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Prompted by Amazon fires, 230 investors warn firms linked to deforestation

  • Prompted by the Amazon fires in Brazil and Bolivia, 230 global investors with $16.2 trillion in assets have issued a strongly worded statement warning hundreds of unnamed companies to either meet their commodities supply chain deforestation commitments or risk economic consequences.
  • The statement was published by Principles for Responsible Investment (PRI), an international network of investors and Ceres, a U.S. non-profit which works with investors to promote sustainability.
  • Among the 230 signatories are CalPERS (the California Public Employees’ Retirement System), which manages the largest public pension fund in the United States, and some more unexpected firms, such as China Asset Management.
  • Elsewhere, consumer pressure has led the VF Corporation, a US apparel and footwear firm which owns Timberland and The North Face brands, to announce it has stopped buying Brazilian leather. It remains to be seen whether a global Brazilian boycott linked to deforestation will develop.
Forest fires burn out of control in the municipality of Colniza, Mato Grosso state, Brazil in August 2019. Image by Victor Moriyama / Greenpeace.

Until now, President Jair Bolsonaro has largely gone his own way, ignoring the concerns of international governments and NGOs over Brazil’s environmental policies. But the Latin American nation — the world’s eighth largest economy — may be forced to take notice now, as global investors get involved.

Last week saw the release of a strongly worded investor statement, published by Principles for Responsible Investment (PRI), the world’s leading proponent of responsible investment, and Ceres, a U.S. non-profit that works with investors to promote sustainability. The document — condemning supply chain linked deforestation — has been endorsed by an unprecedented number of major investors, 230 in total, who together represent US$ 16.2 trillion in assets.

“Since the Brazilian and Bolivian fires hit the headlines all round the world, we have seen a marked increase in unease about deforestation among institutional investors,” Julia Nash told Mongabay. She is the Program Director for Foods and Forests at Ceres.

“It is with deep concern that we follow the escalating crisis of deforestation and forest fires in Brazil and Bolivia,” reads the statement. It then goes on to describe the failure of commodities companies to deliver on promises to eliminate deforestation from their supply chains. “While several hundred companies have committed to end commodity-driven deforestation by 2020, recent research indicates that very few companies are on track to reach this goal,” says the document.

Signatories include CalPERS (California Public Employees’ Retirement System), which manages the largest public pension fund in the United States. “Deforestation is a global issue for long term investors like CalPERS, who face severe and urgent risks posed by climate change,” said Anne Simpson, CalPERS’ director of board governance and strategy.

“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,” said Jan Erik Saugestad, the CEO of Storebrand Asset Management, the largest private asset manager in Norway, and also a signatory.

There are unexpected signatories, too, including China Asset Management (one of that nation’s biggest fund families), Australia’s First State Investments, HSBC Asset Management (a $1 trillion Canadian asset manager), TD Asset Management, and Mitsubishi Banking Corporation (a financial conglomerate and world’s fifth largest bank).

Brazil’s investor participation is low. Five of Brazil’s top ten money managers are members of PRI – Itaú Asset Management, Bradesco, Caixa Econômica Federal, Santander Brasil Asset Management and BTG Pactual Asset Management. But only one Brazilian member(SulAmérica Investimentos) has, so far, signed the statement. It is unclear whether PRI’s Brazilian members chose not to sign or simply were unable to meet the statement release deadline.

The statement’s primary link to Brazilian companies is presently indirect. One signatory, for example, is Aberdeen, an international investment management group, which has shares in BRF, one of the world’s biggest food companies, which owns both Sadia and Perdigão, both of which are major Brazilian food producers and exporters.

While Amazon Watch — a leading US-headquartered NGO that works to protect the Amazon rainforest and its people — welcomes the statement, it has reservations. Campaign Director Moira Birss told Mongabay: “It is disappointing and problematic not to see two of the biggest equity investors, BlackRock and Vanguard, on this list, not to mention other major US creditors and investors. Once again, leadership on environmental and climate issues is coming from Europe; US financial institutions need to step up if they don’t want to continue to be complicit in Amazon destruction.”

Protesters at New York City Climate Strike, September 20, 2019. Brazil’s international image is in tatters since the election of President Jair Bolsonaro and this year’s Amazon fires. Image by Imelda Abano.

Unfulfilled promises

The investor statement refers to a report, entitled “Out on a Limb,” published by Ceres in June 2019. It shows that, while 484 companies have promised to address deforestation within their businesses as part of a global goal of ending deforestation by 2020, only 72 have committed so far to eliminating deforestation from their supply chains and, of these, only 21 have shown real, quantifiable progress.

Without naming companies involved in deforestation, that report warns: “This alarming commitment-to-action gap exposes companies and institutional investors to significant financial risks. Institutional investors increasingly recognize that deforestation creates material market and reputational risks for companies, and is also a source of systemic risk across investment portfolios given its contribution to climate change.”

This week’s statement is the first strong signal to companies who are heavily exposed to Amazon deforestation, that they must close this gap, or suffer investor action. The letter calls for “publicly disclosing and implementing a commodity-specific no deforestation policy with quantifiable, time-bound commitments covering the entire supply chain” and the establishment of “a transparent monitoring and verification system for supplier compliance.”

Nash says that institutional investors are in a powerful position for effective action. “They have aligned interests with the companies they invest in and they want them to thrive,” she says. “They can tell their suppliers if they fail to take immediate action to eliminate deforestation from their supply chains, they may face a significant reputational risk that could impact their stock price.”

Greenpeace USA Forest Campaigner Daniel Brindis with indigenous Munduruku campaigners from the Brazilian Amazon. Image courtesy of Greenpeace.

Curbing supply chain deforestation

The environmental NGO, Greenpeace, a long-time campaigner to end Amazon deforestation, is also deeply concerned by the failure of companies to deliver on their pledges. In early 2019, while preparing a report, Countdown to Extinction, Greenpeace asked more than 50 traders, retailers, producers and consumer goods companies to demonstrate their progress toward ending deforestation by making their supply chains for cattle, cocoa, dairy, palm oil, pulp and paper and soy products transparent.

Greenpeace reports that not a single company complied with the request. It concludes: “The proliferation of corporate commitments has not translated into meaningful change on the ground.”

Greenpeace USA Forest Campaigner Daniel Brindis, talking with Mongabay, made this point: “What is important is that these companies don’t get away with gaslighting the public, which is what they’ve done by these purported promises to eliminate deforestation from their supply chains without taking action.”

Ceres prefers to highlight the positive side of the story, noting that some progress is being made by a small minority of companies. In its “Out on a Limb” report, Ceres highlights three multinational companies that it says are making real progress:

However, Greenpeace remains sceptical regarding the efficacy of certification by bodies such as RSPO, saying in its report that: “Government regulation and certification bodies — including the Roundtable on Responsible Soya (RTRS), the Roundtable on Sustainable Palm Oil (RSPO) and the Programme for the Endorsement of Forest Certification (PEFC) — are not a proxy for the due diligence required to ensure producer groups are not engaging in deforestation or forest degradation, clearing peatland or violating human rights.”

Some analysts support Greenpeace’s stance. For instance, a June 2018 academic study, notes that “few quantitative analyses have been undertaken to assess how successful RSPO has been in delivering the social, economic and environmental sustainability outcomes it aims to address.” That study of palm oil production in Indonesian Borneo found “no significant difference between certified and non-certified plantations for any of the sustainability metrics investigated,” and concluded: “To achieve intended outcomes, RSPO principles and criteria are in need of substantial improvement and rigorous enforcement.”

Greenpeace is also dubious of Nestle’s claim that 77 percent of its agricultural commodities have been verified deforestation-free. The NGO reports that “the food giant had arrived at this figure by omitting its supply of some commodities, including cocoa and any soya used as animal feed (which accounts for about half its total soya footprint).”

Even more worrying to deforestation activists is that, to eliminate deforestation from global supply chains, they’ll need to persuade large transnational companies, Brazilian JBS (the world’s largest meat processing firm), and Cargill, the huge commodities trading firm. These two agribusiness companies have been repeatedly linked to deforestation, and have so far resisted what Greenpeace calls “constructive engagement.”

Johannes Cullberg, owner of Paradiset, Sweden’s largest organic supermarket chain, is calling on people “to vote with their knives and forks,” and has launched a Brazilian goods boycott in his stores. Image courtesy of Entreprenör.

Targeting Brazil with a commodities boycott

While investors focus on global supply chains, environmental activists are directly targeting the draconian policies of the Bolsonaro government.

They say it’s Bolsonaro’s environmental deregulation and his encouragement of illegal deforestation that was largely responsible for this year’s surge in fires. Indeed, a significant new study directly linked major Amazon fires occurring in northern Brazil this August to deforestation carried out since Bolsonaro took office in January.

Maria Luisa Mendonça, with the Brazilian Network for Social Justice and Human Rights, is calling for an international consumer boycott of Brazilian exports. “This is the only message that Bolsonaro will listen to. He doesn’t believe in climate change,” she said.

Former Brazilian environment minister, Rubens Ricupero agrees. He told the Guardian newspaper: Only “the fear of economic consequences” — such as a boycott of Brazilian products or halting a trade deal with the EU — were likely to make Bolsonaro change course.

Christopher Garman, Americas Executive Director for the US political risk consultancy, Eurasia, believes that Brazilian commodities exports are in play: “The risk now [for Brazil] is a consumer boycott. This is a direct cost created and exacerbated by Bolsonaro’s rhetoric,” he told the Folha de S. Paulo newspaper.

Some consumers, particularly in Sweden where environmental awareness is high, are demanding action. According to Radio France International, Swedish consumers are regularly posting Facebook messages calling for supermarkets to stop stocking Brazilian products.

Johannes Cullberg, the owner of Paradiset, Sweden’s largest chain of organic supermarkets, is calling on people “to vote with their knives and forks,” and has launched a Brazilian goods boycott in his stores. Cullberg says the response has been remarkable, particularly in Brazil where an article about him on Facebook received more than 300,000 shares.

Some manufacturers have acted too. The VF Corporation, a US apparel and footwear company which owns brands such as Timberland, Kipling Bags and The North Face, announced in August that it has stopped buying Brazilian leather. The company said it would only resume purchases when it had “the confidence and assurance that the materials used in our products do not contribute to environmental harm in the country.”

These first signs of a global boycott have left Brazil’s leather manufacturers jittery. “For an industry that exports over 80 percent of its leather, bringing in over US$2 billion in a single year, [the prospect of a boycott] is devastating news,” said José Fernando Bello, Executive Director of the Brazilian Center of Leather Industries (CICB).

Other Brazilian businesses are worried the boycott movement could spread. The Brazilian Business Council for Sustainable Development (CEBDS), that represents the country’s largest economic groups, has expressed “concern” and claims it has been pressing the Bolsonaro government to change its policies and curb deforestation.

In an August 23 statement, CEBDS stated: “In the name of our companies, that together have a turnover equivalent to 45 percent of the country’s GDP, CEBDS calls for the systems of control and monitoring to be improved to eradicate illegal deforestation in the short term in Amazonia and all other biomes and to reduce legal deforestation.” This statement stands in direct opposition to Bolsonaro’s plan to “develop” the “unproductive Amazon.”

Brazilian presidential spokesperson, General Otavio Rego Barros, who says there is little risk of an international boycott of Brazilian commodities. Image courtesy of Agência Verde-Oliva.

Risk to the world’s biggest trade agreement

In the long-term, the most serious impact for Brazil of this year’s Amazon fires could be the jeopardizing of ratification of the EU-Mercosur trade agreement, the largest trade deal the EU has ever struck, agreed to in June after over 20 years of negotiation.

French President Emmanuel Macron and Irish Prime minister Leo Varadkar have made it clear that they will seek to block the ratification unless Brazil changes its environmental policy.

On September 13, Finnish Finance Minister Mika Lintila said that the EU should block imports of Brazilian beef, and consider suspending soy imports, putting pressure on the Brazilian government to counter Amazon wildfires. Finland’s position is particularly important now, as it currently holds the rotating presidency of the EU.

Other major Brazil trading partners are putting pressure on Bolsonaro, with the Chinese government said to have, in private, raised concerns. José Augusto de Castro, the President of Brazil’s Foreign Trade Association, is likewise worried. Brazil has already “lost the communications battle,” he said. “What the government needs to do is stop talking and let the country’s diplomats take over.”

For the moment, there is little sign of Brazil budging from its hard-line environmental positions. On September 4, presidential spokesman, General Otavio Rego Barros told Reuters that the government was not expecting a boycott. Then on  September 5, the government launched an international publicity campaign to defend itself against the rising wave of criticism. It seems to have had little impact abroad.

The path forward remains uncertain. Though the fires have largely disappeared from the headlines, the Amazon dry season hasn’t reached its height, which could well mean more blazes. Indeed, in September an enormous fire broke out in a rural part of Santarém, a city on the Amazon River in Pará state. One of the most affected areas was Alter do Chão, a tourist resort much loved by well-off Brazilians.

Nor has the president backed off his anti-environmental stance. Even as the fires burned, Bolsonaro, backed by seven Amazon state governors, pledged to open conserved indigenous reserves to mining and agribusiness — currently illegal under the Brazilian Constitution. Such policies, supported by the Trump administration, along with rising Amazon violence, could tip an already angered global community into further action.

In the balance: the survival of the Amazon, the world’s last and greatest rainforest.

Banner image caption: Fire rages in a rural area of Santarém, Brazil in September 2019. Image by Eugenio Scanavinno.

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