Forest IQ and Trase help investors implement TNFD - Insights

Forest IQ provides financial institutions with information on how more than 2,000 companies manage risks associated with deforestation. It uses open data from Trase, Forest 500, SPOTT and the Roundtable on Sustainable Palm Oil, as well as offering a paid-for model with additional licensed data from CDP, financial identifiers and a bespoke interface. Its three core metrics on exposure, materiality and performance provide a simple and practical high-level company risk benchmark on deforestation.

Forest IQ helps financial institutions implement the recommendations for nature-related risk management and disclosure by the Taskforce on Nature-related Financial Disclosures (TNFD), a business initiative supported by government, WWF and Global Canopy. Almost 130 financial institutions with US$17.7 trillion in assets have signed up as TNFD adopters, signalling their commitment to getting started with voluntary reporting. A new report by consultancy Frontierra shows how four financial institutions – Robeco, Schroders, Federated Hermes and Storebrand – have used Forest IQ.

The TNFD recommends that companies and financial institutions identify and assess their nature-related issues using its LEAP approach (Locate, Evaluate, Assess and Prepare). Forest IQ provides data on commodity-driven deforestation that is useful in each phase of the process:

Locate the interface with nature

Financial institutions should identify the location of their assets, which includes sectors or companies that have operations or supply chains that interact with nature. Forest IQ helps financial institutions to screen their portfolios for exposure to companies and sectors linked to key forest-risk commodities such as beef, leather, rubber, paper and pulp, timber, palm oil and soy. The platform can also identify the countries where commodities are sourced, helping to provide an indication of the potential impacts associated with that commodity.

Evaluate dependencies and impacts on nature

Financial institutions should then identify and assess the scale and scope of their nature-related dependencies, and impacts of their activities and value chains. Forest IQ’s metrics on exposure, materiality and reported performance help institutions to evaluate the scale, scope, severity and materiality of a company’s impacts and dependencies, and the effectiveness of its sustainability measures.

Assess nature-related risks and opportunities

Having identified their nature-related dependencies and impacts, institutions should evaluate the associated risks and opportunities and how these can be mitigated, managed and disclosed. Forest IQ allows financial institutions to assess companies’ risk-management strategies and identify any gaps, such as a lack of reporting on actions taken following policy-setting, helping to inform their engagement strategies.

Prepare to respond and report

The final phase focuses on identifying the resources, strategies and mechanisms required to implement the identified action, monitor implementation and disclose in line with the TNFD. The insights provided by Forest IQ help financial institutions to develop strategies that effectively manage their risks and opportunities through transparent annual public disclosures on deforestation exposure.

Federated Hermes assesses the exposure of its investments to commodity-driven deforestation focusing on palm oil, soy, cattle products, timber, and paper and pulp to identify which are most at risk. These assessments are primarily undertaken using Forest IQ. Following the identification of high-risk companies, Federated Hermes conducts enhanced due diligence in some instances and aims to engage with those considered to be at greatest risk and/or have limited transparency. It reports annually on its assessment of commodity-driven deforestation risk and mitigation activities across its portfolios.

Deforestation poses a real threat to long-term value creation. Asset managers need to factor in these risks or face financial, regulatory and reputational fallout. We expect companies to act – implement traceable, sustainable supply chains and report transparently – because protecting forests isn’t just about the planet, it’s smart business.

Federated Hermes

Storebrand Asset Management originally developed a portfolio screening methodology in 2020 based on the Forest 500 and Trase and now uses Forest IQ. Storebrand views the key benefits of Forest IQ as having all the data in a consolidated dataset with metrics built around exposure and financial materiality, in addition to scores based on company commitment and reporting. As part of its risk assessment process, Storebrand uses Forest IQ as an indication of the quality of a company’s commitments, reporting and the quantity of commodities that they source. Forest IQ also helps it determine which companies to engage with, what aspects to engage on, and to compare between companies. Storebrand reports annually on these activities through its sustainable investment reviews

Ending deforestation and degradation of natural ecosystems is essential to meeting global climate and nature goals. As a long-term investor, we are concerned about the impacts of forest loss on the global economy as well as on people and nature, and we aim to use our influence to advocate for business practices that protect and restore forests.

Storebrand Asset Management

Download the report: Forest IQ: A Gateway to TNFD Adoption, a study by Frontierra for the Zoological Society of London

Visit Forest IQ for further information