Deforestation Climate Change

[Frederic Laureano]

Deforestationrefers to the purposeful clearing or thinning of trees and forests. When deforestation occurs, much of the carbon stored by trees is released back into the atmosphere as carbon dioxide, which contributes to climate change.

In the last decade, the largest amounts of deforestation occurred across the humid tropics, mostly in Africa, followed by South America. The UN Food and Agriculture Organisation (FAO) estimates that around 420 million hectares of forest were lost between 1990 and 2020 (or 178 million hectares net, i.e. taking into account afforestation and the natural expansion of forests). The annual rate of deforestation has since slowed but was still 10 million hectares per year between 2015 and 2020. The most important driver of deforestation is the global demand for agricultural commodities: agribusinesses clear huge tracts of forest and use the land to plant high-value cash crops like palm oil and soya, and for cattle ranching.

REDD+ policies operate through a variety of mechanisms, including those administered by the United Nations (UN-REDD) and the World Bank (the Forest Carbon Partnership Facility). REDD+ finance is also considered in the international climate change negotiations, remains a key component of international climate finance discussions, and is often channelled through the voluntary carbon markets and via activities implemented by for- and non-profit organisations.

Whatever becomes of REDD+ in the future, experts agree it should focus first on areas that can most efficiently provide CO2 reductions (such as tropical peat swamp forests) while also offering the potential for biodiversity conservation and poverty alleviation.

Over the past 8,000 years, humans have cleared up to half of the forests on our planet, mostly to make room for agriculture.2 Cutting down or burning forests releases the carbon stored in their trees and soil, and prevents them from absorbing more CO2 in the future. Since 1850, about 30% of all CO2 emissions have come from deforestation.3 Deforestation can also have more local climate impacts. Because trees release moisture that cools the air around them, scientists have found that deforestation has led to more intense heat waves in North America and Eurasia.4

There is no doubt that these strategies can help remove CO2 from the atmosphere, but their impact is hard to measure. Even for China, which has done more afforestation and reforestation than the rest of the world combined, there are still large uncertainties about how much carbon these projects are storing.6

Bunches of oil palm fruit are harvested by hand and then trucked to a mill in mainland Malaysia, where they are processed. Ancient forests around the tropics are being cut down to make space for palm oil plantations. When these forests are lost, the carbon they held locked up in their tissues is released into the atmosphere, contributing to further global warming.

Climate change is impacting flora and fauna across the Arctic. Experts warn that many polar bears like this one are having trouble finding food as the sea ice they historically relied on thins and melts earlier.

The Scherer power plant in Juliet, Georgia, is the largest coal-fired power plant in the U.S. It burns 34,000 tons of coal daily, pumping over 25 million tons of carbon dioxide into the atmosphere each year.

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The Amazon is losing the equivalent of nearly one million soccer fields of forest cover each year, much of which is cut down to make way for agriculture. When forest is lost, the carbon it sequestered ends up in the atmosphere, accelerating climate change.

Among the many gifts forests give us is one we desperately need: help with slowing climate change. Trees capture greenhouse gases (GHGs) like carbon dioxide, preventing them from accumulating in the atmosphere and warming our planet.

This guide gives investors a framework to help them understand and engage on deforestation-driven climate risks across their portfolios. It is especially intended for investors who are relatively new to deforestation and may be engaging on climate risk but not deforestation risk. The guide will help them understand the drivers of deforestation risk and prioritize company engagements based on industries, geographies and sourcing patterns. It also outlines key expectations that investors should be looking for in corporate climate and deforestation commitments and example questions for company and sector engagements. Lastly, the guide provides concrete next steps investors can take to address deforestation risk.

Deforestation is a major contributor to greenhouse gas (GHG) emissions, which have already triggered 1.8 degrees Fahrenheit (1 degree Celsius) of climate warming since pre-industrial times. Left unchecked, deforestation and other GHG-emitting activities will lead to profound physical damages and broader economic losses that will have serious negative consequences for investors worldwide.

Figure 1 Comparison of climate solutions in terms of their potential to reduce GHG emissions and sequester carbon between 2020 and 2050. Data are from Drawdown Review 2020, which provides individual estimates for 78 climate solutions. Solutions are grouped here according to how investors might assess their portfolios for opportunities and elevate solutions in investor-company dialogues. Please refer to the companion website for the data behind this graphic.

The Task Force on Climate-related Financial Disclosures (TCFD) recommends that companies and investors evaluate these risks by using different projected climate scenarios. Through this exercise, companies and their investors can assess how business operations and supply chains will perform under climate change.

Identifying investments in sectors that are sourcing high-risk commodities is a key first step in assessing portfolio-wide exposure to deforestation risk. Palm oil, soybeans, beef and timber are the most common commodities discussed in association with deforestation, but there are many other commodities that may be produced on deforestation land including leather, rubber, wood pulp for paper, cocoa and coffee. As a result, companies in many sectors are exposed to deforestation risk.

Figure 2 Sector and industry exposure to deforestation due to agriculture and forest commodity sourcing. A broad swath of industries are exposed to deforestation due to their use of commodities that are drivers of deforestation.

Investors should also examine key countries where they may hold companies sourcing commodities that are drivers of deforestation. Most GHG emissions from tropical commodity-driven deforestation occur in emerging economies such as Brazil, Indonesia and Malaysia. However, the trade of forest-risk commodities leads to these emissions ending up in the supply chains of companies in developed markets, as well as other emerging markets where deforestation is less prevalent. Downstream manufacturers in all markets are exposed to deforestation through these supply chain emissions that they are increasingly expected to report as a part of their GHG emissions inventory.

After identifying priority companies for engagement, investors can use the framework provided in Part 5 of the guide to assess company commitments related to deforestation and climate change and engage with companies on eliminating deforestation from their supply chains. Among the policies and actions investors should be expecting from companies:

Enact a climate action plan with implementation strategies to address emissions from deforestation, including a no-deforestation policy that applies to all commodities and extends to both direct and indirect suppliers. The policies should also be paired with time-bound commitments to eliminate deforestation as well as supply chain implementation plans that includes monitoring, evaluation and incentives.

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L.V.G., M.G. and J.B.M. conceived the basin-wide measurement programme and approach; L.V.G. wrote the paper; all co-authors participated in scientific meetings to interpret the data, and commented on and reviewed the manuscript; L.G.D., A.H.S., L.S.B., H.L.G.C., G.T., L.M. and L.V.G. contributed to the region-of-influence study; L.V.G., H.L.G.C., E.A., L.S.B., S.M.C. and J.B.M. contributed to the climate data weighted analysis; L.G.D., C.S.C.C., S.M.C. and R.A.L.N. contributed to the greenhouse gas concentration analysis; G.T. provided deforestation analyses; J.B.M. and L.V.G. contributed to the estimation of biogenic CO.

Peer review information Nature thanks Scott Denning, Edward Mitchard and the other, anonymous, reviewer(s) for their contribution to the peer review of this work. Peer reviewer reports are available.

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