(Bloomberg) -- Banks and asset managers are continuing to channel tens of billions of dollars into companies whose operations directly threaten the future of tropical rainforests including the Amazon, according to a new study.
The finance industry has allocated at least $77 billion to such clients over the past two years, Rainforest Action Network and nine other nonprofits in the Forest and Finance Coalition said on Wednesday. The findings are being made public as negotiators from around the world prepare to meet in Colombia to take stock of progress made on protecting biodiversity since their last summit in 2022.
Since the Paris climate agreement was struck in late 2015, close to $400 billion has been directed to companies whose production of everything from beef to palm oil, pulp, paper, rubber, soy and timber is tied to the destruction of critical forested lands, RAN said.
Brazilian banks Banco do Brasil SA, Banco Bradesco SA and Itau Unibanco SA topped RAN’s league table for loans and underwriting to “forest-risk” commodity companies during the 18-month period ended in June. (RAN noted that its access to better data for Brazilian banks may make them look disproportionately bad relative to peers.)
European banks Banco Santander SA, Rabobank and BNP Paribas SA also were in the top 10. On the investment side, Malaysia’s Permodalan Nasional Berhad and Employee Provident Fund were the top two, followed by BlackRock Inc. and Vanguard Group.
The summary follows a June report that criticized six lenders — including JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. — seen as responsible for almost half of all direct financing for oil and gas operations in Amazonia over the past 20 years.
“For years, we’ve been seeing banks increasingly engage in various sustainability initiatives, but we see no impact whatsoever on the financing going to the companies involved in deforestation,” Tom Picken, RAN’s forests and finance director, said in an interview. “We’re seeing more money going into the sector, and tropical deforestation rates are continuing at dangerously high levels.”
Bank Responses:
A spokesperson for Banco Bradesco said the bank conducts rigorous environmental and social due diligence ahead of every type of corporate credit operation and rejects operations that don’t comply.
A spokesperson for Itau Unibanco said the bank is careful to comply with environmental legislation and adopts environmental and social best practice. The bank conducts stringent risk assessment on all deals that potentially impact the Amazon biome and encourages zero deforestation in its product terms, the person said.
A Santander spokesperson said the bank’s financing decisions are guided by a strict policy framework and align with environmental regulations.
A Banco do Brasil spokesperson said that all financing and investment undergoes rigorous social and environmental due diligence, which includes checking documentation such as licenses and water concessions. The bank’s operations are guided by environmental responsibility and national rules, the spokesperson said.
A BNP Paribas spokesperson said the bank requires its clients to be “zero deforestation” by 2025, after which point it will no longer provide financial products or services. In addition, the bank has adopted stringent criteria to ensure the traceability of activities in sensitive areas, the spokesperson said.
A BlackRock spokesperson declined to comment, while officials from Vanguard, Permodalan Nasional Berhad, Employee Provident Fund and Rabobank haven’t responded to requests for comment.
BlackRock and Vanguard manage some of the world’s largest index-tracking funds, helping explain the firms’ investments in forest-risk companies.
In June, a spokesperson for JPMorgan said the bank supports human rights and screens for “sensitive business activities.” Spokespeople for Citigroup and Bank of America referred to their latest risk-management policies, which spell out due diligence requirements and explain expectations that clients are to meet.
Policymakers and bankers will meet next week at the United Nations Biodiversity Conference, COP16, in Cali, Colombia, where they’ll review where they stand relative to the Global Biodiversity Framework, a pact signed two years ago to halt and reverse nature loss by the end of the decade. Banks plan to use the event as an opportunity to study the risks associated with an increasingly threatened planet and also to figure out how to monetize biodiversity as a financial theme.
That’s the wrong focus, according to RAN. “The real finance gap is financial regulation,” Picken said. “Any precondition to progress of Global Biodiversity Framework targets needs to address the finance that’s continuing the problem, rather than just focusing in on some resource mobilization or new asset class,” he said.
Of the top 30 banks RAN assessed, at least half are members of one or more sustainability initiative such as the Principles for Responsible Banking, the Net-Zero Banking Alliance and the Taskforce on Nature-related Financial Disclosures. However, the underwriting and investment data indicate these groups are failing to move the needle on curbing harmful financial flows, according to RAN.
At the same time, RAN’s assessment of bank and investor policies shows that most are weak, not systematically implemented and with little accountability for those that fail to comply.
Ultimately, RAN said there’s “a growing gap between commitments and actions” that’s “perpetuating a false sustainability narrative.” The shortcomings of voluntary action means stricter regulation is now required, Picken said.
What’s needed is new banking regulation in Indonesia and Brazil, as well as specific rules for stock and bond issuance in China and stricter investor and reporting standards for Europe and the US, Picken said.
(Updates link in 2nd paragraph, quote in 9th paragraph.)
