Norwegian pension providers KLP and Storebrand have joined forces with the NGO Rainforest Foundation Norway to produce a guide on how investors can handle financial risks related to deforestation.

KLP, Norway’s main provider of municipal pensions, said firms with exposure to deforestation activity were at significantly increased financial risk, and that the risk of reputational damage, reduced market access and legal sanctions could have a major impact on their returns and their shareholders.

KLP, Storebrand and the Rainforest Foundation Norway commissioned a report from UK-based Hindsight Consultancy entitled: “Deforestation tools assessment and gap analysis: How investors can manage deforestation risk”.

The report includes recommendations for investors, NGOs, ESG data providers and the authorities on how to address the environmental issue.

Jeanett Bergan, head of responsible investment at KLP, said: “Despite growing awareness in the financial sector, investors find it challenging to identify and address risks as a result of deforestation.”

While significant attention had been given to carbon emissions and fossil fuels, she said, there had been far less focus on emissions produced by tropical deforestation.

Bergan said the clearing and burning of forests released greenhouse gases and also reduced the earth’s ability to store carbon. Protecting forests and other natural ecosystems could contribute as much as a third of what is needed to prevent climate change, she said.

The NOK765bn pension fund said the tool gave an overview of existing investor strategies in the field, identifying the data sources, tools and methods currently available for risk analysis and ownership dialogue.

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