Posted on 20 April 2023
A new WWF study demonstrates that global financial institutions continue to be exposed to deforestation, conversion and human rights risks through their portfolios by financing corporate buyers of palm oil that are lagging behind on their sustainability commitments.
The research found that leading financial institutions are providing billions of dollars of finance to buyers of palm oil that only score in the range of 11-14 out of 24 on the WWF Palm Oil Buyers Scorecard. The findings reveal an urgent need for the institutions to develop stronger sector policies and raise expectations towards the companies they finance.
WWF commissioned Profundo, an expert in financial market research to analyse the role financial institutions play in the palm oil sector. The study was conducted using key financial databases like Bloomberg and Refinitiv and public records as well as other credible sources to draw out data around the banks and financial institutions financing palm oil buyers assessed under WWF’s Palm Oil Buyers scorecard (227 companies) as well as 12 other priority palm oil buyers and traders identified by WWF.
Our study found that nearly 285 global financial institutions are among the top 5 creditors or top 5 investors for the corporate buyers of palm oil that participated in the palm oil buyers scorecard in 2021. This new report was based on secondary research and it shows that in the period January 2016 to December 2021, financial institutions provided US$4.4 trillion to the 239 entities who are also buyers of palm oil. During the same period, nearly US$1.5 trillion were allocated to loans and underwriting. In addition, as of April 2022 which is the most recent filing date US$2.9 trillion were held in bonds and shares. Public information does not provide a breakdown to ascertain direct attribution to palm oil supply chains, so the amounts are total financing to the palm oil companies.
Financing for forest-risk commodities is substantial and few banks are exerting their influence on companies despite their environmental, social and governance (ESG) requirements. Although the “loss and damage fund” signed at COP 27 is a welcome step, getting the world on track for net zero emissions by 2050 and delivering on the Paris Agreement goals requires more ambitious actions, finance and stronger commitments. For the financial sector, it means leveraging their power to shift financial flows away from unsustainable activities and towards climate-resilient business models that align with the Paris Agreement, help governments achieve the Sustainable Development Goals, and overall contribute to the preservation and restoration of natural capital.
The study further showed that financial institutions have acknowledged the systemic nature of ESG issues in finance and are working on drafting policies; however, the existing policies need to be more holistic and cover the entire palm oil supply chain in order to be effective. With this research WWF aims to support and work with financial institutions to improve their capacity to engage with palm oil sector clients and portfolio companies over key environmental and social risks in the sector, as well as to support their ability to finance sustainable development in the sector through the creation of innovative green financial solutions.
WWF strongly believes the finance sector, including banks, investors and insurers, has a key role to play in helping companies align their business models with the Sustainable Development Goals and the Paris Agreement – in particular where sustainable sourcing, production and consumption are concerned.
“Net-zero commitments cannot become a reality unless deforestation, biodiversity loss and exploitation are eliminated from supply chains within this decade.” says Kamal Prakash Seth, WWF’s Global Palm Oil Lead.
“Financial institutions have the opportunity to manage this risk by stepping up their efforts to develop and implement strong time-bound ESG policies for their corporate clients and investee companies. Working together to protect our nature and wildlife is not just a moral responsibility for financiers; they are key to creating an enabling environment to facilitate client companies’ efforts on palm oil supply chain sustainability and traceability.
“We invite all stakeholders to work together and collaborate with WWF to tap into finance opportunities that protect and restore natural ecosystems,” Seth concluded.
-- END --
For more information:
Report findings, methodology, and recommendations are available at: https://palmoilscorecard.panda.org/#/financial
Notes to the editors:
WWF Palm Oil Buyers Scorecard (POBS) 2021: The scorecard assessed a total of 227 major retailers, consumer goods manufacturers and hospitality companies on their commitments and actions in favour of a sustainable palm oil industry. The companies were scored out of 24 based on a set number of criteria. The 2021 edition of the scorecard was the most global to date, with companies headquartered across five continents — Europe, North America, Asia, Africa and Australia — and encompassing many prominent brands. Scorecard findings, methodology and recommendations are available at: palmoilscorecard.panda.org/
Prachi Jadhav, Manager, Communications and Advocacy, WWF-Singapore, email@example.com
Yi Hui Woo, Executive, WWF-Singapore, firstname.lastname@example.org