Politics is failing to protect the Amazon. It's time for finance to step up instead

Global investors issued a stark warning to politicians at COP24, the 2018 United Nations climate summit in Poland. Companies with a combined investment portfolio of $32 trillion demanded that countries scale up efforts to phase out fossil fuels as soon as possible. In addition to energy, forests are another crisis point in the battle to contain carbon dioxide emissions. Yet much less is known about investment flows to companies operating in, for example, the Amazon rainforest.

Recent news from Brazil is alarming. After decades of political progress to slow the destruction of the Amazon rainforest, the latest data shows that deforestation is on the rise once again. Incoming Brazilian president Jair Bolsonaro has signalled a merger of the agriculture and environment ministries, as well as relaxed environmental law enforcement. In a recent interview in O Globo, his proposed agricultural minister Tereza Cristina confirmed that an area roughly equivalent to France will be opened up for land conversion.

These are all extremely worrying signs for the Amazon. But given the escalating concerns of climate change and rampant carbon emissions, can we afford to pay attention to just one regional rainforest? Shouldn’t all our efforts be focused on reducing climate impact?

Yes, they should. But caring about what happens to the Amazon is essential for fighting dangerous climate change. In fact, as we make clear in a new report directed at the finance sector, destroying the Amazon represents an important yet under-reported global systemic risk. Its rainforest is one of several regions on the planet identified as “tipping elements” in the climate system. These have the ability to "tip", turning from a friend to a foe – from storing carbon to becoming major emitters.

The combined effects of massive deforestation and climate change look set to dry out the Amazon, degrading it from a rich, wet rainforest to a fire-prone savannah with severely limited capacities to store carbon. In the worst case, such a shift could set in motion a domino effect that researchers believe could push warming outside human control, even if we drastically rein in emissions from energy, industry and transport.

Unfortunately, recent estimates show that the Amazon tipping point may be nearer than first estimated. Combined with climate change, the tipping point may be reached when 20-25% of the area has been deforested, according to estimates by two leading Amazon experts.

We are already now approaching 20% deforestation of the Amazon basin. Any policies that threaten to aggravate this are a real and present danger for our climate. Anyone who wants to avoid a dangerously hot planet should be just as concerned about bolstering the resilience of the Amazon as they should be about reducing emissions elsewhere.

So what can the international community can do? As Jonas Ebbesson, Professor of Environmental Law at Stockholm University has observed, increased deforestation in the Brazilian Amazon may lead to violations of international law. Apart from the obvious bad faith for the Paris Agreement, these include violations of the rights of indigenous communities under international human rights law, violations of the 1992 Convention in Biodiversity, and violations of the international principle of “no harm”. But when legal and political systems fail, markets and private actors have a responsibility to step up.

In the first instance, economic activities associated with deforestation in the Amazon, such as soy and beef production, are to a large extent dependent on access to world markets and the appetite of international consumers. Companies and consumers can use their purchasing power to signal that products associated with any Amazonian deforestation will be viewed as a major liability. But complex and opaque supply chains are a major barrier to action, so transparency and traceability initiatives should be of the highest priority.

Another strong lever can be found in the provision of capital and in ownership of stocks in companies operating in sectors that contribute to climate and environmental change in the Amazon. These economic activities are dependent on the capital provided by creditors and owners. We have spent the last two years mapping capital transfers via tax havens into economic sectors in the Amazon, as well as tracing ownership by large financial institutions, to identify new levers of influence. We have shown that financial giants in Europe and the US could use their power to help steer the future of the Amazon in ways that safeguard the stability of the climate system. Such strong signalling is already noted among major investors such as pension funds and insurance companies divesting from fossil fuels.

Failing to meet this challenge could generate major systemic risks for these universal owners. With great power comes great responsibility. The financial sector is no exception to the rule.

To view the full report and supporting research, visit SleepingGiants.Earth