In this piece:
Robust due diligence is necessary to protect banks and their clients from the regulatory, reputational, and financial risks associated with deforestation and biodiversity loss. In 2021 alone, banks and investors provided $2.6 trillion to companies with the highest exposure to deforestation. Meanwhile, existing guidance is not aligned with a banking business model. In September of 2024, we co-authored the FSDA investor expectations on deforestation for commercial and investment banks to address this gap. More recently, we have used these expectations to conduct baseline assessments of ten emerging market and Asian banks in Colombia (1), Hungary (1), India (2), Indonesia (1), Hong Kong (1), Japan (2), the Philippines (1), and Singapore (1). This information has informed our 2025 engagement outreach. Our initial findings are detailed below.
1. Risk Assessment
Many of the banks we engaged have improved their biodiversity and deforestation risk assessments. The most comprehensive assessments are typically sector-, regional-, or commodity-specific. A Brazilian bank stands out, with a sector-by-sector approach to deforestation risk assessment, as does a Colombian bank with portfolio-wide assessment across credit and project portfolios. The two Japanese banks have conducted biodiversity assessments, and their recent reporting aligns with the Taskforce on Nature-related Financial Disclosures (TNFD).
2. Commitment and Governance
Board—and executive-level oversight of biodiversity and deforestation has become more common. Still, each of the ten banks we engaged lacks a group-level deforestation-free commitment, highlighting the critical need for public, time-bound commitments for banks in emerging markets and beyond.
3. Client Expectations
Biodiversity and deforestation expectations are improving, but often lack important details, like including all value chain actors in deforestation-free production models or financial products that support investment in innovative solutions. While some expectations require specific-commodity level certifications (e.g., palm oil), the legal requirements, such as ISPO or MSPO, are not as stringent as the standards of the voluntary Roundtable on Sustainable Palm Oil (RSPO) certification.
4. Monitoring and compliance
Ongoing client due diligence of deforestation commitments is adequate; however, the details—including the integration of monitoring systems, expectations regarding non-compliance and escalation, and annual client reporting—are evolving. A model approach by one Singaporean bank involves classifying clients by risk and routing them to a dedicated ESG team for enhanced due diligence.
5. Disclosure
All ten banks have disclosed deforestation action plans, but obvious gaps remain in their ability to meet the more detailed FSDA expectations. The FSDA can help fill those gaps by providing detailed implementation instructions.
Boston Common has engaged banks on deforestation, including commodity-specific risks and impacts, since 2005.
This piece is intended as an editorial review of a survey of risk considerations and does not constitute investment advice, a solicitation, or an offer to buy or sell any security. Past performance does not guarantee future results. All investments involve risk, including the risk of loss of principal.
Company developments described in this report occurred during the period of our engagement but should not be assumed to have resulted from Boston Common’s activities. Where we believe our engagement contributed to a development, we describe the basis for that assessment.
References to third-party research, publications, and data sources are provided for informational purposes only. Boston Common Asset Management does not warrant the accuracy or completeness of third-party information cited herein. Readers should consult original sources and qualified professional advisors before making any investment decision.
