A new report uncovers hidden deforestation risks in Wales’ public pension investments — and a critical opportunity for change.
Over 2 years ago, Size of Wales attended the UN COP climate summit in Glasgow, where over 140 countries pledged to halt and reverse deforestation by 2030. The Welsh Government also pledged to reduce and, hopefully, eliminate Wales’ global deforestation footprint. As we approach COP29, what progress has been made to ensure Wales is addressing its global deforestation footprint driven by Welsh imports and investments?
Size of Wales and Global Canopy have launched a report into Wales’ public pension exposure to global deforestation. The report is the first of its kind in the UK and examines how the eight Local Government Pension Schemes in Wales, under the umbrella of the Wales Pension Partnership, are exposed to deforestation risk through their financing activities, such as investments and holdings. It reveals that nearly £10 billion, or 54% of the investments made by the eight Welsh public pension funds, are at risk of financing deforestation.
The pension fund with the greatest proportion of its clients/holdings in high-risk sectors is Dyfed, with 15% of its investments in high-risk clients/holdings.
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If deforestation were a country, it would be the third highest greenhouse gas emitter in the world. Given deforestation is a critical driver of climate change, net zero targets cannot be met without action on this issue. Home to 80% of the world’s life on land, forests are crucial to maintaining biodiversity. Although we are seeing some positive signs of progress, in 2023, nearly 4 million hectares of tropical forest were destroyed — an area nearly twice the size of Wales.
Deforestation is also frequently preceded or accompanied by human rights abuses, including threats and violence against Indigenous Peoples, forests, land, and human rights defenders at the frontlines of deforestation. Our partners in Brazil, the Guarani People, have been displaced off their lands for large-scale soy plantations.
[…] nearly £10 billion, or 54% of the investments made by the eight Welsh public pension funds, are at risk of financing deforestation.
This has had a serious impact on their livelihoods and culture, and has caused devastating deforestation of the Atlantic Forest, a key global biome. Worryingly, pesticides sprayed on crops are harmful to their health, with many classified as extremely or highly toxic, linked to chronic diseases such as cancer and fetal malformation, and are banned in the EU.
The Guarani call on Wales and countries around the world to act to ensure that investments in pension funds are not driving the destruction of their home in the Atlantic forest. We must believe that the world can be different.
So Welsh public pension funds are not only exposed to deforestation risk through the sectors and industries they invest in, but also human rights abuses. As a result, they have a unique ability to help drive change, both within their own investments and across the finance sector more broadly.
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Pensions are supposed to provide security for our future but, as the research reveals, their substantial level of exposure to deforestation is putting the future at risk. Nearly £1 in every £10 of investments made by the eight pension funds are at a high risk of financing deforestation. This is equivalent to £1.8 billion across the partnership. A further 44% of investments are in clients or holdings that are likely exposed to deforestation risk.
The pension funds in the Wales Pension Partnership are invested in thousands of companies across hundreds of sectors, including those which are key drivers of deforestation, conversion, and associated human rights abuses. This includes diversified banks, the clothing sector, pharmaceuticals, packaged foods and meats, and metals.
Welsh public pensions should act to eliminate commodity-driven deforestation from their financial portfolios. The UN has stated that this needs to happen by 2025 to achieve net zero by 2050. Although 2025 is drawing closer, there is enough time for Welsh public pensions to lead the way in the UK, by working towards eliminating deforestation, conversion, and the associated human rights abuses.
The Well-being of Future Generations Act requires public bodies, including national government, local government and health boards in Wales to meaningfully consider the long-term impact of their decisions and to work towards improving the economic, social, environmental and cultural well-being of Wales.
One of the first things a pension fund can do is to understand how they might be exposed to deforestation risk through their financing activities.
One of the seven well-being goals calls for Wales to be a ‘Globally Responsible Nation’. This is to ensure that Wales has a positive global impacts from any actions taken here which aim to improve the economic, social, environmental, and cultural well-being of the nation. I would argue for us to truly be a globally responsible nation, we need to look at pension investments and ensure that £1 in every £10 of public pension investments is not at a high risk of financing deforestation.
The wealth of guidance and data available means that it has never been easier for pensions to act. One of the first things a pension fund can do is to understand how they might be exposed to deforestation risk through their financing activities. From there, they can set a strong deforestation policy, committing to ensure that their investments will be free from deforestation, ideally by 2025. If progress is not made, and finance needs to be redirected, this redirected finance should align with the Wellbeing of Future Generations Act.
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As part of our nation’s journey to becoming globally responsible, the right financial decisions must be made to enable future generations to thrive. We have seen some actions already, with Swansea City and County pension fund channelling more of its wealth into green investments and hoping to reach a “net zero” position by 2037. The Wales Pension Partnership has also launched a Sustainable Active Equity Sub-Fund, which includes explicit net zero targets and excludes investments in palm oil. But further action needs to be taken to drive investment away from being linked to deforestation – nature’s best solution to the climate crisis. By engaging their asset managers or directly with their clients/holdings, pension funds can require the clients/holdings they invest in to improve their practices with a time-bound threat of redirection of finance – driving real change on the ground.
I hope that one day we can truly call ourselves a Globally Responsible Nation, where investments contribute towards sustainable futures here and globally, and where that investment doesn’t put that future at risk.
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