Why the UK Will Struggle to Fulfil its COP26 Commitments on Deforestation

Few pundits are calling COP26 a roaring success. The UK has in theory managed to ‘keep 1.5C alive’, but only just. Notwithstanding some key achievements – such as the first-ever reference to phasing down fossil fuels in a COP declaration – the world remains on track for a 2.4C temperature rise by the end of this century. And that is only if all countries actually follow through on their conference pledges.

Taking stock in Parliament, Boris Johnson acknowledged pledges made at COP26 must now be ‘delivered not diluted’. In particular, the prime minister touted the Glasgow Leaders’ Declaration on Forests and Land Use as one of COP26’s greatest achievements. Some 141 countries – accounting for around 90% of global forest cover – are now united in an agreement to halt and reverse deforestation and land degradation by 2030.

Low-income, high-biodiversity countries will be supported in this aim through a new Global Forest Finance Pledge, which will see donors provide $12 billion over the next five years to protect forests, peatlands and other critical carbon stores. The UK alone will contribute at least $1.5 billion to that collective pot, building on its complementary promise to halt and reverse all biodiversity loss by 2030 under the G7 Nature Compact signed this June. Published in March 2021, the Integrated Review makes tackling climate change and biodiversity loss the UK’s number one international security priority.

All eyes are now on the UK to deliver on these anti-deforestation ambitions. Enter the Environment Act.

The Long-awaited Environment Act

After a bruising three-year battle to pass the bill, the Environment Act finally received Royal Assent during COP26’s closing throes on 11 November 2021. Among a suite of measures, the text provides new primary legislation that makes it illegal for UK businesses to trade in certain ‘forest risk’ commodities – namely cocoa, rubber, soya and palm oil – if they have not been produced in line with local laws protecting forests and other natural ecosystems.

Although laws already exist to prohibit all trade in illegally felled timber, this is the UK’s attempt to criminalise trade in agricultural goods produced on illegally cleared land. Large UK businesses will now be required to undertake due diligence to show their supply chain is free from illegal deforestation.

Non-compliant businesses will face fines, with the option of criminal prosecution where sanctions are not considered a sufficient disincentive. In an open letter published in October 2020, 21 big businesses including Nestlé, Unilever, McDonalds and Tesco publicly supported the then-Environment Bill, stressing the importance of creating a ‘level playing field’ through industry-wide, non-negotiable due diligence standards.

The UK’s impact on global deforestation is significant. Although the country is a relatively small consumer of raw forest-risk commodities, it imports a significant quantity of food and animal feed from high-risk countries. More importantly, the UK financial sector is heavily implicated in bankrolling the industries responsible for such deforestation, particularly agribusinesses. Over 50% of global deforestation and land conversion is the result of commercial agriculture and forestry.

In theory, then, the Environment Act is central to executing the UK’s G7 and COP26 commitments. In practice, however, two critical flaws stand in the way of the country achieving its anti-deforestation pledge: namely, the refusal to define what constitutes illegal deforestation in UK law, and the decision not to extend deforestation provisions to the UK financial sector.

The Failure to Define Deforestation

Of foremost concern is that the Environment Act does not establish a working definition of illegal deforestation in UK law. Instead, the text only asks companies to avoid what constitutes illegal deforestation in producer countries, thereby leaving anti-deforestation standards to the prerogative of other states.

In October 2021, Environment Minister Zac Goldsmith told a House of Lords sub-committee that ‘[t]here are some highly forested, low-deforestation countries we are incredibly grateful to, but we can’t take that for granted, because any change in regime could easily change that equation … there is always going to be a sword hanging over them’.

The risks acknowledged by Goldsmith are well evidenced in Indonesia and Brazil. Just hours after Indonesia joined the Glasgow Declaration, Environment Minister Siti Nurbaya Bakar called the deal ‘clearly inappropriate and unfair … The massive development of President Jokowi’s era must not stop in the name of carbon emissions or in the name of deforestation’. Indonesia’s parliament passed a controversial job-creation bill in October 2020, despite an open letter from a coalition of 35 global investors responsible for $4.1 trillion in assets warning that the act would lead to devastating biodiversity loss. Indonesia’s rate of deforestation has slowed in recent years, but the country still lost 285,300 acres of forest cover in 2020, an area the size of Los Angeles.

In Brazil, meanwhile, climate change-sceptic President Jair Bolsonaro has presided over an unprecedented roll-back of environmental law since 2019. Just days after he vowed to increase spending to tackle deforestation in April 2021, he instituted significant cuts in funding to the environment ministry. Satellite imagery analysed this week suggests Amazon deforestation rates are the highest they have been in a decade. Around 80% of deforestation in the region has been linked to agriculture, principally cattle ranching and soy production.

In this way and others, the UK’s approach is much weaker than the European Commission’s proposed anti-deforestation law – a first draft of which was shared in late November – which will introduce an EU-wide definition of what constitutes illegal deforestation. Specifically, all companies trading in beef, soy, palm oil, coffee, cacao and timber will be required to show they were not produced on any land deforested or degraded after 31 December 2020, even if the goods were produced in accordance with local law in the producing country. Soon, the Commission will introduce an even broader legislative proposal for non-commodity-specific Mandatory Environmental and Human Rights Due Diligence, which threatens to leave the UK even further behind.

Leaving the Financial Sector Unrestrained

The Environment Act’s second major weakness is that it does not extend to the financial sector, despite its role in funding businesses engaged in the wholesale destruction of climate-critical forests. The decision not to address finance in the law ran against recommendations made by the government’s own Global Resource Initiative Taskforce in March last year, as well as vocal support across civil society and the political spectrum. The Glasgow Declaration asks parties to ‘facilitate the alignment of financial flows with international goals to reverse forest loss and degradation’.

A 2021 analysis conducted by Global Witness shows that UK banks channelled over £900 million into over 300 major companies trading in forest-risk commodities in 2020. Earlier, in 2019, the NGO unveiled evidence showing the UK to be the single-largest provider of international credit and investment in six agribusiness companies involved in, or closely linked to, deforestation between 2013–2019, equating to over £5 billion in financing during that time.

Nor does the problem solely rest with the banks. A May 2021 report by the NGO Feedback found that the Parliamentary Contributory Pension Fund holds major investments in various global meat and dairy companies, including £8 million in JBS, a Brazilian company known for its role in deforestation. In November this year, 130 MPs signed a cross-party letter calling for the fund to divest from fossil fuel companies to ‘ensure that our pensions are not funding climate disaster’.

The government’s excuse for omitting the financial sector is that such provisions are captured under the Green Finance Strategy, Net Zero Strategy and related instruments such as the Taskforce for Climate-related Financial Disclosures (TCFD). The TCFD’s requirement that companies disclose climate-related risks and opportunities will become mandatory across the UK economy by 2025, with over 1,300 of the biggest UK-registered companies and financial institutions obliged to do so from April 2022. Reporting such risks is not the same as addressing them, however.

As it stands, the EU’s draft anti-deforestation law – which still needs to be approved by national governments and the European Parliament – relies on similar arguments for failing to include the financial sector too. A separate Global Witness investigation published in October 2021 suggests EU lenders have made an estimated $455 million on around $34.7 billion worth of deals with top deforesters since 2016. Such loans were principally financed by big banks from the Netherlands, France, Spain, Germany and Italy. It is not too late for the EU to avoid replicating the UK’s mistake in its own anti-deforestation law.

Outdated Already?

The Environment Act has finally been passed, but on deforestation, its flaws leave little room for celebration. Attention instead turns to secondary legislation to plug the gaps. The reality is that until the financial sector is brought into the fold, the UK will remain a net contributor to global deforestation.

Prioritising efforts to end deforestation is not just a global good. It is an essential component of addressing the UK’s self-proclaimed number one security priority: climate change and biodiversity loss.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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