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The Chain: Recent Shareholder Votes on Deforestation Reflect Greater Investor Pressure to Reduce Forest Loss

May 21, 2021

There has been a string of recent shareholder votes in favor of companies taking action to adopt or strengthen deforestation commitments. This trend is likely to increase as deforestation becomes a greater part of the climate change narrative and investors increase their understanding of how links to forest lost can lead to a variety of financial risks.

One of the biggest developments came earlier this month, when shareholders at commodity trader Bunge voted overwhelmingly in favor of the company taking stronger action to address deforestation in its supply chain. The proposal, approved by 98 percent of shareholders, was led by Green Century Capital Management, along with Storebrand Asset Management.

In an unprecedented turn of events, Bunge’s Board of Directors of Bunge had recommended that shareholders vote in favor of a proposal to assess “if and how [Bunge] could increase the scale, pace, and rigor of its efforts to eliminate native vegetation conversion in its soy supply chain.”

Bunge and other actors in soft commodity supply chains are exposed to being linked to deforestation, which can lead to supply chain volatility, constrained access to capital, stringent regulations in consumer markets, and loss of market access. The Bunge vote highlights increasing commitments from corporations, investors, and financiers to achieve net-zero deforestation practices to reduce risks.

The vote also reflects greater pressure from activist investors for companies to address risks related to climate change, including forest loss for commodity production, and it may lead to greater engagement from investors over deforestation, which in turn could lead to other companies taking similar action. “The vote should be a signal to other companies in the Brazilian soy supply chain that investors are on high alert about these risks,” said Leslie Samuelrich, President of Green Century.

The Bunge vote comes soon after a recent string of successful engagements by Green Century. For instance, in April, ADM and JPMorgan Chase have both adopted commitments, which followed last year’s Procter & Gamble shareholder vote for the company to eliminate deforestation in its supply chain. Also this month, 76 percent of shareholders at Bloomin’ Brands, a global casual dining company, supported a proposal from Green Century to reduce its carbon footprint, including actions to eliminate forest loss in its supply chain. “We have never seen a shareholder season like this one to address climate and deforestation risks, with unprecedented votes at Bunge Limited and Procter & Gamble,” said Green Century Shareholder Advocate Annalisa Tarizzo. “Investors are demonstrating a new understanding that reducing greenhouse gas emissions and protecting the world’s tropical forests, from Indonesia to the unique savannahs in Brazil, are not only important for the planet, but also their portfolios.”

While the Bunge development is seen as a positive development in curbing soy-driven deforestation in the Cerrado, the vote is non-binding, which means that Green Century and other investors are expected to keep pressure on the trader and its peers. Green Century says that Bunge can implement a “suspend-and-engage” approach, which is frequently used by traders and refiners in the Southeast Asia palm oil market. With this approach, a company will suspend any supplier connected to deforestation and then engage the supplier to influence it to reduce activity connected to deforestation. Bunge could also join the Cerrado Manifesto, which has been signed by 160 companies that have pledged to eliminate deforestation in the Cerrado. Bunge and other traders agreed to the Amazon Soy Moratorium, an industry-wide agreement to stop purchasing soy on cleared land in the Amazon, but have not signed the Cerrado Manifesto.

Traders have been criticized for having target dates in their commitments that allow for too wide of a window for eliminating deforestation in their supply chains. For instance, COFCO has aimed for 2023, while Cargill has targeted 2030. Traders face both deforestation and wildfire risk exposure. Investor pressure is likely to increase on Bunge and its peers this summer during fire season. Chain Reaction Research’s analysis shows that soy traders in the Cerrado in 2020 saw a high number of fires in a 25-km vicinity of their silos, similar to levels seen 2019. The expansion of production to meet export market demand for Brazilian soy is exacerbating these risks.

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