Deforestation, land conversion and financial crime - mitigating the financial industry's risk exposure.

Deforestation and land conversion are a serious global concern.

Tropical forests and ecosystems, particularly in the Amazon, Congo Basin, and Southeast Asia, have experienced considerable levels of deforestation and land degradation in recent decades. Indeed, estimates from the Food and Agriculture Organisation of the UN indicate that around 420 million hectares of forest were lost through deforestation between 1990 and 2020.

The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Deforestation and land conversion – a change in the primary use of land (for example, from forest, savannah or grassland to agricultural use or infrastructure) - have significant social and environmental impacts globally. They are serious contributors to climate change (with estimates that as much as 15-20%) of global carbon emissions come from degraded forests) as well as loss of biodiversity and wildlife.

Deforestation and land conversion also severely impact local communities, often going hand-in-hand with human rights abuses, health issues, loss of livelihoods and displacement, particularly across indigenous and local communities. In doing so, they undermine sustainable development and contribute to local conflict.

The most important driver of deforestation and land conversion is the global demand for high-value agricultural commodities such as palm oil, soy, cocoa, coffee, timber, rubber wood and cattle, as well as for hard commodities like minerals and energy resources.

Linkages with criminal groups

The co-opting of these sectors by illegal enterprises and transnational criminal groups is also, unfortunately, all too commonplace, with these actors taking advantage of corrupt systems, inadequate land protection and lax regulatory oversight to convert land. As such, financial institutions with links to these commodities or high-risk regions – for example, through trade finance or correspondent banking – may also be exposing themselves, directly or indirectly, to financial crime risks.

Only once financial institutions understand the typologies and practices used to undertake these activities can they ensure they are not financing them or exposing themselves to associated risks, while developing capacity to report suspicious activities to law enforcement authorities.

A new toolkit for deforestation and land conversion financial crime risks

As part of this, Themis and WWF UK are working on a project to produce a Deforestation and Land Conversion-Linked Financial Crimes Toolkit, to be launched at COP29 next year. Similar in structure to the Illegal Wildlife Trade Toolkit already developed by Themis with WWF for the UK Government’s Serious and Organised Crime Network, this Deforestation and Land Conversion Toolkit aims to provide financial institutions with a free-to-use knowledge resource, tools and methodology needed to identify their direct and indirect exposure to deforestation risks across commodity supply chains and monitor transactions potentially connected to these crimes.

A survey for financial institutions

By answering this short survey you can help us with this important project to better understand the links between deforestation and financial crime as they relate to financial institutions. Answers will remain strictly anonymous. The findings of this survey will form the basis of a research report - the first stage of this project - which will be launched this year at COP28. We would especially love to hear from you if you are a risk and compliance professional in a bank or an insurance firm.

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