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Giant Norway pension fund weighs Brazil divestment over Amazon deforestation

  • KLP, Norway’s largest pension fund, with over US$80 billion in assets, is saying it may divest from transnational commodities traders operating in Brazil such as Archer Daniels Midland (ADM), Bunge and Cargill, if they work with producers who contribute to deforestation. KLP has $50 million in shares and loans with the firms.
  • KLP is also reaching out to other investors to lobby them to use their financial influence to curb Amazon deforestation via supply chains. On August 28, Nordea, the largest asset management group in the Nordic region announced a temporary quarantine on Brazilian government bonds in response to this year’s Amazon fires.
  • International investment firms play a pivotal role in preserving or deforesting the Amazon. A new report found that mega-investment house BlackRock ranks among the top three shareholders in 25 of the largest public “deforestation-risk” companies, firms dealing in soy, beef, palm oil, pulp and paper, rubber and timber.
  • The Amazon deforestation process is complex. But it often proceeds by the following steps: land speculators invade the rainforest, illegally cut down and sell the most valuable timber, then set fire to the rest; they then can sell the land for 100-200 times its previous worth to cattle ranchers, who may eventually sell it to soy growers.
Illegal Amazon logging on Pirititi Indigenous lands in Roraima state, Brazil, May 2018. Image by Felipe Werneck / IBAMA.

In mid-August, the governments of Norway and Germany suspended payments to the Amazon Fund, which finances conservation efforts in the Amazon Rainforest aimed at limiting deforestation. Not long after, Norway’s largest pension funds began publicly discussing their concerns about investing in companies that may be complicit in deforestation in the Amazon region. With approximately US$170 billion in combined assets, these funds carry significant clout and leverage, say asset managers.

“We are trying to create dialogue and awareness in those companies and those investing [in] those companies, like us, financiers,” said Jeanette Bergan. Bergan heads up KLP’s Responsible Investments initiative. KLP is Norway’s largest pension fund, with more than US$80 billion in assets. Bergan says KLP is seeking dialogue with companies that operate in Brazil, including transnational commodities trading giants Cargill, Bunge, and Archer Daniels Midland (ADM) with the goal of ensuring they follow sustainable supply chain practices. KLP has $50 million in shares and loans with the firms.

“It’s always very hard,” Bergan said. “Responsible corporate behavior, or responsible behavior from anybody, is always a challenge when there is a conflict between economic development and responsible business practice or ethics.”

International investment firms carry clout in terms of  global deforestation. For example, a recent report from Friends of the Earth U.S., Amazon Watch, and the Dutch financial-research firm Profundo, found that global asset management firm BlackRock ranks among the top three shareholders in 25 of the globe’s largest public “deforestation-risk” companies. The report says BlackRock ranks among the top 10 shareholders in another 50 such companies. “Deforestation-risk” companies are defined as those dealing in soy, beef, palm oil, pulp and paper, rubber and timber.

Some investment firms, however, strive to curb environmental harm. Nordea, the largest asset management group in Scandinavia  announced on August 28 that it was quarantining Brazilian government bonds in response to the forest fires devastating the Amazon Rainforest.

“We have come to conclude that these risks have materialized as according to trustable sources, Brazil’s part of the Amazon has lost more than 1,330 square miles of forest cover since [President Jair] Bolsonaro took office in January, a 39 percent increase over the same period last year, according to the [Brazilian] government agency that tracks deforestation,” said Thede Rüst in an emailed statement.

Nordea’s move is temporary and reflects the firm’s decision to assess whether to continue holding Brazilian sovereign debt or to eliminate it from Nordea’s portfolio.

The US-based Forum on Sustainable and Responsible Investment declined Mongabay’s request for an interview.

Bergan noted that KLP has excluded companies from its portfolio before. For example, it no longer invests in Vale, the Brazilian mining giant, because of that firm’s negligence in two tailings dam disasters, one of which is considered the largest environmental disaster in Brazil’s history.

A successful effort to diminish Amazon deforestation due to soy expansion via the Soy Moratorium resulted in transnational commodities companies and soy producers shifting the focus of the industry to the Cerrado savanna, now the Brazilian biome seeing the most rapid loss of native vegetation. Image by Flávia Milhorance.

Amazon deforestation and soy

The attempt to curb Amazon deforestation by using asset management to help create a deforestation-free supply chain is a conservation strategy fraught with complexity.

“If you buy soybeans that have been raised in the Amazon, you can be almost certain that it is deforestation free,” Lisa Rausch, an agricultural land use researcher at the University of Wisconsin-Madison told Mongabay. Rausch points to the success of the voluntary Soy Moratorium agreement initially reached in 2006 between commodities companies, environmentalists, farmers and the Brazilian government. Under the moratorium, many commodities firms block soy raised in newly deforested areas from being traded.

The Brazilian Association of Vegetable Oil Industries, Abiove, agrees, noting that soy isn’t the main Amazon deforestation driver, a spokesperson told Mongabay. “From 2008 to 2018, the soy area went from 1.7 million hectares to 4.8 million hectares, but this expansion in the Amazon biome has occurred 98 percent in areas that were already cleared and, therefore, free of deforestation. The soy from the other 2 percent of the areas are blocked for trading.”

Bunge, a signatory of the Soy Moratorium, said that it is monitoring the situation in Brazil and that it uses third-party satellite monitoring to ensure it isn’t purchasing soy from areas deforested after 2008, the moratorium’s threshold date. “Globally, Bunge consistently invests to develop value chains that are traceable, verifiable and contribute to sustainable agricultural growth where it operates,” the firm said via email.

However, the relationship between soy cultivation and deforestation requires a far closer look, say analysts. Research has shown, for example, that the agreement doesn’t cover all producers, nor does it cover a move by traders and soy producers to the biome next door to the Amazon. Research shows that after the moratorium began, much production was simply shifted to Brazil’s Cerrado savanna biome, where deforestation is Brazil’s highest, and where international investment by the giant Harvard Management Company (HMC) and other asset management firms have been allegedly linked to deforestation.

Importantly, the Soy Moratorium has a number of gaps that allow deforestation to continue in the Amazon. One of the biggest loopholes complicating compliance is that the agreement only covers new clearing for soybean production. Deforestation to make room for cattle grazing isn’t covered, and rainforest clearing to create pastureland for cattle is the primary cause of Amazon deforestation.

In fact, the Amazon deforestation process typically proceeds something like this: land speculators and land grabbers invade the forest, illegally cut down the most worthwhile trees, then set fire to the rest; they then sell the land for 100-200 times its previous worth to ranchers (considered the primary driver of Amazon deforestation), who may eventually sell it to soy growers.

Cattle are often “laundered” in Brazil via a process by which livestock is born and raised on newly deforested land, then shifted to other ranches that don’t have deforestation in their immediate history; those “deforestation-free” ranches can then sell the cattle to slaughterhouses. Image © Henrique Manreza courtesy of The Nature Conservancy.

The urgent need to better regulate ranching

For Rausch, this means that agreements around cattle ranching should be as strict and as closely monitored as the ones governing soybeans.

She identifies two loopholes in the supply chain that allow many unregulated cattle to slip in, and deforestation to rise.

“Almost all cattle in the Amazon supply chains pass through multiple farms before they reach the slaughterhouses and nobody is monitoring the indirect suppliers,” Rausch explained. The result is that producers who are not complying with deforestation regulations can sell their cattle to other producers with no penalties for infractions.

One way to monitor this more effectively, Rausch says, would be through point of origin to slaughterhouse animal transit records kept by the Ministry of Agriculture. Although these records were available online under previous governments, Rauch said, they are not now under the Bolsonaro government; that makes it virtually impossible to check whether the cattle supply chain is complying with environmental regulations.

Embrapa, Brazil’s livestock research bureau, declined Mongabay’s request for an interview.

Illegal deforestation in Jamanxim National Forest in Pará state Brazil. Image courtesy of IBAMA.

Supply chain monitoring challenges

Enforcing deforestation moratoria is no simple task in an area as vast as the Amazon. In May of this year, for example, ProPublica revealed how some carbon offset programs, which focus on planting trees to compensate for carbon emissions elsewhere, aren’t fulfilling their promise. But Professor Rachael Garrett at ETH Zurich, pointed out via an email that this report focused on a very narrow type of program, which looked at specific projects only. Meanwhile, Garrett says she and other researchers believe “that investments and policies focused at whole territories (i.e., jurisdictions) are more effective than project-focused efforts.”

Garrett proposed a broader, stick-and-carrot approach to limiting deforestation. “I personally believe that the most successful conservation approaches would be those that combine a jurisdictional payment for ecosystem services programs, with supply-chain exclusion and increased resources [such as credit lines] for improved agricultural practice adoption,” Garrett wrote. “This might seem like a pie in the sky idea, but if we look at the region of Paragominas, Pará [state] one could argue that it has already happened with quite a bit of success. There you had a territorial approach, The Green Municipality program, to reduce deforestation, as well as ongoing programs for cattle intensification from the Brazilian agricultural research corporation, (Embrapa), which was later reinforced by private sector zero-deforestation commitments (the G4 Cattle Agreement and Soy Moratorium).” Garrett also noted that the most successful conservation programs have included farmers from the outset of a project’s development stage.

In Norway, Bergan said that KLP’s openness, its concern, and its efforts to promote corporate accountability in the Amazon fit with the firm’s commitment to transparency. “We are concerned that we will contribute to serious environmental degradation in the future,” she said. As a result, the fund is taking a strong position, even if it is challenging to find a balance between ethics and profit. “Difference of opinion is what builds society; that’s what makes society strong,” Bergan said.

Banner image caption: An agent of IBAMA, Brazil’s environmental agency, moves among the devastation caused by an illegal logging operation on Pirititi indigenous lands in Roraima state in 2018, before President Jair Bolsonaro dismantled the agency’s enforcement powers. Image courtesy of IBAMA.

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