Forest management I Lombard Odier

Forests are a vital element of our planetary health.

Yet over the past thirty years we have destroyed 420 million hectares of forest – an area the size of India and Egypt combined – and degraded many more. At the current rate of loss it is estimated that within a century tropical rainforests could disappear altogether. Without effective forest management we risk exacerbating climate change and biodiversity loss.

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breaking point.

Nearly one quarter of the world’s land area remains as forest. In addition to their carbon sequestering capacity – forests absorb one and a half times more carbon than the USA emits each year – they provide many other ecosystems services, supporting 80% of all terrestrial plant and animal species, controlling floods, preventing soil erosion, cleaning our air and water, and balancing precipitation and water cycles. Many millions of people directly depend on these services – over one third of the world’s cities rely on drinking water from forested areas, and forests provide livelihoods to 86 million people.

Despite this, forest degradation continues apace. Every year a further 5 million hectares of forest are lost, with 95% of that destruction occurring in tropical regions, whose forests play a central role in climate regulation.

From 2020-2021 the Brazilian Amazon rainforest lost more than 10,000 km², the region’s highest annual loss for a decade. According to the latest IPCC climate report this loss is decreasing the Amazon’s capacity to create rainfall and withstand drought, and could cause the region to shift from tropical biome to grassland.

Forest degradation also poses a direct climate threat in the form of carbon emissions. As ground is disturbed, and trees are burned or felled, carbon that may have been stored for many centuries is released. Such is the rate of forest loss across all tropical regions that if tropical deforestation were a country it would be the third largest carbon emitter in the world.

If tropical deforestation were a country, it would rank third in CO₂emissions

Forest degradation is one of the nine planetary boundaries. These are the boundaries that define the safe operating space for life on earth where humanity can continue to develop and thrive. Thus, maintaining the health of our forests is believed to be key to preserving climate balance.

5mn

hectares of trees lost globally every year –
an area the size of Costa Rica

15%

of carbon footprint of average EU diet comes
from food linked to deforestation

33%

of tree species at risk of extinction

a global response.

At 2021’s COP26 summit, over 100 world leaders, representing countries that are home to 85% of the world’s forests, pledged to halt and even reverse deforestation by 2030. Where similar previous pledges have failed – notably the 2014 New York Declaration on Forests, which was followed by an increase in forest degradation – there are signs that it could be different this time. Significantly, the COP26 Declaration on Forests and Land Use was accompanied by funding – USD 14 billion from both the public and private spheres; a commitment from a further 28 nations to ensure that commodities trade does not contribute to deforestation; and corporate commitments from 30 major financial institutions to end their exposure to forest-risk commodities by 2025.

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outside pressure - rethinking AFOLU.

To meet the COP26 pledge of reversing deforestation by 2030 we believe we must reduce agricultural land-use pressure by changing the way we produce, consume and distribute food. In short, we must make more with less.

Production

Precision farming can increase yields through what is known as “sustainable intensification”. Drones, GPS systems and sensors target resources according to conditions, so as to maximise efficiency. Regenerative farming practices can boost soil productivity.

Consumption

Diets will change. We will see a shift away from traditional meat and towards alternative protein sources that require less land – aquaculture, lab-grown meat, microorganism and insect-based proteins will all play their part. Livestock numbers will reduce, as will land given over to growing crops for feed.

Distribution

Innovations in delivery and storage will reduce food waste. Almost one third of all food produced goes to waste – better data sharing and AI-based demand projection models will enable more even distribution and reduce over-ordering.

85%

of the world’s forests covered by the COP26
pledge on forest management

30%

of emissions reduction needed by 2030
can be provided by forests

50%

reduction in deforestation and related emissions can be achieved by replacing just one-fifth of beef consumption with microbial protein

managing forests.

Better forest management will play a key role in the transition to a CLIC^® economy. Forest-risk business models will transform and demand patterns will change, as value is found in protecting rather than degrading our vital forests.

Our convictions:

Sector transformations will reduce land-use pressure on our forests. Food systems will become more efficient. Material extraction will reduce as we re-use and recycle more. Energy systems will de-carbonise, limiting the need for oil.

New laws will change the regulatory landscape. In Europe, the new Deforestation Regulation aims to curb forest degradation by requiring EU companies that deal in forest-risk commodities to ensure they are “deforestation-free”. A similar law has been enacted in the UK. As these take effect, companies in producer countries will be forced to provide greater detail and transparency in relation to their land-use.

Pressure from consumers and industry will continue to grow. Some efforts are already well-established – including the Forest Positive Campaign from the Consumer Goods Forum and the LEAF Coalition, which has already mobilised USD 1 billion in financing to protect tropical forests.

Technological innovations will aid better forest management. Satellite technology, long-used to monitor land-use change, will provide ever greater detail on how forests are changing, and predict where forest degradation is most likely to take place. Listening devices will combine with AI models to detect the sound of illegal activity at distance and direct responses on the ground. Autonomous drones will be used to “plant forests from the sky,” dropping specially designed seed pods to reforest native species at speed.

our approach.

The transition to a CLIC^® economy is one of the greatest challenges of our time. Identifying those companies that embrace this challenge by transforming their operations, supply chains, and product design, in order to preserve rather than degrade forests, is key for managing portfolios exposed to forest-risk and for driving positive change. We believe the winners will see gains in market share and risk reduction across multiple avenues, while those failing to adapt will find themselves fighting regulation and changing consumer sentiment. Despite growing momentum nearly three quarters of the world’s most influential 350 companies with links to deforestation in their supply chains and investments do not have deforestation commitments that cover all their forest-risk commodities, and one third have no deforestation commitments at all.

Number of companies that have and have not made deforestation-related commitments, by commodity (2020)

Through our in-house expertise and work with the University of Oxford we evaluate the forest-risk exposure of portfolio companies to create an income-weighted forest management score. This assesses company policies both in theory and as applied in practice, evaluates exposure to forest-risk controversies, and incorporates geographical proximity to sensitive, biodiverse regions.

In often remote and inaccessible regions the true nature of supply chains can be hard to ascertain. To minimise the risk of inaccurate or incomplete company disclosures we apply a geospatial approach to land-use monitoring, using satellite imagery and a machine-learning model developed in collaboration with the University of Oxford, to better understand whether companies are meeting their commitments.

We believe that sustainable investing is the way to generate long-term returns and grow our clients’ wealth in perpetuity.

We aim to target the opportunities presented by the transition to a CLIC® economy, investing in companies whose products and services harness the regenerative power of nature, driving better forest management and helping to restore our planetary boundaries

our expertise.

where we are.

Our heritage is Swiss, yet our outlook and mind set are resolutely international. With over 25 offices globally, we are able to serve our clients all over the world.

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forest management.

let's talk.

breaking point.

If tropical deforestation were a country, it would rank third in CO2 emissions

a global response.

listen to our podcast on tropical deforestation.

agricultural insights.

sign up to our newsletter.

outside pressure - rethinking AFOLU.

Production

Consumption

Distribution

managing forests.

our approach.

Number of companies that have and have not made deforestation-related commitments, by commodity (2020)

our expertise.

where we are.

get in touch.

sign up to our newsletter.

let’s talk.

let’s talk.

let's talk.

share.

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If tropical deforestation were a country, it would rank third in CO₂emissions