Matter speaks with Fergus Campbell, Sustainable Finance Advisor at the Zoological Society of London (ZSL), to understand more about their SPOTT initiative, and its significance for investors.
This is the first of new insights series ‘From the Front Lines’, in which we explore expert perspectives from those at the cutting edge of understanding the intersection between companies, planet and society. We will hear from representatives of the sources we work with at Matter, who form the bedrock of how we operate. In this edition, Matter sat down to speak with Fergus Campbell, Sustainable Finance Advisor at the Zoological Society of London (ZSL), to understand more about their SPOTT initiative, and its significance for investors.
Protecting forests is key to curbing climate change
The link between deforestation as a key driver of both biodiversity loss and climate change, two of the most pressing issues facing our planet today, is increasingly well understood. This hasn’t stopped deforestation escalating at a rapid rate, however. Primary tropical forest loss in 2020 was 44% greater than in 2014, and the World Resources Institute (WRI) claims that between 2001 and 2020, systematic deforestation was responsible for approximately 8.3 gigatonnes of carbon emissions. To put these numbers in context, the annual global CO2-equivalent emissions in the same period grew from just below 40 gigatonnes in 2001 to around 50 gigatonnes in 2020.
In addition to the direct contribution to increased emissions, deforestation affects our environment in other ways. Thriving forests are essential to societal and planetary wellbeing. They absorb 40% of the world’s greenhouse gas, are a home for vibrant biodiversity, ensure a constant flow of precipitation that moves freshwater across regions, and are a source of livelihoods for 22% of humanity. Protecting forests is therefore essential, with some estimates suggesting that forest protection has the potential to provide 16-30% of the climate change mitigation required to stay within 1.5-2C temperature scenarios.
Companies have a crucial role to play
This is where initiatives like SPOTT come in. SPOTT (Sustainability Policy Transparency Toolkit) was developed by the international conservation charity ZSL – Zoological Society of London. It is a free, online platform aiming to support sustainable commodity production and trade. Started in 2014, assessing a small batch of palm oil companies, today SPOTT annually assesses more than 200 producers, processors, traders and manufacturers in the tropical forestry, palm oil and natural rubber industries – industries that have a substantial impact on tropical forests. Companies are assessed on their public disclosure regarding their organisation, policies and practices against over 100 sector-specific ESG indicators to benchmark their progress over time. Investors and buyers can use SPOTT assessments to inform stakeholder engagement, manage ESG risk and push for more sustainable commodity production.
If we are to tackle deforestation, we first need transparency on the activities of companies in high-deforestation risk activities. As Fergus Campbell, Sustainable Finance Advisor at ZSL explains, “According to the WRI, there are just seven agricultural commodities which are responsible for 26% of the world’s tropical deforestation – palm oil, soy, beef, cocoa, coffee, wood fibre and natural rubber. The growing demand for these products has led to the spread of unsustainable practices as commodity producers bid to supply global markets. Poor practices can result in deforestation and forest degradation, with associated biodiversity loss and climate change impacts. By working to improve transparency in three of these key commodity sectors, we aim to play a meaningful role in addressing this issue.”
Understanding the social impact of deforestation
It is not only the biodiversity and climate change impacts that ZSL is trying to address through its SPOTT assessments, but also the social implications of deforestation on local communities, indigenous peoples and labour. As Campbell explains,“companies in the supply chains of these commodities can be engaged in major social issues, including land grabbing and forced labour. Investors, lenders, and buyers could therefore be inadvertently contributing to these issues unless we improve transparency and accountability around social factors. Financial institutions could also face regulatory, market, and reputational risk from being exposed to such harmful activities. For example, poor community relations can lead to conflict and plantations being abandoned altogether, becoming stranded assets for the company and its financiers. Media coverage and NGO campaigns covering unsustainable practices of companies can also result in reputational damage, potentially impacting a company’s value.”
Despite the risks, deforestation is still playing second fiddle to climate change
Poor forest management practices therefore have the potential to cause immeasurable harm, and they expose investors to a complex web of both environmental and social risk.
Campbell argues that despite this, deforestation and biodiversity are still not receiving the attention they deserve: “The Planetary Boundaries framework identifies biosphere integrity, alongside climate change, as one of the two ‘core’ facets which underpin all life on earth. Despite already having transgressed the biosphere integrity boundary due to human activity, the global conversation is too often centred solely around climate and carbon, perhaps as it is easier to quantify. It is clear that biodiversity should be at the forefront of the global agenda, alongside climate change. Hopefully, with nature having taken a more central role in last year’s COP26, and global biodiversity targets set to come out of the upcoming Convention for Biological Diversity at COP15 in Montreal, this will start to become the norm.”
The role of the financial industry
If biodiversity and deforestation are to receive more attention on the global sustainability agenda, the financial industry has to play its part. At COP26, more than 30 financial institutions, accounting for nearly $9trn in assets, pledged to eliminate commodity-driven deforestation from their portfolios by 2025. According to Capital Monitor, however, only four of these signatories are among the 150 institutions with the biggest influence on the sector. Campbell summarises, “Despite promising signs coming out of COP26, and important initiatives such as the Finance for Biodiversity Pledge and the Taskforce for Nature-Related Financial Disclosures (TNFD) gaining traction, there is still a long way to go for the financial industry in this area and following through on commitments is crucial.”
Achieving a thriving natural world by 2050
ZSL supports the objective of the global economy becoming nature positive by 2030 and to have a thriving natural world by 2050. This means halting the financing of deforestation by 2030 as well, with the finance sector moving to financing global afforestation through nature-based solutions and agroforestry by 2050.
Campbell elaborates, “By 2050, we also hope that supply chains will be more equitable, both to those operating within them and those affected by them, such as Indigenous peoples and local communities. Financiers have a significant role to play in using voting rights and engagement to drive better labour practices and ensure that communities in contact with commodity production receive fair treatment.”
SPOTT’s assessments are a tool for investors to action their commitments on deforestation, and meaningfully contribute to becoming nature positive, and ultimately, to a thriving natural world.
As Campbell explains, “Armed with SPOTT data, Financial Institutions can leverage their financing power to engage proactively with existing forest-risk clients on material ESG issues and target their future investments towards those with the most transparency and strongest policies. FIs can therefore push for best practices across palm oil, natural rubber, and timber and pulp supply chains.”
“Conversely, for risk managers, SPOTT data can be used to understand portfolio risk. By using SPOTT to identify the laggards when it comes to ESG disclosure, risk managers can understand where ‘black spots’ in their portfolios lie and take appropriate action to improve their understanding of underlying environmental and social risks.”
How Matter and ZSL collaborate to cast more light on deforestation in investment portfolios
Matter democratises access to best-in-class insights on deforestation, as well as translating that data to investors in a way that is automated and intuitive. On Matter’s platform, you can upload your portfolio and immediately see the proportion that is flagged for problematic deforestation policies and practice, as well as those leading the way on sustainable commodity supply. This data comes directly from SPOTT.
“Organisations like Matter have a significant role to play in driving responsible financing, through collating data points and providing financial institutions with decision-useful insights from them. Datasets are great sources of ESG information but should not be used in isolation, so platforms like Matter that highlight potential portfolio risks and provide key takeaways for company engagements in an easy-to-use interface are very valuable” says Campbell.
Initiatives like SPOTT are essential in providing investors with the practical tools they need to translate commitments into action, and to realise a nature-positive economy. At Matter, we are committed to continue working with SPOTT and other organisations working to advance our understanding of the intersections between companies, planet, and society.
Fergus Campbell is a Sustainable Finance Advisor at ZSL. As part of ZSL’s Sustainable Business and Finance team, Campbell engages with financial institutions to help ensure that biodiversity is central to financial decision-making. Campbell works on ZSL’s advisory offering for financial institutions, which includes conducting company assessments for biodiversity-linked impact funds, and he also runs their FI training curriculum with sessions on biodiversity integration in finance and ESG issues in soft commodity supply chains.
If you would like to know more about the work of SPOTT, you can visit their website here
If you would like to understand more about how Matter works with expert sources from the fields of civil society, academia, think tanks and beyond, you can read more here