Sightline: Forests, Climate and a Changing Marketplace (Report 1)

SBTi is a framework and an organization designed to help bankers and businesses reduce their greenhouse gas emissions (GHG) in line with the goals outlined in the Paris Agreement, an international climate treaty aimed at limiting global warming to less than 1.5 degrees Celsius. While the signatories of the Paris Agreement are governments, SBTi lays out a process for individual companies to contribute toward the 1.5-degree goal. First, the company looks at its operations and identifies a climate-related target, along with a related plan to reduce their emissions over time. Then, SBTi reviews and validates the company’s target and plan, if the approach meets an established set of criteria. The SBTi framework also requires public announcement of the target and public reporting on the company’s progress.

In 2022, the US Securities and Exchange Commission (SEC) released a proposal for climate-related disclosures. The proposed law, called Enhancement and Standardization of Climate-Related Disclosures for Investors, focuses on greenhouse gas emissions and climate risks, as well as other ESG metrics related to corporate oversight and a company’s social impacts. Like other ESG frameworks, the reporting rules would apply to an array of companies, including in the forest sector, but would also include provisions related to forests in the context of climate.

According to the SEC Commissioner Caroline Crenshaw, the SEC is following where the market has already moved. ⁶ Many of the largest companies have already set ambitious climate goals and are actively and voluntarily disclosing climate related impact information, based on demand from their investors. However, there is wide inconsistency in how that is happening, which makes fair comparison challenging for investors and the public at large. ⁶

A public consultation on the proposed disclosures ran through November of 2022. While a debate is ongoing in Washington, the SEC’s rules are expected for finalization by the summer.

Also of note is a proposed Federal Supplier Climate Risks and Resilience Rule. Under this rule, Federal contractors receiving more than $50 million in annual contracts would be required to publicly disclose information about GHG emissions and climate-related financial risks, including those potentially related to forests. These contractors would also need to set science-based emissions reduction targets (see the SBTi section).

Europe tends to be a forerunner on sustainability. As a result, many European laws become the baseline for the forest sector globally. In recent months, there have been a set of new developments in Europe that are already driving changes in the United States.

European Union (EU) Deforestation Regulation (EUDR)

To curb the illegal timber trade, the EU Timber Regulation (EUTR) came into effect in 2013 to prohibit placing illegal wood on the European Union (EU) marketplace. In late 2022, the EU reached agreement to replace EUTR with a new, broader EU Deforestation Regulation (EUDR) that would cover a wide array of commodities that may lead to deforestation including timber products but also coffee, palm oil, beef, and cocoa. The law includes measures like GPS coordinates for the precise geographic origin of harvest for any forest product entering the EU. While the regulation is not yet in effect, these requirements are viewed as impractical or unworkable by an array of North American wood producers.^{7, 8}

European Union (EU) Corporate Sustainability Reporting Directive (CSRD)

On January 5, 2023, the EU’s Corporate Sustainability Reporting Directive (CSRD) into force. The law requires that companies will need to publicly disclose information about their environmental and social impacts. The disclosures reflect a heavy emphasis on climate and are tied to the auditable European Sustainability Reporting Standards (ESRS). The rules will apply to financial year 2024, for reports published in 2025.⁹