have taken big steps to tackle deforestation, but lenders are still providing trillions in financing to major companies exposed to forest-risk commodities, non-profit Global Canopy says.

Together, 150 financial institutions are providing US$6.1tn in shareholding, loans, underwriting and bonds to the 350 corporates assessed in the Forest 500 report, an annual ranking of the companies and financiers with the most influence on commodity-driven tropical deforestation.

Yet some financial institutions have demonstrated “rapid progress is possible”, with seven organisations improving their scores for the implementation and reporting of their policies by ten points or more last year.

Barclays enhanced its reporting and implementation score by 31 points in a year, taking its total from 21 to 52 out of 100.

Most progress was made in relation to cattle products. Between 2022 and 2023, Barclays introduced a “time-bound threat of redirection of finance” to its monitoring process of companies that are non-compliant with deforestation-free commitments.

Schroders also bumped up its score from 44 to 70, driven largely by its reporting on the progress of human rights policies.

Global Canopy uses publicly available information to track policies and gives businesses a score according to the ambition and scope of their pledges as well as their approach to transparent reporting and implementing commitments throughout the supply chain.

Now in its 10th year, the Forest 500 report was set up in 2014 to track progress made by companies, financial institutions and governments against commitments to halve natural forest loss by 2020, pledged as part of the New York Declaration on Forests.

But since then, progress has been slow. According to the report, 11% of tracked financial institutions had published a deforestation policy in 2014, and while that figure now sits at 45%, the majority “with the highest exposure to deforestation in their portfolios are still yet to set a single policy”.

The top three financiers that currently back companies without any deforestation commitments are JP Morgan, Bank of America and MUFG, providing a combined US$71bn.

At the time of publication, JP Morgan, Bank of America and MUFG had not responded to GTR‘s request for comment.

“With their immense power to shift companies towards nature-positive outcomes, we urge financial institutions to set ambitious public policies for all high-risk commodities, and engage with high-risk companies in their portfolios,” says Emma Thomson, Forest 500 and tracking lead at Global Canopy.

Global Canopy also stresses the need for regulation targeting financial institutions and corporates, arguing that voluntary private sector action is not enough on its own.

While legislation has been introduced in the EU and the UK it does not currently apply to financial institutions, although this is due to be reassessed as part of a review mechanism.

The EU Deforestation-free Regulation (EUDR) is set to enter into force from December this year and targets palm oil, cattle, wood, coffee, cocoa, rubber and soya, as well as some derived products, such as chocolate and furniture.

Traders and operators will have to ensure that if these products enter the EU market, they do not originate from recently deforested land and have not contributed to forest degradation.

In December last year, the UK announced which commodities will be banned under its 2021 Environment Act, putting palm oil, cocoa, beef, leather and soya on the list.

A similar bill has been introduced in the US, the Fostering Overseas Rule of Law and Environmentally Sound Trade (Forest) Act, which would prohibit imports of products made from commodities produced on illegally deforested land and establish illegal deforestation as a financial crime.

Helen Bellfield, director of policy at Global Canopy, says the EU and UK laws need to go further in order to eliminate deforestation.

“The EUDR, for instance, is in danger of allowing a significant amount of deforestation because of its narrow definition of forests, which should be expanded to include the conversion of all natural ecosystems. And neither law covers the human rights abuses that go hand in hand with deforestation,” Bellfield says.

“There is no solution to climate change without ending deforestation,” adds Niki Mardas, executive director of Global Canopy.