Deforestation puts financial system at risk: report

U.S. banks are actively funding a global epidemic of deforestation and land degradation that puts the nation’s financial stability at risk, according to a new report.

That means the Biden administration needs to bring the same attention to curbing global deforestation as it has brought to cutting the risk from fossil fuel emissions — or invite a creeping economic collapse, the report from consultancy Climate Advisers argues.

“It is clear that the financial sector’s ties to deforestation should receive the same level of attention as overseas financing of fossil fuels,” the authors wrote. 

“Action by the Biden administration, the Federal Reserve, and the Securities and Exchange Commission could have out-sized climate benefits, while protecting U.S. investors from unmitigated risk,” they added.

The Biden administration has repeatedly flagged the risk that climate change — and the economic transition off fossil fuels — poses to the nation’s economic stability. 

Last May, President Biden signed an executive order directing the federal government to develop “consistent, clear, intelligible, comparable, and accurate disclosure of climate-related financial risk,“ as The Hill reported.

And in October, the Financial Stability Oversight Council — a board composed of the heads of key executive-branch financial regulators like the Securities and Exchange Commission, Federal Reserve and the Treasury Department — found that “climate change is an emerging threat to the financial stability of the United States.” 

In December, the president signed an executive order demanding an end to federal funding for overseas coal plants, The Hill reported.

Meanwhile, the administration also joined more than 100 other nations in November in pledging to end deforestation by 2030, The Hill reported.

But so far these initiatives have proceeded down parallel, unconnected tracks — leaving investors in the dark about the risky businesses they may be investing in, and the broader damage done to the global economy by the destructions of the natural foundation it rests on, the Climate Advisers report argues. 

Much of this danger is direct — the threat to goods and services that tropical forests provide, and that U.S. consumers and companies rely on, from chocolate and coffee to rain and cutting edge pharmaceuticals. 

For a temperate country, the U.S. economy is surprisingly reliant on commodities that come from tropical forests. U.S. importers brought in $618 billion in tropical commodities in 2020, with $76 billion of that in agricultural commodities — a trade that impacts nearly 40 percent of the American economy, according to Climate Advisers.

But this only scratches the surface. Tropical forests in equatorial Africa birth rain that waters the U.S. Midwest, and atmospheric rivers that rise in the Amazon rainforest fall in key agricultural regions in Mexico and Texas, according to NASA.

And half the world’s gross domestic product (GDP) — about $44 trillion in economic value — depends “moderately or highly” on nature, according to a 2020 study by the World Economic Forum. The agricultural sector — the primary culprit in deforestation and soil erosion — is also “among the most reliant on ecosystem services,” the Climate Advisers report noted. 

The loss of pollinator species like bats, birds, flies and honeybees is putting hundreds of billions of dollars in U.S. agricultural production at risk, the report noted.

According to the World Bank, the collapse of key services provided by landscapes — from pollination to harvesting from wild fisheries — could lead to a $2.7 trillion decline in global GDP by 2030. 

Other threats are more immediate. The coronavirus pandemic is thought to have emerged from a bat species which was forced into close contact with humans by deforestation in the global wildlife trade — and the loss of wildlands is a direct contributor to the emergence of new pandemic diseases in humans, according to a 2020 study in Nature.

Other services provided by natural landscapes include water storage and filtration; providing reliable river flow to hydropower stations; and serving as storehouses of both chemical precursors to existing medicines and sources of new cutting-edge drugs, the report notes.

The solution called for by the report is simple: The administration should bring the same attention to deforestation as it has fossil fuels. That means focusing on more than emissions — though deforestation in 2020 emitted as much carbon dioxide as 570 million cars, according to Global Forest Watch — and requiring companies to assess and disclose the role of deforestation itself in their supply chains.