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New Briefing on the Economic Drivers of Deforestation

Last month, Aidenvironment, as part of Chain Reaction Research, published a briefing that provides a snapshot of the sectors that drive deforestation in six focus countries: Liberia, Democratic Republic of Congo, Colombia, Peru, Ecuador and Brazil.

The destruction and degradation of tropical forests releases large carbon deposits, endangers plants and animals and poses a threat to the livelihoods of millions of people, many of whom are often already marginalized. The growing awareness of the link between deforestation and greenhouse gas emissions means that more funding will become available in the future to halt deforestation, more companies will commit to ‘zero deforestation’ policies, and public monitoring of forest stocks will increase. These developments fundamentally alter the market conditions for those sectors that have contributed to deforestation in the past. They also pose financial risks to investors and financiers of companies that do not adequately respond to these changes.

So what economic sectors drive deforestation? And where do the related financial risks lie for investors? In South East Asia, Chain Reaction Research, a consortium of Aidenvironment, Profundo and Climate Advisers has uncovered hidden financial risks at palm oil companies that are linked to deforestation, destruction of peatlands, and other violations of international sustainability standards. Deforestation is also an urgent issue in countries in the Amazon and Congo Basin. Similar hidden financial risks are therefore likely to be faced by firms active in these regions, particularly given the increasing level of global attention.

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The figure shows the diverse economic drivers of deforestation in six key tropical countries. In four Latin American countries (Brazil, Colombia, Ecuador, and Peru), over 70% of combined deforestation is linked to cattle ranching. In two African countries (Liberia and DRC), the primary drivers are large-scale and subsistence agriculture. Palm oil and other agricultural commodities, as well as mining and the exploitation of oil and gas are threatening forested areas in various countries. Logging is a recurrent factor in all forests, while infrastructure and hydropower contribute to deforestation in several countries.

This report is the first publication under a new Norad-funded program entitled “Integrating REDD+ objectives in investment decisions of institutional investors active in agriculture, forestry and other sectors that affect tropical forests”. In the coming five years, Chain Reaction Research will publish a range of thematic and company reports highlighting the financial risks associated with deforestation and other sustainability issues.

For more information, please contact Tim Steinweg.

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Click here to download the report.