New data platform Forest IQ has been created by an alliance of leading not-for-profit organisations. It plans to help impact investors eliminate deforestation from their portfolios.
In brief
- The new data platform aims to “align, connect and curate the best available datasets on how portfolio companies are addressing their links to deforestation at a moment of growing compliance pressure”.
- Forest IQ has been created by an alliance of leading not-for-profits with expertise in data-driven approaches to tackling deforestation.
- It provides open, actionable information on over 2,000 companies – designed in close consultation with major global financial institutions to meet their needs and processes.
Last week saw the official launch of Forest IQ, a new data platform for financial institutions examining how more than 2,000 major companies are addressing their links to deforestation. The idea is that Forest IQ supports rapid scanning of portfolios alongside in-depth analysis and engagement.
Three not-for-profits organisations were involved in creating Forest IQ – Global Canopy, the Stockholm Environment Institute (SEI) and the Zoological Society of London (ZSL).
“There is no pathway to net zero or nature goals without rapid action on deforestation,” Niki Mardas, executive director of Global Canopy told Impact Investor.
The biggest challenge? “Frankly put, it’s the speed with which we need action. Just look at the Amazon rainforest today. Water levels are at their lowest for 120 years, agriculture yields in the region are being hit, and the Science Panel for the Amazon is warning of a tipping point for the forest being reached,” he said.
Background
Forest IQ is launching amidst growing policy and compliance pressure on financial institutions to eliminate deforestation from their portfolios in order to achieve their climate and nature goals. The UN’s High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities (HLEG) has set a 2025 target for deforestation-free finance, and the transition guidance of the Glasgow Finance Alliance on Net Zero (GFANZ) identifies tackling deforestation as a top and immediate priority for its members. In addition, new regulations in the EU are setting stringent due diligence requirements for companies on deforestation, and these are under review for extension to the finance sector. In the UK, Schedule 17 of the Environment Act will require supply chain companies to conduct due diligence to ensure that they do not use products linked to illegal deforestation in the country of production.
Oliver Cupit, sustainable business and finance programme manager at ZSL, observed: “With deforestation worsening again in 2022, we are far off track to meet 2030 deforestation targets. We need global mobilisation to stop and reverse forest destruction, and financial institutions have a major, critical role to play.”
Global Canopy has revealed that the financial institutions in the Forest 500 provide $6.1trn (€5.6trn) in finance to companies in forest-risk supply chains. “But it doesn’t have to be this way” said Mardas. “Through their power and influence, impact investors can drive positive change – shifting company practices towards becoming deforestation-free.”
How it works
Forest IQ’s mission is “to simplify the data landscape for finance, to enable the leaders to take action and to remove excuses for the laggards”, according to a press release issued by the group. By aligning and curating the best available datasets on how portfolio companies are addressing their links to deforestation, the alliance aims to support financial institutions to move towards deforestation-free portfolios and sector-wide change.
“Forest IQ makes it simpler than ever before to assess deforestation risks and exposure, enabling financial institutions to take action to eliminate deforestation from their portfolios,” said Cupit.
Central to Forest IQ are three new core indicators – on exposure, materiality and reported performance. These indicators map transparently to a number of datasets, enabling investors to undertake in-depth analysis and more effective engagement with high-risk companies. They have been developed in close consultation with major financial institutions including some of the world’s largest and most exposed banks and asset management firms such as BlackRock, BNP Paribas and HSBC.
It also has important uses for impact investors. “As new platforms like Forest IQ provide a comprehensive corporate benchmark on deforestation, impact investors will be able to make informed decisions about the companies they invest in. As impact investors specifically look to measure their impact, they would play a key role in helping to create KPIs or impact measurement,” said Mardas.
Forest IQ’s indicators and data are open to all in order to drive better action and accountability. Its work is aligned with the Accountability Framework Initiative’s guidelines on deforestation, and it will support financial institutions to meet requirements of emerging global reporting frameworks, such as the Taskforce for Nature Related-Financial Disclosures (TNFD).
The Forest IQ team is also in discussion with leading ESG service providers with a view to making the new data available on the key platforms where financial institutions already get their information.
What happens next?
“The sector still has a long way to go,” said Mardas. “Our analysis shows that only 20% of financial institutions worldwide are taking action on deforestation.”
But he highlighted the progress made in the past few years – particularly as investors are “sharing what they are learning openly, which is a huge help to the sector as a whole. The newly launched TNFD, Nature Action 100, and Spring Initiative, are also all testament to the huge amount of collaboration that’s taken place across the sector in recent months alone.”
For Forest IQ, after the first months of onboarding and troubleshooting, key priorities for the first year will be “on getting investors, bringing in new datasets, especially on areas we can see there are currently gaps in the marketplace like social impact indicators, increasing the coverage of key companies based on the feedback of investors, and improving the frequency of updates. No shortage of work to do,” said Mardas.
