CDP Warns Insurers Face US$279bn Forest Degradation Exposure

The acceleration of global deforestation in 2024 could present growing financial and risk management challenges for the insurance sector, as new analysis reveals the scale of potential exposures linked to forest degradation.

According to CDP, 6.7 million hectares of primary rainforest were lost in 2024, representing an 80% rise from 2023 and releasing 3.1 gigatons of greenhouse gases into the atmosphere.

The financial implications of forest-related risks could total US$279bn, with companies averaging US$338m in potential exposures, according to CDP's analysis.

The report, 'Blind Spots on the Balance Sheet: Uncovering Financial Implications of Deforestation', suggests that comprehensive dependency, impact, risk and opportunity assessments could underpin effective action to address these vulnerabilities.

Quantifying forest value exposure

The economic significance of global forests extends far beyond traditional valuations. According to Boston Consulting Group's (BCG) 2020 research, global forests could be worth US$150tn, nearly double the value of global stock markets. The World Resources Institute (WRI) states that standing and intact forests absorb an average of 14.4 gigatons of CO₂e annually across roughly four billion hectares of land worldwide.

However, these natural assets face mounting pressures. According to WRI, agricultural expansion drove 33% of deforestation and forest degradation from 2001 to 2024, followed by wildfires and logging.

BCG estimates that global forest value could fall roughly 30% by 2050 if major threats are not addressed, potentially increasing risks across insured portfolios.

Risk assessment gaps persist

Despite clear financial dependence on commodities driving deforestation, less than half of substantive forest-related risks reported by companies have quantified financial effects, according to CDP.

While 827 companies identified over 1,200 substantive forest-related risks, fewer than half have quantified the financial impacts of these exposures.

The knowledge gap extends into the financial services sector itself. Financial institutions managing US$30tn in assets reported they do not know whether they finance or insure companies with operations in commodity value chains, according to CDP.

This uncertainty could present significant challenges for underwriters attempting to price climate-related exposures accurately.

Corporate mitigation strategies emerging

Some businesses are working to reduce their negative impact on forests through targeted initiatives.

PepsiCo is a founding member of the Consumer Goods Forum's Forest Positive Coalition to drive deforestation and conversion out of key commodities, striving toward deforestation-free sourcing by 2025 and deforestation- and conversion-free sourcing by 2030 for high-risk commodities.

Jim Andrew, Chief Sustainability Officer at PepsiCo, says on LinkedIn: "PepsiCo has long recognised that to end deforestation in key commodity supply chains, we have to work beyond our individual supply chain and engage deeply in collaborative efforts.

"That collective action can bring an amplified impact across our entire industry and in the landscapes where commodities are produced."

Tesco has rolled out LEAF Marque certification across all UK fruit and veg growers and is rolling it out to global suppliers.

This certification requires farms to take a whole business approach to sustainable and climate positive farming, including addressing deforestation.

Ashwin Prasad, UK CEO at Tesco, said: "We're excited to have completed the roll-out of LEAF Marque certification across all our UK grown fruit and veg supply base.

"Reaching this significant milestone was only possible by working in partnership with our suppliers and growers, and it's really encouraging to see environmental improvements already having an impact on farms across the UK.

"As we continue our roll out of the LEAF Marque across our international supply chain, we're calling on the whole of the food industry to join us in implementing consistent, improved environmental standards to ensure the food we eat is produced sustainably around the world."

Bunge has worked with CP Foods to test a traceability platform using blockchain technology to ensure deforestation-free soybeans.

"Adding a layer of blockchain technology improves the transparency in end-to-end traceability that Bunge has been doing for some years," says Rossano de Angelis Jr., Bunge's Vice President of Agribusiness and Country Manager Brazil.

"This ability to increase end-consumer confidence in soy projects is only possible thanks to the robust supplier's socio-environmental verification and monitoring system that we have structured over the last decade, which uniquely positions us to provide the connection of proven sustainable products with markets where the demand for them is increasing." Rossano notes. 

Improvements in dependency, impact, risk and opportunity assessments could provide crucial signals to the financial sector and policymakers on corporate risk management, according to CDP, enabling more informed underwriting decisions and portfolio risk evaluation across the insurance industry.