The forest transition: from risk to resilience

Global Forests Report 2023

You can also download this report in Bahasa (via our Indonesia site), Spanish and Portuguese.

Forests are at the heart of our economy and environmental challenge. Companies and financial institutions stand to lose billions in revenue if they don’t begin managing risks associated with deforestation. In 2022, 60% of all companies disclosing through CDP reported some level of forest-related risks.

The potential financial impact of these risks was an average of $330 million dollars per disclosing company despite the average projected costs of mitigating these being just $17 million dollars per company.

Companies must begin to manage these risks. They, alongside investors, face significant financial loss over the next decade if they fail to do so. Recent analysis suggests that deforestation will be the ‘new coal’ in financial institutions’ portfolios and that exposure to companies driving deforestation will leave them vulnerable to significant financial, regulatory and reputational risks.

In 2022, responding companies were largely based in Europe (296), the US and Canada (312), Asia (263) and Latin America (150). Oceania and Africa saw considerably fewer responding companies (14 and 8 respectively).

European companies tend to perform best across key metrics such as setting targets and engaging with their supply chain, while some Latin American companies stand out for achieving high levels of compliance and monitoring. Meanwhile North American companies perform worst across key metrics and are most exposed to forest-related risks.

Number of companies disclosing per continent

Companies disclosed almost 50 different types of risk drivers across the four main types of risk:

• Physical, which can be further split into acute short term risks (eg floods) and chronic long-term risks brought about by changes in environmental conditions (eg reduced land suitability)
• Reputational
• Technological
• Regulatory

Risk drivers include shifts in consumer preference, negative media coverage and increased severity of extreme weather events.

Companies are also significantly aware of the opportunities that come from managing deforestation such as increased brand value and growing demand for certified materials.

Despite recognizing risks, only a small group of companies claim to be on track to eradicate deforestation.

Natural ecosystems provide the goods and services that people need to survive and thrive, as well as underpin all economic activity. Forests represent one of the most important types of ecosystem and generate a vast wealth of benefits including climate regulation.

Forests store hundreds of gigatonnes of carbon. They also extract roughly 7.6 billion tonnes of CO2e per year – this is equivalent to the USA and EU27’s fossil fuel and industry emissions in 2021. By comparison, forest clearance contributes some 5 to 8 gigatonnes, accounting for over 10% of global greenhouse gas emissions.

As well as regulating the climate and removing greenhouse gas (GHG) emissions from our atmosphere, forests help to:

• supply water;
• control pollution;
• support pollination and heathy soils;
• protect people; and
• provide wood-based products and livelihoods.

Forests are some of the richest biological areas on Earth. Efforts to address nature loss and nature-related risks cannot be accomplished without progress on deforestation. The key driver of deforestation is agriculture, specifically a relatively small number of commodities such as cattle, soy, palm oil and timber. Any companies that produce, trade or process these commodities must take action to eradicate deforestation from their supply chain.

Emissions from tropical deforestation alone account for more than the whole of the EU’s emissions. We simply cannot achieve global climate goals without action on deforestation. 

You can also download this report in Bahasa (via our Indonesia site), Spanish and Portuguese.

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