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How your bank could be funding global deforestation and climate disaster

UK banks are fuelling deforestation around the world. Martha Marcuson, Senior Communications Advisor at Global Witness, explores the problem and what can be done to stop financial institutions funding the destruction of climate-critical forests.

There are more and more headlines and studies about how our individual eating habits are fuelling deforestation and the climate crisis.

But this focus on consumer behaviour often lets the more fundamental and systemic drivers of this environmental destruction off the hook - the big banks that are financing and profiting from the companies tearing up rainforests and destroying our planet to produce products like palm oil, soya, rubber, beef and leather.

Demand for land for these commodities drove an estimated 23 million hectares of tropical forest loss between 2016 and 2020 – an area nearly the size of the United Kingdom.

Some of the financial institutions bankrolling this deforestation may be the same ones that you bank or have your mortgage with.

What damaging activities are banks funding?

Our recent investigation showed that since the Paris Climate Agreement, financial institutions in the UK, EU, US, and China have ploughed $157 billion into agribusiness firms linked to tropical deforestation and associated human rights abuses in the climate-critical forests of South-East Asia, Central and West Africa, and Brazil.

The banks financing these destructive agribusinesses include household names like HSBC, JP Morgan, Deutsche Bank, and BNP Paribas. Many of the banks featured in the report have committed to align their investments with the goals of the Paris Climate Agreement and put in place voluntary environmental, no-deforestation and human rights policies.

Our findings reveal how financiers’ public pledges are consistently and repeatedly contradicted by their actual financing decisions as they continue to profit from deforestation and associated abuses, highlighting their hypocrisy and greenwashing.

Tree with orangutan on it being destroyed by a digger
An orangutan faces up to bulldozers in West Borneo where palm oil expansion threatens the great apes' survival. Image from International Animal Rescue.

British banks involved in deforestation

The UK is home to some of the worst offenders.

Our analysis found that British banks and investors made deals worth $16.6 billion (£12.7 billion) between 2016 and 2020 with agribusinesses linked to tropical deforestation, raking in $192 million (£147 million) in revenues along the way. 

High-street bank HSBC is the UK’s biggest financier of deforestation and the second largest privately owned bank in our global dataset after JP Morgan (owner of investment platform Nutmeg). It provided $6.85 billion (£5.25 billion) of financing to some of the world’s worst deforesters - and likely pocketed more than $36.4 million (£27.8 million) in revenues along the way. HSBC received $20.2 million (£15.5 million) of that total income in the years following its public ‘no deforestation’ commitment in 2017.

Barclays, Standard Chartered and NatWest, the next biggest British banks by deal size in our data, bankrolled these firms by an estimated $3.66 billion, $2.94 billion and $568 million respectively. Investment manager Schroders and pension fund Prudential also appear among the culprits. 

We approached all the financial institutions featured for comment and you can find their responses in our full report.

These vast financial flows to forest-wrecking companies are an existential threat to us all. Keeping the world’s forests standing is absolutely crucial to tackling the urgent climate and biodiversity crises we are facing. If deforestation were a country, it would rank third in CO2 emissions, after China and the US. We also know that stopping deforestation is vital to help prevent the spread of future zoonotic diseases like COVID-19. 

Human rights abuses also linked to banks' investments

Deforestation often goes hand in hand with human rights violations against Indigenous Peoples and local communities who are on the frontline of the climate crisis. They depend on forests for their homes, livelihoods and way of life, and have safeguarded them for generations.

Our investigation revealed that top global banks and investors are investing in companies accused of abuses ranging from land grabs to child labour and murder, and are raking in huge sums in the process. This is climate injustice in action. 

What are banks and governments doing to stop deforestation?

Governments and financial institutions are telling us that they are taking measures to stop the destruction of the world’s forests.

The COP26 climate conference in November 2021 saw lots of headline-grabbing announcements on deforestation, including the Glasgow Declaration on Forests and Land Use, which pledged to halt and reverse forestation by 2030. However, this risks being more of the same weak voluntary commitments that have failed to deliver results, following in the footsteps of the similar 2014 New York Declaration of Forests.

The forest commitments at COP26 were also accompanied by almost £14 billion ($19.2 billion) in public and private funding and a welcome promise of increased support for Indigenous Peoples and local communities.

These communities are the guardians of more than one third of the world’s forests and 80% of all terrestrial biodiversity, yet they currently receive less than 1% of global climate finance.

Unfortunately, the funds announced at COP26 are dwarfed by the huge amounts of money we have shown are flowing from the financial sector to companies linked to deforestation and related abuses. 

In Glasgow, 30 asset managers also pledged to eliminate investment in activities linked to deforestation. However, no high-street banks signed up and almost all of the financiers featured in our recent report as significant sources of financing for deforestation financing were conspicuous by their absence.

Those that did make this commitment have given themselves until 2025 to tackle deforestation, allowing them three to four more years to fund destruction with no questions asked. Even after 2025, there will be no consequences if they fail to deliver on their promises. Many banks already made and failed to meet previous zero net deforestation targets by 2020, under the Soft Commodities Compact.

Ultimately, voluntary pledges by financiers are doomed to fail if they aren’t backed by regulation. The only thing that will stop banks and investors financing deforestation is if governments make it illegal for them to do so.

Soya bean harvesting in Brazil
Harvesting soya in Brazil

Is regulation needed?

Pressure is growing to rein in deforestation finance through regulation. In the UK for example, cross-party MPs and Peers, together with NGOs like Global Witness and affected communities in forest-rich countries, called for the finance sector to be included in new deforestation rules as part of the Environment Bill.

So far, the UK government has not heeded these calls, rejecting the amendments tabled to cover all UK-based businesses, including banks and investors. 

If global leaders are as serious about tackling deforestation as they claimed to be at COP26, they must urgently pass strong laws that stop the finance industry profiting from deforestation and associated human rights abuses and penalise those who continue to do so.

This is particularly crucial in major financial centres like the UK, EU, US and China. Without this accountability, financiers will likely continue to fund and profit from the rampant destruction of the world’s forests and the devastating impacts this has on people and planet.

What can consumers do?

Switching your bank from one that currently finances deforestation to a more ethical bank is an important action consumers can take, especially if you also tell your old bank why you are switching.

We have guides to ethical current accounts, savings accounts, business accounts, mortgages, cash ISAs and more.

We also have a template letter you can use to send to your old bank telling them why you are switching to a more ethical bank.