- With investment in at-risk forest companies on the rise, a lack of data means investors are struggling to monitor deforestation.
- But a growing number of start-ups are offering solutions, using tech like satellite monitoring systems to gather data on deforestation and biodiversity loss.
- Capital Monitor analyses these start-up and investor solutions, exploring how far technology can provide the key to biodiversity loss.
In the brief moments between waking and leaving your house for work, you’ll likely be in contact with items connected to deforestation. Shampoo, the soy milk in a latte, and even the leather on your car seats: all can be linked to the knotty supply chain of deforestation-linked consumption.
Although the end consumer bears the final responsibility for the impact on biodiversity, the financial institutions supporting the companies that extract natural resources have a huge influence. Institutional investors such as BlackRock and Vanguard are the fourth and fifth-biggest investors in commodities driving deforestation and land degradation in Southeast Asia, Central and West Africa, and Latin America, according to the latest assessment from Forests & Finance, a coalition of campaign and research organisations.
Concentrated within a few regions, deforestation is a global issue with implications that extend beyond biodiversity loss: the removal of carbon dioxide in the atmosphere by maintaining tree numbers must accompany emissions reductions to limit global temperature rises to 1.5°C above pre-industrial levels
The data deficit
As Capital Monitor has previously pointed out, investor action around UN Sustainable Development Goal (SDG) 15 – Life on Land – is slow, but it is gathering momentum. With the establishment of Nature Action 100, a World Bank initiative to drive growth within biodiversity financing, and the addition of 18 new asset managers to the Finance for Biodiversity Pledge in May this year, influential investors are clearly taking the issue seriously.
But pledges alone won’t cut it. It is notoriously difficult to quantify both the risks and opportunities of biodiversity loss without a standardised measurement system. Investors - both asset owners and allocators - cite a lack of data as the biggest barrier to tackling natural capital, as the value of various facets of the environment and its owners remains unclear, according to 2021 research conducted by Responsible Investor and Credit Suisse (see chart below).
While investors face a mammoth task in gathering appropriate data on this issue, the potential it could unlock is huge. A 2021 report from consultants McKinsey claims that "natural climate solutions" (NCS), including avoided deforestation, could provide almost one-third of total emission reduction targets for a 1.5°C above pre-industrial levels pathway. That’s 7Gt of carbon dioxide.
The potential of forest tech
To facilitate such solutions, the report recommends investors "embrace technologies that help unlock NCS potential", such as tree-planting technologies, or software that will enable investors to monitor deforestation in their supply chains.
By employing monitoring software, investors can trace deforestation to its root rather than rely on companies to disclose their exposure to deforestation, which many could not do because they do not know. Some at-risk deforestation companies have already started to use such technology to monitor their own supply chains. Beef conglomerates Marfrig and Minerva last year began trialling Visipec, an "add-on satellite traceability tool", developed by the National Wildlife Federation and software development company AVP for their industry.
In the start-up space, a combination of technological development and growing investor awareness of SDG 15 is providing fertile ground for the nascent yet rapidly growing sector of forest tech firms.
At the end of last year, Actiam, a Dutch asset management company with €57.2bn ($67.9bn) in assets under management, announced it was leading an engagement programme to push companies to end deforestation within their supply chains. In collaboration with nine other investors representing around $2.2trn in assets, Actiam is attempting to enhance corporate traceability by employing the services of start-up Satelligence, which uses optical satellite images to provide companies with data on deforestation risk in their portfolios.
Arjan Ruijis, senior responsible investment officer at Actiam, says: “Satelligence has made a method to delineate whether deforestation can be linked to a certain company, and that was very innovative, very new, and it’s data that we are missing.”
Satelligence processes open-source radar and optical satellite images, focused on tropical areas related to commodity production in West Africa and South America. This enables it to trace deforestation downstream, tacking the journey of a tree from the rainforest all the way to Satelligence’s own clients, which include a car manufacturer and a handful of financial institutions.
Satelligence director Arjen Vrielink tells Capital Monitor that up until recently demand for such services has been reactive: “If a company gets bad press, or accusations of using illegally or unsustainably produced palm oil, it has no idea where to look or what to do. This is now changing – before they get accused they want to know what's going on and do something about the situation.”
For each investor, Satelligence assigns a probability of deforestation risk to the companies in its portfolios based on how much of the land that client owns, as well as using temporal information to predict deforestation trends.
Such engagements are expected to last two to four years, and investors like Actiam are still in the process of gathering and vetting the data. Although the tool is proving useful, Ruijis says it has yet to influence the allocation of investors’ assets. However, Actiam is confident investors will be able to develop more granular targets for companies, and either divest or carry out a more focused engagement, depending on how responsive the companies are to the feedback.
Another start-up tackling biodiversity loss with investor support is Green Praxis, which secured $200,000 in seed funding in April this year. It attempts to monitor the balance of ecosystems in degraded natural environments by combining geographical data, satellite images and topography with field data to create a comprehensive representation of biotic conditions.
Since 2016, ten satellite monitoring forestry start-ups have been launched, with a total of $55m in funding, $35.5m of which came in from 2020 onwards, according to data provider Dealroom. Of that $55m, $40m went to one company: SeeTree. It was founded by Israeli intelligence officers and uses technology including military-powered drones, satellites and sensors to provide farmers around the world with information tracking the health and productivity of trees.
Although positive, the above technologies have received criticism due to privacy and accountability concerns. In a recent Greenpeace report, Visipec was flagged as having the potential to "undermine public scrutiny and corporate accountability" because it specifically states its monitoring tool is not openly available and "will not give NGOs any new information on potential non-compliance issues".
A local approach to deforestation
One investor combining local engagement with new technologies in its plans to tackle deforestation is Robeco, which last month published a framework for engaging with countries such as Brazil on deforestation, and has also partnered with Satelligence.
Peter van der Werf, Robeco’s senior manager of engagement and active ownership, tells Capital Monitor: “New technologies like those used by Satelligence will be key… ultimately, this sort of data enables a global monitoring system that the companies and investors can tap into, but also shows investors the value of ecosystem services that biodiversity delivers.”
There's also a key role for local and national governments here, which is why Robeco has also started to work more with sovereign engagement. Peter van der Werf, Robeco
Van der Werf adds: “There's also a key role for local and national governments here, which is why Robeco has also started to work more with sovereign engagement; for instance, with the government of Brazil since last year, as members of the investor policy dialogue on deforestation.”
Blended finance against deforestation
Another mechanism investors can use to impact deforestation at a local level is blended finance, a combination of private and public investment. Take Mirova’s Land Degradation Neutrality (LDN) Fund. Promoted by the United Nations Convention to Combat Desertification, the fund announced $208m in investor commitments on 2 July.
Mirova – Natixis Investment Managers’ affiliate sustainability-focused fund manager – was launched in 2017, and its fund will use public money to raise private capital for sustainable land-use projects, such as the establishment of sustainable business models for coffee and cocoa in Latin America, or sustainable forestry projects in Asia and Africa.
In what it claims as a first of its kind, the new fund will channel capital through local financial institutions and intermediaries. Public institutions like the European Investment Bank, institutional investors such as Fondaction and insurer BNP Paribas Cardif, and partners including the Rockefeller Foundation and the French government, supported its initial design.
This broad coalition of investors demonstrates a growing public and private interest in financing natural capital solutions, which will be increasingly important given the gravity and breadth of deforestation and biodiversity loss.