Uncovered: Businesses Linked to Deforestation Loans and Solutions for Investors to Interact
In the first quarter of 2025, a staggering $62bn of debt was issued by companies linked to deforestation risks. As we move forward, key players such as Amazon, Shell, Target, PepsiCo, and GSK are expected to seek new financing, with their bond issuances maturing within the next three months.
This situation presents an important opportunity for fixed income investors, as bonds nearing maturity offer a chance for engagement. A new report by the Anthropocene Fixed Income Institute (AFII) focuses on the largest corporate bond issuers linked to nature loss and environmental degradation.
The report is part of AFII's new Deforestation Debt Universe, a resource aimed at improving transparency around nature-related risks for fixed income investors. Mars is the largest issuer of such debt, with over $26bn, followed by Johnson & Johnson with $9.2bn and PepsiCo with $3.5bn.
To address deforestation risks in the global food industry, AFII suggests that investors should adopt several key strategies. These include due diligence and disclosure, promoting sustainable forest management, supporting regulatory and market initiatives, and engaging with local communities and social forestry.
Due Diligence and Disclosure: Bondholders should require companies to perform and disclose robust due diligence on their supply chains to ensure products are not linked to deforestation or forest degradation. This aligns with regulations like the EU’s EUDR and Corporate Sustainability Due Diligence Directive, which aim to eliminate deforestation-related products from European markets and promote corporate responsibility in sustainability.
Promoting Sustainable Forest Management: Encouraging investments in and support for sustainable forestry practices—including conservation and peatland restoration—helps reduce deforestation risks. These strategies also enhance carbon sequestration and protect biodiversity, which are vital for reducing the environmental footprint of the food industry.
Supporting Regulatory and Market Initiatives: Bondholders can align their portfolios with companies compliant with emerging regulations such as the EUDR and Sustainable Finance Disclosure Regulation (SFDR), which push for transparency and sustainability in investments.
Engagement with Local Communities and Social Forestry: Supporting initiatives that link environmental conservation with economic development for forest-dependent communities can reduce deforestation drivers by providing alternative livelihoods and boosting sustainable agriculture.
Moreover, AFII advises investors to engage with banks to ensure that their deforestation policies account for risks in the downstream supply chain. Citi, JP Morgan, and Bank of America Securities are identified as banks with partial deforestation policies in place, but with a focus on the upstream value chain. These banks, which are major beneficiaries of bonds associated with deforestation risks, earning syndication fees, should broaden the scope of their policies to include companies involved in the final sale of products.
The coming months are expected to provide key moments for intervention for fixed income investors regarding deforestation-linked debt, as more than $64bn of deforestation-linked debt is due to mature in the second and third quarters of the year. However, it's worth noting that many companies, including Amazon, Shell, GSK, Target, BASF, L'Oréal, PepsiCo, and Home Depot, do not currently disclose their full deforestation footprints.
In conclusion, by integrating these strategies, bondholders can mitigate financial and reputational risks associated with deforestation in the food sector and contribute to global sustainability goals. The AFII's Deforestation Debt Universe aims to equip investors with the necessary tools to make informed decisions and drive positive change in the market.
- Recognizing the approaching maturity of significant deforestation-linked debt in the second and third quarters of 2025, investors can engage with companies like Amazon, Shell, GSK, Target, and PepsiCo in an effort to improve their transparency regarding deforestation footprints, aligning with strategies outlined in the AFII's Deforestation Debt Universe.
- To contribute to global sustainability goals and minimize financial risks associated with deforestation in the environmental science sector, fixed-income investors need to integrate strategies such as due diligence and disclosure, promoting sustainable forest management, supporting regulatory and market initiatives, and engaging with local communities and social forestry, as suggested by the Anthropocene Fixed Income Institute (AFII).
