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Why forests are essential for a habitable planet

The immediate environmental threats posed by climate change may be rising up on business world agendas, but more urgent action is needed

By: EBR - Posted: Tuesday, March 29, 2022

Research shows that 37% of firms are not including water issues in their investment decisions and 48% are not considering forests.
Research shows that 37% of firms are not including water issues in their investment decisions and 48% are not considering forests.

by Thomas Maddox, Cate Lamb and Amir Sokolowski*

As more and more companies wake up to the urgency of reducing carbon emissions, other pieces of the climate puzzle must not be forgotten. Achieving water security and stopping deforestation are inextricably linked to occupying a ‘habitable’ planet and addressing climate change.

This week, World Water Day and the International Day of Forests remind us of the urgent need to protect these indispensable resources, for people and planet.

These two dates fall in the shadow of the IPCC’s latest climate report that warned 3.5 billion people worldwide are highly vulnerable to climate impacts and that "safeguarding biodiversity and ecosystems is fundamental to climate resilient development”.

Indeed, the IPCC report clearly stated that a broader approach to climate is needed that encompasses the role of ‘nature’ both in terms of mitigation of emissions and in resilience and adaptation to inevitable change.

Why is action on deforestation and water security so important?

Restoring forests, rivers, lakes, aquifers, and streams is essential to stemming the climate crisis as well as protecting both lives from unavoidable effects and livelihoods in the transition.

Half the world’s population already suffers severe water shortages at some point each year and freshwater biodiversity has dropped by a staggering 84% since the 1970s – the largest loss of life anywhere on the planet.

At the same time, over half of the world’s tropical forests worldwide have been destroyed since the 1960s - with more than one hectare of tropical forests being destroyed or drastically degraded every second.

Forests and water landscapes, such as wetlands, not only absorb carbon emissions, but they protect against the worsening impacts of climate change, prevent pollution and soil erosion, support biodiversity, and regulate fresh water supplies.

Furthermore, the process of deforestation is responsible for around 12% of global carbon emissions annually.

Despite this, data suggest that companies are still failing to prioritise deforestation and water alongside climate change. In 2021, over 13,100 companies disclosed to CDP on climate change, compared to 3,370 on water and 865 on forests.

The economics of climate and nature

In 2019, the UK Government commissioned an independent review on ‘the economics of biodiversity’. The Dasgupta report concluded that nature is essential for almost every aspect of our economy. Our economies aren’t external to nature, but are deeply embedded and reliant on healthy, diverse, and prosperous ecosystems.

It’s clear that there are many upsides to working with nature instead of against it. The economic case for investing in water security and nature-based solutions is compelling - research has found that the cost of inaction is greater than the cost of action on both deforestation and water security.

Water risk factors have already stranded assets throughout the coal, energy, metals and mining and oil and gas sectors with the financial sector greatly exposed to stranded assets too.

For companies, the potential financial impacts of water risks are over five times greater than the costs of addressing them.

We need global governments, companies and investors to recognise this and take action to end the dual crises of nature and climate, but research shows that 37% of firms are not including water issues in their investment decisions and 48% are not considering forests.

This is a key action needed from companies and financial institutions, they must start integrating nature into their investment decisions now.

Financial institutions must disclose their impact on water security and deforestation

Critically, the world’s largest publicly listed financial institutions have largely yet to disclose on how they are managing nature risks in their portfolios. CDP is calling for greater transparency from thousands of financial institutions through water and forest disclosure the first request to financial institutions of its kind.

Our future will be dictated by how financial institutions invest and borrow and we urgently need them to begin understanding, reporting and acting on their water and forest risks. In its 2022 disclosure cycle, CDP is asking each of these firms to set targets to reduce impacts across portfolios and loan books.

As we press on to tackle climate change and reach net-zero, the importance of protecting and restoring nature must not be forgotten. Climate change enhances deforestation and exacerbates water risks.

Water issues and deforestation determine the direction of climate change. Governments, companies and financial institutions must wake up to water and forest risks – the time for transformational action is now.

*Global Director for Forests and Land , CDP and Head of Water, CDP and Associate Director for Climate Change, CPD
**first published in: www.weforum.org

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