By Alexander Matthews August 26, 2021 Some of the world's biggest investors have been linked to deforestation of critical habitats like the Amazon rainforest, can they use their financial might to stop deforestation in its tracks? W
When you think of your retirement savings, bank or investments, you are unlikely to associate them with felled trees in lush rainforests. And pHowever, well-known banks, asset managers and other financial institutions hold shares in or grant loans to companies linked to deforestation.
This reliance on the funding to deforest critical habitats begs the question: how can financial institutions turn the tide and help protect the world's forests?
Between 2001 and 2015, almost a third of global deforestation was due to the production of raw materials - including livestock, soybeans, palm oil and paper . In Brazil, where deforestation has reached a higher in 12 years , the main reason is the beef. Two-thirds of the land cleared in the Amazon and the Cerrado savannah has been converted to pasture for cattle , one study concludes. In addition to causing considerable loss of biodiversity, this makes the Brazilian cattle sector responsible for a fifth of all emissions from deforestation from commodities across the tropics.
Deforestation could not occur on this scale without large financial investments. is lying. Loans totaling $ 249 billion (£ 176 billion) were made to deforestation-related companies between 2013 and April 2020, while equity investments in these companies amounted to $ 37 billion ( £ 26 billion) in April 2020, according to the database Forests and Finance , a database developedby an international coalition of research groups and civil society organizations.
Meanwhile, three of the world's largest asset managers, BlackRock, Vanguard and State Street, had $ 12.1 billion (8.6 billion pounds sterling) invested in producers and traders whose activities would be directly responsible for deforestation, according to an analysis by the Friends of the Earth environmental campaign group in September 2020 .
Land clearing for cattle ranching is one of the main contributors to deforestation in the Amazon (Credit:)
Turn Sources of funding for deforestation have become a major contributor to deforestation in the Amazon. target for many working to preserve the habitats on which the world and the climate depend.
The Amazon is the Amazon. 'one of the most threatened tropical forests in the world, and crucial for a healthy global climate . Brazil, home tomost of the Amazon, is also the world's largest beef exporter , accounting for nearly 20% of world beef exports, and the largest soybean producer . About 20% of soybean exports and minus 17% of beef exports from the Amazon and Cerrado to the EU could be "contaminated by illegal deforestation ", according to recent research.
About 450,000 km² (173,745 miles²) - an area larger than Morocco - from the deforested Amazon to Brazil have been turned into pasture for cattle, according to the Atlas foGlobal rest of Yale University. Cattle ranching and soybean cultivation are often linked as soybeans are grown on old pastures, pushing farmers further into the Amaz au. The atlas suggests that cattle ranching is currently responsible for 80% of deforestation in Amazonian countries.
Three meat processing companies - JBS, Marfrig and Minerva - accounted for 71.7% of Brazilian beef exports in 2015 to 2017 , according to a study. During that time, the three companies were linked with 756 km2 (290 square miles) of deforestation risk in the Amazon and 147.7 km2 (570 square miles) across Brazil as a whole, according to the researchers.
The three companies claim that the study's link between their activities and deforestation was a correlation, not a causation, and that they haveall have monitoring systems to prevent deforestation in their direct supply chains. Marfrig also said it has started testing a new blockchain-based traceability platform, Conecta, as part of a series of measures it is implementing to improve tracking of its supply chain. indirect (the suppliers of its suppliers). Marfrig and Minerva say they have also started using Visipec , a software tool that synthesizes information from separate publicly available datasets to highlight the risk of deforestation among indirect providers. Meanwhile, JBS says its deforestation risk monitoring system is considered one of the best and most sophisticated in the world, and the company maintains a policy of compliance.Responsible and strict planning for the purchase of raw materials since 2009.
The Bresil, which is home to much of the Amazon rainforest, is also the world's largest beef exporter (Credit:)
A August 2020 JBS survey by the US deforestation think tank Chain Reaction Research (CRR ) found that between 2008 and 2019, 983 JBS farms purchased directly caused deforestation of 203 square kilometers (80 square miles) and 1,874 indirect suppliers caused an additional deforestation of 508.5 square kilometers (200 square miles) . A spokesperson for JBS said the company monitors 60,000 suppliers every day using satellite imagery and suspends those it considers unsustainable from its supply chain - 12,600 from its supply chain. 'between them to this day.
The farms that CRR investigated were a small sample of JBS's complete supply chain. The board extrapolates that The total deforestation footprint of JBS-related vendors over the course of this period could be 2,000 km² (770 mi²) for its direct suppliers and 15,000 km² (5,790 mi²) for its indirect suppliers - a total area roughly equal to the size of Kuwait. JBS disputes the numbers, insisting that CRR's report failed to consider the company's risk mitigation measures. A spokesperson added that JBS takes a "tolerance approach. zero deforestation in its supply chain "and invests in training, monitoring and enforcement of suppliers to improve industry standards.
The CRR report, however, has noted: that the company's indirect supply chain does not fall within the framework of its zero deforestation policy.n managing the risk of deforestation among its indirect suppliers, a spokesperson for JBS said, “Due to information availability issues, we do not have visibility into the suppliers of our suppliers. We are tackling this problem with the company's new cattle transparency platform. , which will expand this ability to analyze suppliers from our suppliers and allow us to rule out deforestation across our entire beef supply chain by 2025. "
Force for change
So where does finance come in? Well, CRR analysis shows that JBS relies on European companies for almost 'one-third of its funding to help it finance its operations. Asset managers own shares: Vanguard owned 1.2% of JBS and BlackRock 2.1% , in October 2020 according to TraseFinance (BlackRock says that as of May 2021, its clients owned 1.33% of JBS). Through ownership and lending, it puts financial companies in a strong position to inspire change.
There are signs that financial companies are realizing the risk of deforestation . As of September 2019, 251 investors representing approximately $ 17.7 trillion (£ 12.5 billion) in assets signed a letter urging companies "to redouble their efforts and demonstrate commitment clear to eliminate deforestation within their operations and supply chains ". But in a information document As of October 2020, the Global Canopy think tank found that only 33 signatories themselves hadmy clear deforestation policies. Twelve of them had policies in place for some at-risk forest products and not for others. Global Canopy argues that deforestation policies are important because they indicate that the investor is committed to taking action against deforestation, they encourage a systematic approach to tackle the problem across their portfolio, and they also clarify their expectations of companies.
To determine to what extent their investments carry a risk of deforestation, investors can use a tool such as Trase Finance . A partnership between Stockholm Environment Institute, Global Canopy and Neura Alpha, the platform offers easily searchable data on debt and equity investments from some 12,000 financial institutions.res in companies that export palm oil from Indonesia and soybeans and beef from Brazil.
Green Century Funds, an environmentally conscious investment company based in Boston, has been tackling deforestation since 2012. Using the advocacy of its shareholders, it has succeeded in convincing companies across the supply chain of palm oil (a major cause of deforestation in Indonesia) to adopt palm oil deforestation commitments. These included major buyers such as Starbucks, Kellogg 's and Target, major palm oil traders (including Archer Daniels Midland and Bunge) and producers - such as Wilmar, the world's largest food company. from Asia, which, after the Green Century commitment, adopted a zero deforestation policy in 2015.
According to analysis by CRR , palm oil refineries in Southeast Asia without deforestation, without allrbe, No Exploitation Policies (NDPE) stood at 83% in April 2020 (although weak implementation in some cases means that the effective coverage of these policies is closer to 78%). While rogue actors continue to cut forests, overall rates of deforestation have slowed. According to the World Resources Institute , deforestation in ancient forests in Indonesia was 40% less in 2018 compared to the 2002-2016 average.
"Our ideal approach is usually to simply be able to address our concerns. with companies through dialogue, "says Jessye Waxman, shareholder lawyer for Green Century. "So, we will send a first awareness letter to talk to them to let them know about our concerns.pations. And the goal is always for this to lead to a productive dialogue where we can develop a relationship with the company to continue to express concerns about company practices and supply chain impacts or the need to improve
Soybean production in the Amazon is another major contributor to deforestation (Credit:)
In 2019, Green Century convinced Aramark (an international catering company that serves nearly 2 billion meals a year) to adopt a deforestation policy . The company is committed to eradicate deforestation in its supply chains by 2025. Erin Noss, Senior Director of External Communications at Aramark, said: “As of September 2020, 100% of the soybeans in oils, margarines and shortenings are under contract d 'Aramark came from deforestation. - free regions. The palm oil in these products is also sourced from responsible sources. We also determined that at least 80% of Aramark 's contract beef came from areas with no risk of deforestation. "
" Getting a company to commit to zero deforestation ] is really, in our minds, the first step - implementation is where things happen, ”says Waxman. "We are looking for companies to understand their own supply chains, which means they must have traceable supply chains for their direct and indirect applicators. They must understand where it is coming from and if these suppliers produce or not produce the merchandise according to the policy of that company, so you need to have traceability. You need to be able to monitor your supply chain, then you need to have a process in place.this is to find out what happens if your supplier is unable or unwilling to comply. "
If applicable 'To progress through dialogue, another option is to file a shareholder resolution. "Resolutions are not binding, but they are a really important tool in helping shareholders communicate with company management," Waxman explains. In October 2020, 67% of shareholders voted in favor of Green Century resolution calling on Procter & Gamble "to eliminate deforestation and forest degradation in its supply chain " at the annual meeting of the consumer goods giant. (Procter & Gamble did not respond to a request for comment.) Of shareholders voting in favor of BlackRock, making it the first time the asset manager has backed a resolution ofDeforestation.Overall, from July 2020 to June 2021, BlackRock supported 46th Environmental Shareholder Proposals for a range of different companies (not all with respect to deforestation) and voted against 26 .
Supporting anti-deforestation resolutions is just one way for asset managers like BlackRock and others to lobby companies to reduce deforestation.
Research from Amazon Watch, Profundo and Friends of the Earth showed that in 2018, 94% of BlackRock's deforestation-risk investments were in index funds - a type of fund traded in stock market (ETF) that tracks the performance of a stock market index, such as the S & P500. As of July 2020, ETF investments were cumulatively valued at $ 6.7 billion (£ 4.7 billion) - roughly 2.5 times the UK's GDP in 2020 - according to a res research article from financial think tank Planet Tracker.
The ETF industry and the index industry are "very concentrated," the report says. About seven institutions together control around 70% of the ETF and index markets. This means that these seven players - iShares ( managed by BlackRock), Vanguard, State Street Global Advisors on the one hand, and MSCI, FTSE Russell, S&P Dow Jones and Bloomberg - "have disproportionate power to mitigate the risk of deforestation," according to Planet Tracker.
So how can large financial institutions use this power to save forests?
Planet Tracker paper recommends targeting rapid reduction of deforestation-related companies in their product offerings universal "- for example, by issuing their own ETFs that exclude deforestation-related stocks, while lobbyingon the clue providers to design clues that do the same. And if index providers are unwilling to redesign indexes, Planet Tracker suggests companies could design their own (as financial services firm Fidelity has done).
A S&P Dow Jones Indices spokesperson said they offer a variety of ESG indices. indices that exclude companies that do not meet environmental and sustainability goals. A spokesperson for Vanguard said they regularly engage with concerned companies about deforestation and its risks to the long-term sustainability of businesses. BlackRock, meanwhile, has launched alternative versions of its flagship indices that aim to be more sustainable , including three funds with S&P, and working with FTSE Russell and Markit tocreate sustainable alternatives to standard benchmarks. State Street Global Advisors, FTSE Russell, MSCI and Bloomberg did not respond to requests for comment.
The threat of an index pullout could prompt companies to start taking meaningful action against Deforestation. So could the divestment threa t from individual investors. Here, Scandinavian companies are leading the way. Nordea Asset Management has sold its stake of 45 M $ (£ 31.8m) in JBS due to deforestation issues in 2020. Danske Bank has excluded Cargill, Bunge and ADM, three major commodities traders, from two of its investment funds due to the risk of deforestation, the bank confirmed in an email. Bunge and ADM did not respond to a request for comment. A spokeswoman for Cargill said: "We didn 't haveWe do not have a significant banking relationship with Danske and they did not give us any notification regarding the exclusions. "
Last July, Grieg Seafood has excluded Cargill Aqua Nutrition from access to funding via its NOK 1bn ($ 120m / £ 85m) "green bond over fears parent company Cargill may not do so enough to reduce its risk of soy deforestation in Brazil. A Cargill spokesperson said, “Grieg remains a valued and valued customer of Cargill. Cargill remains committed to removing deforestation from our supply chains as soon as possible. We regularly share with Grieg and our other customers the progress we are making in eliminating deforestation in our global soybean operations and achieving our collective sustainable supply chain goals. "