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International investors urge Brazil to take real action to stop deforestation

Forest fires in Candeiras do Jamari, Rondônia state, 2019. Early forecasts say deforestation is worse this year, and the Amazon is dryer, meaning forest fires could be far worse than last year this August and September. Image © Victor Moriyama / Greenpeace.

  • Jan Erik Saugestad, executive vice president of Norway’s Storebrand Asset Management, who has led an international pressure campaign against deforestation in the Brazilian Amazon, says the government must back up its promises with action to reverse the rising trend.
  • In an exclusive interview, he describes his recent meeting with Vice President Hamilton Mourão, where there were initial commitments made to reduce deforestation rates and respect the rights of Indigenous peoples and human rights.
  • Saugestad says investors need evidence that the Brazilian government and companies, particularly in the beef industry, will follow up on these commitments with meaningful action.
  • Saugestad also says climate change has already caused damage to some economic sectors, and adds that “we are only seeing the beginning of some of these risks.”
Jan Erik Saugestad, Storebrand Asset Management’s CEO. Photo by Irene S. Lunde / Storebrand.

Deforestation in the Amazon has turned into a major headache for the Brazilian government, but not because of pressure from environmental activists. The pressure has come more recently from investors demanding action from the administration of President Jair Bolsonaro, culminating in their online meeting on July 9 with Vice President Hamilton Mourão. Brazilian news outlet ((o))eco spoke exclusively with Jan Erik Saugestad, executive vice president of Storebrand Asset Management, a Norwegian fund manager that led the international mobilization, and who participated in the meeting. “There was a clear commitment to reducing deforestation rates again and respect the rights of Indigenous peoples,” he says.

But he says that promises of reassurance won’t be enough to prevent an outflow of international capital from Brazil as a result of the poor optics of deforestation in the Amazon. “We want tangible evidence that deforestation is going in the right direction,” Saugestad says.

The financial sector began expressing discontent last year, when international fund managers published letters warning that deforestation was putting their investments in Brazilian companies at risk. One of those letters was specifically addressed to the beef industry. In May this year, investors met again to ask Congress not to pass Provisional Measure 910, an executive order known as the “land-grabbing law”; it expired without being voted, but has since returned to the congressional agenda in the form of a bill.

Meanwhile, deforestation kept breaking records in the Amazon, and the cover afforded by the chaos of the COVID-19 pandemic prompted Environment Minister Ricardo Salles to propose taking advantage to “push through and change all the rules” on environmental issues. (Prosecutors in Brazil have since filed a lawsuit seeking to have Salles removed from office for violating his uties.) It was against this backdrop that 34 investment managers, including Storebrand, resumed their pressure campaign in June, with a letter asking for meetings with Brazilian ambassadors to discuss the country’s environmental policies. They warned that Brazilian companies, especially in the beef industry, could face difficulty accessing international markets as a result of being “exposed to potential deforestation in their Brazilian operations and supply chains.”

The eventual meeting with Mourão was also attended by several cabinet members, including Salles and the agriculture minister, Tereza Cristina. Even before the meeting, 38 leaders of large companies operating in Brazil warned the government that deforestation “has a huge potential for causing damage” to the country. The document was also signed by four industry associations, including the Brazilian Agribusiness Association (ABAG).

In the wake of these developments, Marfrig, Brazil’s second-biggest meatpacker, said it would create a tracking system for its indirect livestock suppliers. The No. 3 company, Minerva, said it would hire a monitoring tool developed by a U.S. university. Tracking indirect suppliers — those that supply the farms from where meatpackers buy cattle for slaughter — is the beef chain’s main environmental bottleneck. Without it, large companies operating in the Amazon, such as Marfrig, Minerva and JBS — the world’s biggest meatpacker — can’t assure investors and consumers that their products are deforestation-free.

It this lack of such data, Saugestad says, that prompted Storebrand to stop investing in Marfrig — the No. 5 meatpacker in terms of its exposure to deforestation, according to a study by Imazon, the Amazon Institute of People and the Environment. (Marfrig declined to comment on the matter.) Storebrand, Norway’s biggest fund manager, with 780 billion krone ($84 billion) under management, signed all of the letters addressed to the Brazilian government in the past year and has built a reputation for being at the forefront of sustainable investing since 1990. Saugestad, in particular, has established himself as one of the main voices advocating sustainability from the financial world. In this interview, he says the first step has been taken, but the Brazilian government needs to show results if it wants to maintain investments in the country. “If we are to stay as long-term investors, we need to see a different direction when it comes to deforestation,” he says.

((o))eco: Were you satisfied with the answers provided in the meeting with the government?

Jan Erik Saugestad: Some initial commitments were made at that meeting. One of them was the clear pledge to reduce deforestation rates again. This was stated by the vice president himself and on his watch. There was also a commitment to respect the rights of Indigenous peoples and human rights. And everyone agreed that sustainable development and economic development are complementary. This is all great. But we have just received this study from INPE [the Brazilian space agency] stating that deforestation increased by 20% in the first half of this year when compared to last year. [Editor’s note: The study shows deforestation during this period increased by 25%.] Of course, it’s still too early to examine the data, and that conversation was a good start. At the end of the day, what we really need to see is tangible efforts to prevent more relaxation of [environmental] legislation, action by control agencies, and enforcement of the Forest Code. We need evidence that deforestation is going in the right direction. We now have some clear ambitions and general commitments, but we need to see action on the ground to be able to measure progress and be confident.

For Brazil to regain credibility, should Environment Minister Ricardo Salles be replaced?

As investors, we really don’t want to interfere with Brazilian politics and internal affairs. We definitely respect the country’s sovereignty as well as its political debates and priorities. We have no opinion about individuals. We just want to make it clear that we need to see a different direction when it comes to deforestation if we are to remain as long-term investors.

Is the meat industry a high-risk sector?

We see increasing awareness among consumers when it comes to the goods they buy, and not just in terms of consumption, but also of the traceability of the goods they consume.

What kind of information do investors need to be confident that they are not promoting deforestation in the Amazon?

The question is really about the traceability of commodities [soybean and beef] along the entire value chain. That’s why, when we challenge an individual company on that, it also speaks of the challenge of accessing data on indirect suppliers. This was one of the five topics we raised at the meeting with the government: that not only us as investors, but also Brazilian companies need to have better access to public databases to be able to improve traceability. That’s a very specific point that we will monitor regarding the government.

Global Witness data show that in 2019 Storebrand had $21 million invested in Marfrig, one of the meat companies most exposed to deforestation in the Amazon. Does Storebrand still hold that investment?

No, we no longer invest in Marfrig. We withdrew it because of some challenges you pointed out. At the same time, having better access to data can help us become investors if these companies can prove that they have good traceability of and control over their value chains.

It’s interesting that one of the consequences of the letter sent by investors to Brazilian embassies to discuss environmental policy was that 38 Brazilian companies wrote a similar letter. And Marfrig is one of the signatories. It seems that a broader initiative is now under way in Brazil to discuss and address these issues. Let’s hope it continues.

Companies and organizations certified as sustainable still invest in the meat industry in the Amazon. Why can’t such initiatives stop these investments?

I believe there is increasing understanding and awareness of these issues. We have been working with sustainable investments for 25 years; others started later. After the Paris Agreement, there was a significant focus on problems related to climate and global [greenhouse gas] emissions. And deforestation is certainly important in this regard. Investors are increasingly concerned about the meat industry and its value chain. What we argue is that it’s difficult to access data to validate supply chain quality; that’s why this is an important point for many. We would like to invest in Brazil, to contribute to economic growth and to make successful investments, but we really need to make sure that we are investing in good companies and also in businesses that do not contribute to deforestation. The meat industry is a challenge and we need better access to data.

The risks related to climate change have been talked about for a long time. Has there been any real impact on the financial market?

Climate change is recognized as a real risk, but also as an opportunity to invest in renewable energy sources, energy distribution or more efficient ways of using energy, for instance. Clearly, climate change poses its risks, which are particularly apparent in the fossil fuel industry and in the energy production chain, which become less profitable, less attractive. We have seen a significant decline in the stock prices of some coal-based energy providers. But it is also a real risk when it comes to environmental damage and more severe environmental conditions, which have a real economic impact on several sectors. So yes, the risk is real, but I think we are only seeing the beginning of some of these risks.

Does the pandemic raise the level of environmental concerns?

The pandemic and COVID-19 have somehow underscored the fact that a global crisis knows no borders and will hurt many countries. So perhaps the pandemic has accelerated the debate on sustainability. Another thing about the pandemic is that it reveals the consequences of the stress we put on natural systems. Many scientists link pressure on natural systems to the frequency of pandemics such as that of COVID-19.

Banner image of forest fires in Candeiras do Jamari, Rondônia state, 2019, by Victor Moriyama/Greenpeace.

This story was originally published in Portuguese on ((o))eco.