Deforestation enters the spotlight in ESG community
Institutional investors representing US$16.2 trillion in assets under management urge companies to take action regarding forest fires
The subject of deforestation has entered the spotlight in the international ESG investment community as fires ravage the Amazon and Bolivian rainforests and as dangerous haze from the burning of jungles in Indonesia blankets neighbouring countries including Singapore and Malaysia.
Last Wednesday, 230 institutional investors representing US$16.2 trillion in assets under management called on companies to take urgent action in light of the devastating fires in the Amazon, which have been fuelled in part because of the deforestation happening at an accelerating rate in Brazil and Bolivia.
“It is with deep concern that we follow the escalating crisis of deforestation and forest fires in Brazil and Bolivia,”the investors wrote in a statement released on September 18. “As investors, who have a fiduciary duty to act in the best long-term interests of our beneficiaries, we recognize the crucial role that tropical forests play in tackling climate change, protecting biodiversity and ensuring ecosystem services.”
Among the signatories are some of the largest investment managers and asset owners - 30% of signatories - from around the globe, representing more than 30 countries. The statement calls on companies to tackle the financial material deforestation risks, including market and reputational risks, within their operations and global supply chains. It specifically asks companies to publicly disclose and implement a commodity-specific no-deforestation policy with quantifiable, time-bound commitments covering the entire supply chain.
“Deforestation is a global issue for long-term investors like CalPERS, who face severe and urgent risks posed by climate change," says Anne Simpson, CalPERS' director of board governance and strategy and Climate Action 100+ steering committee member.
"The fires ranging in the Amazon, Indonesia and beyond, threaten the natural carbon sinks which absorb rapidly escalating greenhouse gas emissions. We are committed to engaging companies to bring down greenhouse gas emissions through Climate Action 100+, and we welcome other multi-stakeholder initiatives around the world, such as the Investor Initiative for Sustainable Forests, the Leticia Pact and the planned Alliance for the Amazon led by France and Chile for UNGA 74.”
“For too long, the discussion on climate change has concentrated on the energy sector. There is an urgent need to focus more on effective management of agricultural supply chains,”saysJan Erik Saugestad, CEO Storebrand Asset Management.
“Deforestation and loss of biodiversity are not only environmental problems. There are significant negative economic effects associated with these issues and they represent a risk that we as investors cannot ignore.
The adoption of Storebrand's investment policy to curb deforestation, lays out a clear mandate to intensify our work on active ownership, and obliges us to apply maximum pressure to change company behavior. Storebrand’s ambition is to have an investment portfolio that does not contribute to deforestation by 2025, and we will not knowingly finance operations that are illegal, fail to protect high conservation value forests or violate the rights of workers and local people.”
“As investors, we have a responsibility to address these threats within our portfolios across the value chain from agricultural producers to the banks that finance them. We can address this through financial mechanisms and solutions that are in the best interests of our clients, the environment, and the communities we affect on the ground,” says Lauren Compere of Boston Common Asset Management.
The statement, coordinated by the nonprofit organizations the Principles for Responsible Investment and Ceres also comes on the heels of a new special report on climate change and land released by the Intergovernmental Panel on Climate Change, which shows that 11 percent of global greenhouse gas emissions are caused by poor forestry and land-use management including commodity-driven deforestation.
Many of the investors who have signed the statement are involved in a collaborative investor engagement initiative with global companies exposed directly or indirectly to soy and cattle from South America. The Investor Initiative for Sustainable Forests (IISF), led by PRI and Ceres, aims to transform industry practices to eliminate deforestation from cattle and soy supply chains.
“In signing this statement, investors representing a significant portion of global capital are pledging their support for the Amazon region, which has been devastated by fires and deforestation,”says PRI CEO Fiona Reynolds. “In doing so, investors are recognizing the critical role they play to urgently accelerate action to help societies affected by this tragedy, and to prevent environmental disasters of this scale in the future.”
Some large corporations have been mindful of deforestation and the potential for reputational risk should their supply chains be linked to it. In 2010 Nestle pledged to eliminate deforestation from its supply chain by 2020, specifically focusing on palm oil, the production of which has been blamed for almost 40% of forest devastation in Indonesia’s Borneo since 2000. The company uses radar and satellite technology developed by Airbus to monitor forest cover changes in real-time.
Meanwhile, KLP - Norway’s largest pension fund with over US$80 billion in assets - is considering divesting holdings in transnational commodity traders operating in Brazil, such as Archer Daniels Midland, Bunge and Cargill, given their potential contribution to deforestation. And in August Nordea, Scandinavia’s largest asset management group, announced a temporary quarantine on Brazilian government bonds in response to the ongoing Amazon rainforest fires.
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