Don't Miss the Forest for the Trees

I still remember the day hell’s fires swept through the skies of San Francisco.

It was like someone had plunged a dagger right into the heart of my beloved city, and the air, drenched in crimson and orange and grey, knew only to weep tears of ash in its wake. It was September of 2020 and a record-dry wildfire season had Northern California engulfed in flames. Our beautiful forests were burning by the minute. And along with them, belongings, livelihoods and life itself.

The thing is – as vividly as that particular morning’s now burned into my memory – that singular incident wasn’t a one-off thing at all. It was part of an entire chain of events. One linked directly to climate change and triggered by human activity across the planet. Dystopian and nightmarish though it was, that day was significant for a reason.

It was a wake-up call.

What happened was a prime example of how seemingly unrelated events are in fact all deeply interconnected, both through nature’s own complex ecological systems as well as our increasingly globalized society. Researchers now know that one of the key factors that set the stage for such extreme wildfires in California was the intentional destruction of trees occurring in the Amazon rainforest an entire continent away: deforestation.

Let’s take a step back for a moment.  

Deforestation is the clearing or thinning of forests by humans that is then converted to non-forest use. It’s the second largest contributor to climate change today (Deforestation and forest degradation are responsible for 15% of total greenhouse gas emissions). Tropical forests alone hold over 230 gigatons of carbon. When they are cut, burned or otherwise removed they emit carbon instead of absorbing it. And unless we change our current trajectory, this and other GHG-emitting activities could result in devastating physical damage and economic losses that will negatively impact investors and communities worldwide.

The Amazon is one of the world’s largest rainforests, a key hotspot of biodiversity, and the source of one of the world’s largest aerial rivers (which transports water vapor into the atmosphere). Through its complex tree and vegetation systems, the Amazon is critically important in creating, recycling and distributing moisture across South and North America. Everyday it pumps and generates water vapor that gets redistributed across far-reaching regions in the form of rainfall –  providing ecological services that support life, food production, and water integrity.

For California, continual deforestation in the Amazon and other rainforests resulted in lower rainfall levels and subsequently lower underground water storage. Meaning less resilience to desertification, drought, and fire. Simply put, the Amazon acts as a critical buffer against climate disasters in California. And that’s only one example.

Mother Nature is suffering from a staggering amount of damage dealt in the name of short-term profit and driven by a growing demand for commercial agriculture, livestock grazing, and settlement. Vast swatches of tropical forest are destroyed every day to pave the way for commodities like beef, palm oil and soybeans. These destructive patterns of behaviour only serve to fuel the flames of the climate crisis.  

While rates of deforestation have decreased since the 1990s, we’re still losing roughly 30 soccer fields worth of trees every. single. minute. For context, the world has now lost 2 billion hectares or one-third of its total forest – an area twice the size of the United States. Half of this loss took place in the last century alone.

So what does this tell us?

One. We’re not as far removed from these issues as we might think, whether it’s our actions producing a ripple effect elsewhere in the world or vice versa.

Two. The long-term consequences of our shortsighted decisions are catching up to us – and it’s quickly becoming apparent that humanity is running out of time.

Yet deforestation is nothing new.

Humans have depended on forests for food, fiber, and fuel all throughout history. The problem is that in our globalized and overpopulated world, these ancient forests can no longer replenish their resources quickly enough to sustain the current rate of human consumption. They’re collapsing under the weight of our demands.

This poses its own set of issues for investors.

Climate change is a grave systemic risk that could potentially trigger the disruption of entire industries, particularly for those who operate global supply chains and are directly exposed to the negative impacts of deforestation. According to Ceres, “Identifying investments in sectors that are sourcing high-risk commodities is a key first step in assessing portfolio-wide exposure to deforestation risk. Palm oil, soybeans, beef and timber are the most common commodities discussed in association with deforestation, but there are many other commodities that may be produced on deforestation land including leather, rubber, wood pulp for paper, cocoa and coffee.”

Beyond climate change, deforestation also poses material risks that can negatively affect a company’s bottom line – especially if their products aren’t sustainably sourced. Short term consequences involve potential regulatory action, loss of market access and loss of customers. Long term consequences include potential supply chain disruptions and increased production costs.

Seeing the bigger picture begs the question – is all of this ecological and economical harm we’re perpetuating really worth it? Because who we choose to invest in and where we choose to buy from impacts the world around us in a very tangible way.

And it’s happening right now.

The California wildfires weren't an isolated event. Neither was East Africa’s massive locust swarms (2019), Australia’s devastating bushfire crisis (2020), Southeast Asia’s deadly flash floods (2021), or even the COVID 19 pandemic that has left our societies and the global economy in turmoil. All of these are merely symptoms of a much larger issue, the root cause of which centers squarely on our unsustainable ways of doing business.

Scientists are sounding the alarm that 17% of the Amazon rainforest has now been destroyed. If that number tips past 20-25% the entire ecosystem faces collapse. Same goes for the tropical forests across Southeast Asia, where foreign demand for commodity-driven deforestation is threatening the environment in countries like Indonesia and Malaysia.

At the end of the day, we depend on forests for our survival.

Everything from the air we breathe, to the timber we use, to the plants we rely on to develop medicines and cures. Forests provide rich habitats for animals and livelihoods for humans. They act as carbon sinks for the planet, prevent soil erosion and mitigate climate change.

The research think tank Carnegie Europe puts it well: “We often call the Amazon the lungs of the earth by virtue of its oxygen production. But it is also one of the beating hearts of the planet, pumping and distributing blood – fresh water – to other organs. If we weaken its function as a water pump, land dies, releasing further carbon dioxide and warming our global climate. The more temperatures rise, the more fires we get, locking us into a vicious cycle of our own making.”  We simply cannot avoid the catastrophic consequences of climate change without eliminating deforestation.

Imagine what would happen if the world lost its ability to breathe?

It’s important to remember that every stakeholder on this planet plays a role in shaping our collective outcome. The root system of a single tree can stretch for miles, quietly taking hold deep beneath the surface of the earth, long before anyone ever sees its first budding young shoots breaking through the soil. Like nurturing a young tree, we plant the seeds of the future through our actions today – no matter how small they may seem. Just because we may not see immediate results when striving for change, doesn’t mean we’re not laying the groundwork and planting the seeds for a better tomorrow.

A growing number of investors are acknowledging the multitude of risks associated with deforestation. They and the general public are demanding stronger action to mitigate them. We’re seeing broader recognition that the impacts of problems like deforestation and biodiversity loss are no longer confined to the environment. It represents a significant economic risk that we simply cannot ignore.

The good news?

This pivotal moment in time is an opportunity for investors to use their influence as shareholders of their portfolio companies. They are in a position to work with companies to eliminate commodity driven deforestation, and can positively impact climate change at scale by doing so. On the economic front, the sooner investors engage with their companies, the more successfully they’ll be able to mitigate risks while strengthening the impacts of their investments.

A healthy planet and a healthy society requires nurturing, support, and time to grow, just like a forest. We need to prioritize these issues if we wish to thrive. If we wish for our children and grandchildren and great-grandchildren to thrive. As humans we tend to get so mired in our desire for gratification that we risk losing sight of what truly matters.

But it bears repeating that everything is connected.

There is no running away. If 2020 has taught us anything, it’s that life as we know it could be uprooted at any moment. And we need to act now. At a time when all that we hold dear is hanging on the line, I can only implore you once more: We have the power to effect change. Let’s not wait until it’s too late.

We can no longer afford to miss the forest for the trees.