Tropical rainforest deforestation has a damaging impact on biodiversity and the climate.
Whilst this is well known, what isn’t so well understood is who finances the activities, directly or indirectly, that lead to deforestation.
That’s why Trase Finance has been created.
The newly created tool aims to bring unprecedented transparency to the hundreds of billions of dollars that finance tropical deforestation each year by linking the trade of commodities that drive deforestation to financial markets worldwide.
Financial institutions and major corporations find themselves at risk of funding deforestation, directly or indirectly, via the many companies that make up their complex international supply chains.
We’re delighted that OpenCorporates’ company data plays a key role in helping early stage users of the Trase Finance tool understand and map global companies related to deforestation risk. Read on to find out how.
What is Trase Finance?
Explaining the challenge that drove the creation of Trase Finance, James Phare, CEO of Neural Alpha, one of the project’s partners, explains: “Deforestation risk has always been pervasive in global commodity supply chains because it has been very hard to disaggregate and define the responsibility of the different actors involved”.
Network analysis: the role of OpenCorporates’ company data
The first step in the process of identifying risk in the financing of deforestation is to determine which companies are involved in the export of commodities linked to deforestation. Trase starts by extracting company names from legal documents called bills of lading, which show which companies were involved in the shipment of specific commodities.
The challenge, as James explains however, is that: “Bills of lading tend to be quite ambiguous, and we spend a lot of time trying to resolve companies’ identities and tag them with identifiers so we can link them into other corporate datasets”.
The tool uses OpenCorporates’ data to find out more information about the companies mentioned on the bills of lading, including: the legal entity they correspond to, their address, corporate hierarchy, directors or persons of significant control and other companies their directors are associated with.
The global schema employed in OpenCorporates’ data also allows Trase Finance to embed our data into its network visualisation tool, allowing it to show the pathways by which companies are connected.
In both of these applications, the team benefits from OpenCorporates’ global coverage. “It is really convenient to go to one API which integrates data from lots of different company registry databases from around the world” James commented.
Case study: Brazil
A good example of this in action is the case of two companies linked to soy production in Brazil. “We didn’t know where these companies were based or who owned them, so as far as we knew they were completely unrelated” explains James.
They then tagged these companies with OpenCorporates’ data including:
- The companies’ directors
- Other companies the directors were involved with
- Persons of significant control within these companies
When they did this, they made a remarkable discovery, as James explains: “We were able to find that these companies are not only connected, but they have interesting directors, including someone involved in companies implicated in lawsuits to do with [Brazil’s major anti-bribery operation] Operation Carwash.
“This all came from tagging them with OpenCorporates identifiers”.
The impact of Trase Finance
The tool aims to help a broad range of stakeholders in the fight against deforestation. For example:
- Financial institutions
Financiers can improve the sustainability of their portfolios by screening their current investments for the risk of financing deforestation, conducting due diligence on new investment opportunities and acting on that information to reduce the risk. This is especially important given the focus on environmental, social and governance (ESG) risk by boards, investors and everyday citizens.
- Civil society & governments
NGOs, civil society and governments can monitor progress and better hold those failing to act on deforestation to account.
The tool is due for public launch imminently following successful early adopter testing with numerous global banks, investors and civil society organisations.
- Trase Finance
Find out more about the Trase Finance tool.
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