The financing of companies involved in the production and trade of some commodities can expose investors and lenders to deforestation risks.
It can be difficult for investors to understand their exposure to these risks, particularly as a result of complex supply chains and corporate structures.
Trase Finance – a collaboration between fintech company Neural Alpha, international non-profit research and policy organisation the Stockholm Environment Institute (SEI) and NGO Global Canopy – seeks to identify second-order environmental impacts in supply chains, enabling transparency and shedding light on the hidden risks and opportunities that can materially influence financial and non-financial performance.
With this tool, investors can search and explore the universe of banks and companies involved in the trade of soy, beef and palm oil in countries such as Brazil and Indonesia, where such investments can have a huge impact on biodiversity and climate change.
Through integrating on-the-ground NGO surveys, local government documents, traditional financial data and novel research databases, Trase Finance highlights physical environmental impacts.
This minimises the risk of 'greenwashing' and enables the creation of transparent, impactful green finance instruments.
This award also recognises the contribution that AI has had in creating this innovative product. A Natural Language Processing algorithm compiles company information, so investors can see all the relevant data that has been collected about a company, including its subsidiaries, in a single place – allowing investors to target their activities for maximum impact within large, complex corporate groups.
The tool also couples shipping and tax records with supply chain infrastructure and logistics data to link companies to the municipalities in which the commodities are produced.
"Building on Trase's pioneering supply chain mapping, Trase Finance breaks new ground with quantitative measures of deforestation risk for entire commodity export markets. This is a really exciting development that helps to include biodiversity impacts in financial decision making" says Karina Carius de Barros, responsible investment officer at Actiam, an early adopter of the tool.