Trase Finance - Illuminating the Financial Impacts of Tropical Deforestation

Client Introduction

Trase Finance is a groundbreaking initiative that aims to bring unparalleled transparency to the hundreds of billions of dollars directly and indirectly financing tropical deforestation annually. By connecting consumer markets to deforestation and other impacts on the ground, Trase Finance empowers financial institutions to enhance the sustainability of their portfolios. Additionally, civil society and governments can monitor progress and hold accountable those failing to address deforestation issues.

The Problem

Deforestation poses a critical challenge when considering overall impacts and dependencies on environmental, social, and governance (ESG) issues. Tropical deforestation rates have notably increased over the past decade, affecting important biomes like the Cerrado and Gran Chaco. The lack of transparency in the upstream part of the supply chain (from production to export) made it difficult for companies and financial institutions to assess their exposure to deforestation and understand its occurrence.

Trase's pioneering work in mapping and modeling in-country supply chains shed light on major actors implicated in deforestation and identified regions with significant impacts. However, there was no mechanism for financial institutions to engage with this data, understand exposure at the legal entity level, and examine the financial links to deforestation-exposed actors.

Our Solution

Trase recognized Neural Alpha's expertise in connected data and invited them for a series of workshops to understand the challenges and explore potential solutions. Through collaboration with the Trase team, Neural Alpha proposed a comprehensive solution. This involved leveraging various financial and legal entity datasets and utilizing their expertise in record matching and deduplication to create a rich dataset of legal entity data. When combined with financial instrument data, this dataset could be linked to Trase's existing supply chain datasets. Additionally, Neural Alpha suggested developing an architecture using a graph database, which was well-suited for handling the complex data involved.

Trase Finance now covers over 30,000 traders and financial institutions exposed to deforestation, 9,000 commodity traders in Beef, Soy, Palm Oil, and Cocoa, 2,600 issuers of 47,000 securities, 1,200 publicly listed companies, 50,000 investment funds, and 750,000 shareholdings, bond holdings, and loan positions. The tool calculated and drove accountability for the equity share of deforestation exposure for individual financial institutions related to high-risk commodities. This exposure was analyzed not just by country but also by sub-national jurisdictions.

The data is used by many financial institutions and NGOs, particularly in shareholder resolutions filed with companies like Bunge, urging them to take more action to mitigate deforestation risks in Soy production regions.

Conclusion

The collaboration between Neural Alpha and Trase went beyond the material scope of the work, leading to Neural Alpha becoming partners in the Trase initiative. Team members from Neural Alpha integrated into the wider Trase team, along with other partners, fostering a deeper and enriching learning experience for all involved.

The partnership resulted in the creation of the Trase Finance tool, which provided significant outcomes for financial institutions, civil society, and governments. The platform has received recognition from the industry, winning awards for the most innovative ESG product and ESG innovation of the year.

Neural Alpha's expertise in finance and connected data proved pivotal in addressing the technical challenges of bringing Trase's deforestation data into the financial arena. Trase Finance succeeded in shedding light on the financial impacts of tropical deforestation and equipping financial institutions, civil society, and governments with actionable intelligence to combat deforestation effectively. This project demonstrated the power of collaboration and innovation in driving sustainable practices and creating positive environmental impact.