We depend on forests for countless environmental, social, and economic services including clean air, a stable climate, food, and biodiversity. Around the world, indigenous peoples and local communities directly depend on forests for their livelihoods.

Despite their valuable but difficult-to-price services, forests around the world are threatened by industrial use, largely as a result of production of four commodities: palm oil, beef, soy, and timber.

Investors and companies have been slow to recognize the value forests provide to climate stabilization, biodiversity, and the well-being of local communities. Total forest loss, particularly in the tropics, is so high that it may be close to a planetary boundary and irreversible tipping point.

Investors can divest from companies that cause deforestation or other forest-harming practices; request that companies halt deforestation in their supply chains; encourage companies to be better stewards of forests through reforestation, biodiversity conservation, and sustainable development; and develop and share best practices with peers in the investment community.

During 2019, Domini undertook two major steps to strengthen our commitment to forests: We revised our Key Performance Indicators (KPIs) and mapped our forest work to the UN Sustainable Development Goals (SDGs).

In addition, we continued to engage with companies, policymakers, NGOs, and other investors to advocate for sustainable forestry practices. You can read more about this work in our Q2 2020 Impact Update. 

This year, as part of our focus on forests, we evaluated our KPIs and other standards. We analyzed our entire library of proprietary KPIs, assessing those we currently had related to forests, timber, and forest-risk commodities and where we lacked formal guidance. We then adopted new indicators to better capture risks related to deforestation and to help us better identify companies that have a positive impact on forests.

During this process we first identified the different degrees and types of exposure certain industries faced with respect to the systemic risks related to forests. These assessments were largely based on how directly linked their business model is to forest products, other ecosystem services provided by forests, and deforestation. We then calculated the percentage of our portfolio companies that fell into each of the four types of linkage: direct, indirect, macro and broad.  

As a result of our analysis, we adopted 24 new additions and modifications to our proprietary KPIs to better capture risks related to deforestation and to help us better identify companies that have a positive impact on forests. Many focused on the impacts of agriculture and forest-risk commodities, which were part of our consideration in our research and decision-making, but not formally noted. Our indicators not only aim to highlight the risks present when companies take insufficient action on deforestation, such as controversies within its supply chain, but also include solution oriented indicators, such as programs to provide and promote alternatives to soy, beef, palm, and strong timber supply chain management. For example, while we considered food sourcing issues across industries such as Hospitality or Food, Staples and Retailing, we had not codified promotion and sales of alternatives to deforestation-linked products as a positive indicator.

Given the global importance of forests, these strengthened indicators help to enhance our research process and ensure that forests have an appropriate representation in our company evaluations.

In 2015, United Nations member states universally adopted the 2030 Agenda for Sustainable Development, an aspirational plan to spread peace and prosperity around the globe. The Agenda is organized around 17 Sustainable Development Goals (SDGs), which have been widely embraced by governments and civil society organizations, as well as a growing number of companies and investors.

We identified the explicit or implicit impact of forests in seven of the seventeen SDGs.

Through the application of our Impact Investment Standards, we believe we can build SDG-aligned portfolios that support the strength and resiliency of our forests as well as many other social, environmental and financial systems.

For example, The Domini Impact Bond Fund is invested in a green bond issued by The Conservation Fund, a nonprofit dedicated to protecting land and water resources in the United States through land acquisition, sustainable community and economic development, and leadership training. The Conservation Fund’s Green Bond Framework includes land conservation and working forest protection as eligible green projects. The green bond purchased by the Domini Impact Bond Fund was issued to help increase the scale of the “Working Forest Fund,” with proceeds dedicated to mitigating climate change, strengthening rural economies and protecting natural ecosystems.

We seek to avoid investments that support businesses or practices that are significant drivers of deforestation, such as industrial agriculture. Instead, we seek forward-looking investments that promote the protection and preservation of natural ecosystems, including businesses that have positive impacts on forests, biodiversity, and wildlife. By working with companies and issuers in our portfolios to foster forest health, we believe we can strengthen the ability of forests to continue serving as a pillar of the global economy and as key part of the foundation of healthy communities worldwide.