Dozens of bond issuers in the food, paper and mining value chains are exposed to deforestation, according to a thinktank that advocates greener investment.

To draw attention to the risk it suggests is latent in liquid credit portfolios, the Anthropocene Fixed Income Institute (AFII) has launched an open-access product dubbed the Representative Deforestation Credit Portfolio (RDCP).

The portfolio identifies the 35 companies most affected by deforestation and nature loss as a starting point for asset managers and asset owners checking their fixed income funds, according to AFII founder Ulf Erlandsson.

“The RDCP is intended as a prod and a poke to get financial institutions to set to work on deforestation risk,” he says.

The think tank’s assessments are partly informed by the possible impact on the financial performance of some issuers of a new EU deforestation rule that applies from December 2024 .

Although one or two financial research tools on deforestation already exist, the AFII thinks its portfolio is the first to single out the potential impact of deforestation on fixed income funds.

“To our knowledge, there are currently no corporate fixed income indices designed to explicitly track financial performance of companies most exposed to deforestation risk in their supply chains,” says Erlandsson.

One product already available is the Coller Fairr Protein Producer Index, which assesses 60 global meat, dairy and aquaculture companies. However, this focuses on 10 ESG themes in listed companies.

In addition, a research methodology that targets deforestation was published last year by Norwegian asset manager Storebrand, but this is aimed at all types of investors. A collaboration between Sweden’s AP2 and Climate & Company is focused on listed equities.

How the portfolio was built

The AFII developed the RDCP for the benefit of bond investors, providing a unique insight into a group of issuers from developed and emerging markets in specific value chains. Erlandsson emphasises its usefulness to asset owners and other financial market players too.

Ulf Erlandsson

“There may not be any correlation between financial performance and deforestation for some time” 

Ulf Erlandsson, founder of AFII

To build the portfolio, the researchers drew from a universe of 177 companies from eight sectors to identify key market players for target commodities, especially soy, cattle and leather.

These industries included retail, supermarkets, food and beverage, paper, metals and mining, consumer cyclical services, restaurants, and other industrial or consumer products.

Filtering on the basis of relevance (for instance, a soy producer has a more direct effect on deforestation than a retailer); public commitments and transparency; and financial consequences of a significant exposure to deforestation risk, the researchers assigned a score to individual companies.

This generated the final group of bonds in the RDCP. The analysis was obtained using three sources – corporate disclosures to nonprofit CDP; Forest 500, a list of companies most exposed to deforestation; and Trase Finance, a provider of primary data from sources such as satellites.


Over time, the RDCP will track against credit derivative indices, from which it did not significantly diverge at its launch.

“There may not be any correlation between financial performance and deforestation for some time,” admits Erlandsson. However, the portfolio should be seen as a “watchtower”, he says.

He adds: “Once things start happening we can start to ask ourselves, is there a relevance to deforestation exposure?” 

At present, it is difficult to link rainforest logging, for example, to individual corporate procurement, because of low transparency in commodities markets. However, a new EU rule, the Regulation on Deforestation-free products, forces action on this issue.

The regulation states that any operator or trader who places specific commodities or products derived from them on the EU market, or exports from it, must prove that the products have not contributed to forest degradation or deforestation. Large and medium-sized companies have to comply with this requirement from December 2024.

This regulation alone creates a material risk to investors in these sectors, the AFII suggests. This is because the EU may restrict access to its markets by some soy producers and may impose heavy fines.

Although such risks are not reflected in credit ratings at present, the think tank urges investors to review their funds now because deforestation could drive a pricing adjustment.

At the UN COP26 on climate change in Glasgow in November 2021, more than 30 financial institutions, including pension funds, committed to use best efforts to eliminate commodity-driven deforestation from their investment and lending portfolios by 2025.

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