- The sustainability nonprofit Ceres has released a new Investor Guide to Deforestation and Climate Change intended for institutional investors who want to engage with the companies in their portfolios to address deforestation.
- Agricultural commodities such as palm oil, soy, beef, and pulp and paper are major drivers of deforestation. Identifying investments in these sectors is a first step for investors looking to address deforestation risks in their investment portfolios.
- The guide outlines key expectations for investors to look for in companies’ deforestation and climate commitments, provides investors with example questions for companies and gives action items to address deforestation risks.
Climate change threatens ecological and economic systems. That is why investors are increasingly looking to invest in companies with a plan to address one of the largest drivers of climate change: deforestation.
A newly released Investor Guide to Deforestation and Climate Change provides tools to mainstream institutional investors, such as mutual fund and hedge fund managers, who want to work with and influence the companies in their portfolios to address deforestation.
The guide was developed by the sustainability nonprofit Ceres along with an advisory committee of nonprofits, major investors and leading scientific experts in deforestation.
“Investors can’t be experts on all topics, so this guide gives investors the information they need to bring deforestation into their engagements,” Meryl Richards, co-author of the guide and director of research on the food and forests team at Ceres, told Mongabay in an email.
The guide covers the material risks of deforestation, countries and commodities of risk, assessing portfolio-wide risks, evaluating corporate action, and next steps for engagement. Investors are provided with key expectations to look for in companies’ deforestation and climate commitments, example questions for companies, and concrete gives action items to address deforestation risks.
“What was really unique about the process was that we brought in our investor reviewers early in the process and they provided input on how we communicated the science and framed the engagement guidance to make sure it was relevant and useful for an investor audience,” Richards said.
“I agreed to help review this guide because I thought it’d be a meaningful resource for investors and for us, here in our office,” Jimmy Yan, a reviewer of the guide who works in the bureau of asset management in the Office of the New York City Comptroller, said in a webinar hosted by Ceres. The bureau of asset management is the investment adviser for the New York City pension funds which, collectively, have about $200 billion in assets.
“We’re always looking for ways to enhance how we address climate risks in our portfolio, and since deforestation risk is a major climate change related risk, we need more resources to understand it,” Yan said. “We also recognize that deforestation is an important risk issue, standing on its own given its profound impacts on environmental sustainability, biodiversity, human rights and other areas.”
In response to the 2019 fires in the Amazon, 251 investors representing $17.7 trillion in assets wrote a letter urging business leaders to “reverse the worrying deforestation trends we are witnessing” and to uphold commitments to end commodity-driven deforestation by 2020. A majority of companies are not on track to meet these deadlines.
Companies with connections to deforestation may suffer financially in the long run. Regulatory action, loss of customer trust and support, or collapse of supply chains are all issues investors need to be aware of. Eliminating deforestation from a company’s supply chain can significantly reduce greenhouse gas emissions and should be a key part of a company’s climate change strategy, according to the guide.
An estimated 10% of global emissions come from deforestation. Agricultural commodities — especially palm oil, soy, beef, and pulp and paper — are major drivers of deforestation, particularly in the tropics and account for an estimated 5% of all greenhouse gas emissions. Identifying investments in these agricultural sectors, particularly in deforestation hotspot countries such as Brazil, Indonesia, and Malaysia, is a first step for investors looking to address deforestation risks in their investment portfolios.
“Investors can use their influence as shareholders to engage with companies on deforestation as a way to mitigate portfolio-wide climate risks,” the guide says. “And now is the time … Simply put, we cannot avoid potentially catastrophic climate warming without eliminating deforestation.”
Banner image of a channel billed toucan (Ramphastos vitellinus) by Rhett A. Butler.
Liz Kimbrough is a staff writer for Mongabay. Find her on Twitter @lizkimbrough
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