Deforestation is not only a global environmental problem that requires strong action. It is also a risky activity to support financially. This is true across all categories of asset owners and managers in the United States and globally.
Investors may not realize that they are supporting deforestation. Despite recent progress, a continued lack of transparency in sectors most at risk of illegal forest clearing, such as cattle, oil palm, soy and timber, means that investors may not know the extent of their exposure to material financial risks from deforestation through companies they invest in. This does not inoculate them, however, from the financial impacts they incur when these material risks are realized. Investors should therefore take these risks seriously.
One specific material risk worthy of examination is legal risk. Not all deforestation is illegal, but the scale of illegal logging is vast – between $50 and $150 billion per year according to Interpol. While companies engaged in the forest, food and land sector should act in accordance with the law, asset owners and managers cannot assume that is always the case. One potential consequence is exposure to legal action for producers involved in forest crime, companies who interact with these producers in their supply chains, or the financiers and investors who support these activities financially.
These legal risks include major environmental laws, such as the U.S. Lacey Act or Endangered Species Act. However, they also go far beyond, to include major U.S. laws not specifically addressing environmental concerns. This report looks at the most applicable laws where perpetrators or enablers of forest crime could be legally vulnerable. Investors should understand these broad legal risks so they can ask more of the companies they invest in, before it is too late.
Download the full report here: Legal Risks to Investors from Forest Crime