The Chain: Investor Pressure Mounts on Companies Connected to Amazon Fires, Deforestation in Brazil

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September 19, 2019

Since the Amazon fires became worldwide news in August, companies operating in Brazil and the country itself have come under increased scrutiny and greater pressure from investors to address their roles in deforestation. Evidence shows that the fires in the Amazon overlap with human-driven deforestation. The likely response by the international community, consumers, and investors will be to continue to call for even greater accountability of the Brazilian government and companies operating in Brazil.

Ceres and Principles for Responsible Investment (PRI) released a statement on September 18, 2019 underscoring investor attention on the fires and emphasizing climate risks associated with deforestation. The investors are calling on companies with business ties to the Amazon to take action to stop the fires and work to reverse current deforestation trends. The joint statement was backed by 230 institutional investors with USD 16 trillion in assets under management, representing approximately five percent of global wealth. Signatories include some of the largest players in the international financial community, including BNP Paribas, Macquarie, Hermes, HSBC, CalPERS, and Aberdeen Standard. The statement highlights the exposure that the investor community faces from deforestation: “As investors, we see deforestation and the associated impacts on biodiversity and climate change as systemic risks to our portfolios and see the reduction of deforestation as a key solution to managing these risks and contributing to efficient and sustainable financial markets in the longer term.”

The group of investors made the following recommendations to companies operating in Brazil:

  • Make public disclosures and incorporate no deforestation policies that are commodity-specific and time-bound commitments that cover “the entire supply chain and sourcing geographies.”
  • Reduce deforestation risks through supply chain assessments.
  • Develop a transparent monitoring and verification system to ensure that suppliers comply with company policies.
  • Provide reports on an annual basis that show company’s deforestation risks and how the company is progressing toward meeting its policy.

The statement did not mention any companies by name, but it is aimed at the cattle and soy industries, both of which contribute to a majority of deforestation in Brazil. Investors worry that the inability to mitigate deforestation will lead to operational, regulatory, and reputational risks, along with the possibility of losing access to export markets.

The statement from Ceres and PRI comes just ahead of the UN Secretary General Summit, where deforestation is expected to be a main focus of conversation given the Amazon fires and the five-year anniversary of the New York Declaration on Forests, which has fallen short of its goal to eliminate deforestation in commodity supply chains by 2020.

In addition to the PRI statement, below is a rundown of investor-related developments since the fires increased in mid-August:

  • Norway and Germany suspend payments to the Amazon Fund
  • Norway’s largest pension fund discusses divestment from prominent soy traders
  • Asset manager Nordea temporarily stops purchasing Brazilian government bonds
  • Investigation shows major meatpackers purchasing from ranchers who were fined for deforestation
  • NGO campaign highlights BlackRock’s role in financing deforestation-linked companies
  • Major retailers H&M and VF Group stop buying Brazilian leather; Nestlé reconsiders ties to Brazilian market
  • U.S. lawmakers look for leverage to develop solutions to preserve the Amazon

Norway, Germany hold back funds

Donors to the Amazon Fund, established to provide Brazil with tools to increase monitoring and transparency, require that the aid is used toward efforts to reduce deforestation. But as a result of the Amazon fires and Brazil shutting down the Amazon Funds’ board, Norway and Germany decided to suspend payments, withdrawing a total of USD 72 million.

Nordic investors react 

Nordic investors have reacted to the fires by engaging with companies. KLP, Norway’s largest pension fund, is having dialogues with companies and financial institutions to see how they are reacting to increased deforestation in Brazil. KLP has shares in or has provided loans to Bunge, ADM, and Cargill, all of which have zero-deforestation policies. Here is Cargill’s response to the fires: “We have firmly upheld the Brazilian Soy Moratorium in the Amazon since 2006 and do not source from newly deforested areas.” However, Cargill and its peers are active in the Cerrado, where soy-driven deforestation has increased sharply since 2000.

Divestment of companies linked to deforestation is one option, KLP says. “We try to be active owners, engage companies and then automatically divest if we don’t get positive results, but then we continue to engage, and try and get companies investable again,” said KLP.

Meanwhile, asset manager Nordea, which is based in Helsinki, suspended purchases for Brazilian government bonds. Nordea’s exposure is currently USD 111 million. Norwegian fund Storebrand Asset Management has shored up its zero-deforestation policy and will be more active in limiting exposure to deforestation risks.

Meatpackers called out for deforestation links

A Reporter Brasil investigation shows that Marfrig and JBS purchased from ranchers that are in the Triunfo do Xingu Environmental Protection Area (APA) in Para, where the highest number of fires have taken place. The protective area was established in 2006 to reduce environmental damage and protect biodiversity. Marfrig bought cattle from a banned rancher in Tucuma, a high-risk area, even though registration indicated they were from Fazenda Limerira. Similarly, JBS is also reportedly operating in Triunfo do Xingu APA, purchasing from a supplier that was fined for land clearing in the protected area. This list includes several slaughterhouses located in the Amazon.

NGO campaign targets BlackRock’s Brazil deforestation connections

A recent report from Friends of the Earth (FoE) highlighted the role of BlackRock, the world’s largest asset manager, as a large shareholder in key companies that are linked to deforestation in Brazil. BlackRock is the third largest shareholder in both Bunge and ADM, while also owning 65 million shares in meat producers JBS, Marfrig, and Minerva. FoE’s report, which included contributions from Amazon Watch and CRR partner Profundo, comes soon after Amazon Watch’s study in April, which put the spotlight on top financiers of the Brazilian meat and soy industries. Against the backdrop of rising deforestation and more pressure from NGO campaigns, financial institutions are increasingly like to see greater reputation risks.

Major brands reconsider Brazilian purchases

Major brands are rethinking their connections to commodity markets in Brazil that are driving deforestation. Nestlé, which buys Brazilian cocoa and meat, is in the process of reexamining whether its purchases have links to deforestation and what action it can take to increase monitoring and supply chain transparency. Both H&M, a Swedish fashion company, and VF Corporation, a U.S. clothing store, said they would stop purchasing Brazilian leather until ample evidence emerges showing the country’s leather market is not contributing to Amazon deforestation. Others are in the process of evaluating their exposure and risk to the Amazon.

Possible avenues for U.S. lawmakers, Brazilian Ties With China Deepen

U.S. lawmakers are seeking ways to leverage financial aid and U.S.’s position in the soy and beef markets to influence Brazil to increase environmental enforcement and reduce deforestation risks. Some congressional members have discussed halting imports of beef and leather connected to areas that are illegally deforested by amending the 1900 Lacey Act, a law that bans imports of illegally trafficked wildlife. It was last amended in 2008 to include plant products, including timber and paper. Senator Schatz, a Democrat from Hawaii, has called on cutting off all funding to Brazil until the fires are under control. Witnesses at a House of Representatives hearing last week called on the international community to ensure that purchases from Brazil meet certain environmental standards and there is greater enforcement of laws to reduce deforestation and support indigenous people.

Discussions in the U.S. of influencing Brazilian policy though trade come amid some EU countries wanting to scrap the EU-Mercosur trade deal and possibly enacting legislation to restrict purchases of commodities. As CRR has noted, these actions have the potential to significantly alter global trade flows for soft commodities. One unintended consequence of a backlash against Brazilian products is tighter trade with China. Through August 2019, China imported 11 percent more beef compared to the same time in 2018, according to Bloomberg. This increase has helped support share prices for Marfrig, Minerva, JBS, and BRF SA, all of which have built new export facilities. Brazil’s agriculture department recent approved 17 new plants for beef export.

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