Since SEI and Global Canopy launched Trase in 2016, it has brought a new level of transparency to the trade in agricultural commodities driving tropical deforestation. But the global financing of this trade – worth hundreds of billions of dollars – has remained opaque.
This has been a major barrier to action. To overcome it SEI, Global Canopy and software and data consultants Neural Alpha have developed a groundbreaking new data initiative, Trase Finance, which brings unprecedented transparency to the financing of tropical deforestation.
A risk check for financial institutions
The Trase Finance tool – which, like the rest of the work of Trase will be open source – will be launched in the summer. See the preview and stay updated.
Trase Finance draws on more than 30 disparate data sources – including Trase’s unique deforestation risk data, along with data on company ownership and legal structures, tax registrations, and a wide range of capital-raising mechanisms – to show financial institutions how they could be exposed to tropical deforestation in their portfolios. It will also help civil society and governments to hold to account those failing to act.
Surfacing risk exposure
The new Trase Finance preview page features three examples of the kinds of insights that the team will be regularly publishing, with more to come in the weeks ahead.
For example, it shows how Trase Finance can assess the direct risk exposure associated with financing commodity traders. The preview page zeroes in on Minerva, one of Brazil’s big three meatpackers. At least a third of Minerva’s gross revenue is from its Brazilian beef exports, which were linked to 10,900 ha of deforestation risk – and almost 3.4 million tons of CO2 emissions risk – from the expansion of cattle pasture in 2017. Using Trase Finance it is possible to assess how Minerva’s shareholders are exposed to this deforestation. These include major global investors that currently have no deforestation commitments, such as Morgan Stanley (4.94%), Vanguard (2.21%) and BlackRock (0.4%), as well as financial institutions that have publicly recognized deforestation risk as an issue, including BNP Paribas (2.26%), BNY Mellon (a signatory to the Soft Commodities Compact; 0.78%), and Robeco (0.39%). Some of these shareholders are already actively engaged in improving sustainability practices
Trase Finance will also allow users to identify institutional investors’ and lenders’ exposure to indirect deforestation risk through regional banks. For example, Malayan Bank (Maybank) has assisted over 90 south-east Asian companies in all parts of the palm oil supply chain, mostly in Malaysia and Indonesia. Over the past five years Maybank has provided at least $386m to three trading companies in Indonesia whose palm oil exports were associated with 26,000 ha of oil palm-associated deforestation in 2015 alone. Trase Finance identifies the shareholders and debtholders in Maybank that have indirect exposure to this risk.
Early warning for ESG funds
Trase Finance can shed new light on macro trends that are shaping the environmental, social and governance (ESG) investing landscape. This can help avoid emerging risks and identify opportunities for positive action. One such risk comes from the rapid increase in passive ESG investments. Take the example of PT Sawit Sumbermas Sarana (SSMS), an Indonesian palm oil producer, which Trase Finance data show is significantly exposed to oil palm-driven deforestation in Indonesia. The share of passive exchange-traded fund shareholders in SSMS increased from just 5% to 57% between 2014 and 2020, while mutual fund holders declined from 95% to 42% over the same period. If passive investors are simply replacing active asset management as it divests from higher-risk companies, then countless investors are in effect sleepwalking into deforestation risk.
Because it builds on the unique deforestation-risk data provided by Trase, Trase Finance is highly scalable across additional commodities and countries of production – meaning that in time it will cover the majority of trade in soft commodities linked to deforestation and to associated environmental and social impacts.
“Countless investors could be sleepwalking into deforestation risk”
The tool is currently being used as part of an early-adopter programme by banks, asset managers and civil society organizations, and is already helping to underpin independent initiatives working on transparency of the financing of deforestation-risk commodities.
Learn more about Trase Finance’s unique capabilities, and sign up for further insights and updates in the weeks leading up to launch this summer.