The World Business Council for Sustainable Development (WBCSD) has released practical guidance for financial institutions (FIs) on how to integrate deforestation into reporting, helping them improve transparency on material risks. Devised by the Forest Finance Risk Consortium – co-launched by the US Department of State and led by the WBCSD – the guide sets out four steps to include deforestation in organisations’ climate- and nature-related financial disclosure and climate transition plans. The document also provides an overview of the current climate- and nature-linked disclosure landscape, of ways to carry out deforestation-specific disclosure, and of how to integrate deforestation risk into voluntary and mandatory frameworks. Additionally, it discusses the role that nature-based solutions – such as avoided deforestation and restoration – can play in reducing climate-related physical risks and emissions. Deforestation and land-use changes are responsible for 30% of global biodiversity loss and are the main driver of global CO2 emissions from the agriculture, forestry and other land-use sectors, the report noted. “As both regulations and risk management expectations require increasing action to limit, FIs face a myriad of risks from exposure to companies linked to deforestation, including to their reputation and portfolio performance,” said Diane Holdorf, WBCSD’s Executive Vice President. Regulators are increasingly requiring climate-related disclosure from FIs, with nature-related disclosure expected to follow the same path. More than 130 banks and 315 asset managers have committed to net zero targets, but only few FIs disclose deforestation risks in their portfolios – just 13% did so through disclosure platform CDP in 2023. The WBCSD attributed this to scattered data and guidance on assessing and managing deforestation risks, and a lack of clarity on calculating financed emissions for land-use change. “However, this is set to change in 2025 with the Deforestation-free Finance Platform from WBCSD and Global Canopy, and the GHG Protocol’s Land and Removals Guidance from WBCSD and the World Resources Institute,” it said. Training on the guidance will be provided on 14 November.

The number of companies, cities and regions with net zero commitments has increased by 23%, 8% and 28% respectively since June 2023. This is according to the latest update issued by Net Zero Tracker – a database tracking net zero commitments made by nations, states and regions, cities and major companies. Despite this progress, more than 40% of major non-state and subnational actors are yet to set emission reduction targets. Though the amount of companies with net zero targets meeting all minimum levels of integrity has increased by 63%, the absolute number remains low – just 61 out of 1,145 assessed companies. “Halving global emissions by 2030 and reaching a resilient net zero future by 2050 requires an all-of-society approach,” said Razan Al Mubarak, UN Climate Change High-level Champion for COP28. “We need to scale up policies and regulations, enhance systems of accountability, and ensure that nature and inclusion are centred in a just transition.” Last week, Generation Investment Management (GIM) published its eighth ‘Sustainability Trends’ report, noting that political pressure and “woke capital” attacks over the past two years have contributed to reductions of capital allocated to sustainable investing. The financial services industry has also pulled back from such commitments. “Year after year, the world has increased the number and types of solutions available to solve the climate crisis,” said Al Gore, Chairman and Founding Partner of GIM. “But leaders across government and business have all too frequently failed to match ingenuity with action.” Nonetheless, GIM pointed to the rapid growth of renewable electricity capacity globally, arguing that a step-change is needed to ensure significant grid upgrades are financed and assured to “harness the wave of low-cost solar and wind”. Elsewhere, PwC’s 2024 Net Zero Economy Index estimated the required annual rate of decarbonisation to limit global warming to 1.5°C by 2050 at 20.4% – although no Group of 20 country has achieved an annual rate higher than 11.5% since 2000. 

Global real estate assets are exposed to an estimated US$559 billion in growing climate-related risks, according to data provider S&P Global Sustainable1 and Singapore-based long-term investor GIC. In a new report, they explored the projected economic cost of climate hazards on companies in the S&P Global REIT Index, as well as adaptation opportunities that could help to mitigate risk. The index consists of 416 constituents with a total market capitalisation of US$1.7 trillion and real-estate asset value of US$2.3 trillion as of July. The findings showed that the projected costs of changing climate physical risk exposure could reach 28% of the latter value by 2050 under a medium-high climate change scenario. Global demand for climate adaptation solutions, such as green or cool roofs and wet and dry floodproofing adaptation measures in non-residential real estate, could reach approximately US$29 billion annually by 2050, totalling US$726 billion. With the right policy support and timely development, such adaptation measures could however offset physical hazard costs by US$3.55 and US$7.45 respectively, for every dollar invested. “Climate change is driving changes in the frequency, intensity, and patterns of extreme weather events globally, placing economies and communities at increasing risk,” said Rick Lord, Head of Climate Methodology at S&P Global Sustainable1. “Leveraging advances in climate science and modelling can help decision-makers to better understand their future exposure to the physical risks of climate change, and to plan for adaptation to new climatic conditions.” As climate change increasingly impacts the real economy and the value of assets, understanding and quantifying the financial impact of climate physical risks is becoming critical for investors, insisted Wong De Rui, Senior Vice President in GIC’s Sustainability Office. “Existing analytical tools are nascent and often omit the mitigating effects of adaptation,” he said. “This report aims to catalyse further discussion in this space by incorporating adaptation measures into impact analysis to better reflect operating realities on the ground and uncover potential upside opportunities.”