- Motivated by the Amazon fires that raged in Brazil and Bolivia, 230 global investors with US$16.2 trillion in assets published a strongly assertive statement warning hundreds of anonymous companies to comply with their commodity supply chain deforestation commitments or run the risk of suffering economic consequences.
- The statement was published by the Principles for Responsible Investment (PR), an international network of investors, and Ceres, a US non-profit organization that works with investors to promote sustainability.
- Among the 230 signatories are CalPERS (the California Public Employees’ Retirement System), which manages the largest public pension fund in the United States, and a few more unusual companies, such as China Asset Management.
- Elsewhere, pressure from consumers led the VF Corporation, the US clothing, and footwear company that owns the Timberland and The North Face brands, to announce the cessation of purchases of Brazilian leather. It remains to be seen whether a global boycott of Brazil related to deforestation will develop.
So far, President Jair Bolsonaro has had his way, ignoring the concerns of international governments and NGOs about Brazil’s environmental policies.
However, the people of Latin America, the world’s eighth largest economy, may be forced to take this into account at this point, with the involvement of global investors.
In mid-September, a strongly assertive investor statement was released by the Principles of Responsible Investing (PRI), the world’s leading advocate of responsible investing, and Ceres, a US non-profit organization that works with investors to promote sustainability.
The document, which condemns deforestation linked to the supply chain, was approved by an unprecedented number of major investors, 230 in total, which together represents US$ 16.2 trillion in assets.
“As the fires in Brazil and Bolivia made headlines around the world, we’ve seen a marked increase in unease about deforestation among institutional investors,” Julia Nash told Mongabay. Julia is the program director for food and forests at Ceres.
“It is with great concern that we follow the increasing crisis of deforestation and forest fires in Brazil and Bolivia”, says the statement.
And it goes on to describe the failure of commodity companies to deliver on promises to eliminate deforestation from their supply chains.
“While hundreds of companies have pledged to end commodity-driven deforestation by 2020, recent research indicates that very few companies are working to achieve this goal,” says the document.
Signatories include CAIPERS (California Public Employees Retirement System), which manages the largest public pension fund in the United States.
“Deforestation is a global issue for long-term investors like CalPERS, which face serious and urgent risks posed by climate change,” said Anne Simpson, CalPERS’ director of board administration and strategy.
“For a long time, the discussion on climate change focused on the energy sector. There is an urgent need for greater focus on effective management of the agricultural supply chain,” said Jan Erik Saugestad, CEO of Storebrand Asset Management, Norway’s largest private asset manager, and also a signatory.
There are also unusual signatories, including China Asset Management (one of the country’s largest fund groups), Australia’s First State Investments, HSBC Asset Management (a $1 trillion Canadian asset manager), TD Asset Management, and the Mitsubishi Banking Corporation (financial conglomerate and fifth largest bank in the world).
The participation of Brazilian investors is low. Five of the top 10 financial managers in Brazil are PRI members – Itaú Asset Management, Bradesco, Caixa Econômica Federal, Santander Brasil Asset Management, and BTG Pactual Asset Management.
But only one Brazilian member (SulAmérica Investimentos) has signed the declaration so far. It is unclear whether the PRI’s Brazilian members chose not to sign or simply fail to meet the declaration’s reporting deadlines.
The declaration’s main link with Brazilian companies is currently indirect. One of the signatories, for example, is Aberdeen, an international investment management group, which has shares in BRF, one of the largest food companies in the world, which owns Sadia and Perdigão, both of which are major food producers and exporters. from Brazil.
While Amazon Watch — a leading US-based NGO working to protect the Amazon rainforest and its people — supports the statement, it also has reservations.
Campaign director Moira Birss told Mongabay: “It is disappointing and troubling not to see two of the biggest equity investors, BlackRock and Vanguard, on the list, not to mention other major US lenders and investors.
Once again, leadership on environmental and climate issues is coming from Europe. US financial institutions need to step up if they don’t want to continue to be complicit in the destruction of the Amazon.”
The investor’s statement refers to a report entitled “ Vulnerable Situation ”, published in June 2019 by Ceres. It shows that, although 484 companies have pledged to tackle deforestation in their businesses as part of a global goal to end deforestation by 2020, only 72 have committed, so far, to eliminate deforestation from their supply chain and, of those, only 21 showed real and measurable progress.
Without naming the companies involved in deforestation, this report warns: “This alarming gap in commitment to action exposes companies and institutional investors to significant financial risk.
Institutional investors are increasingly recognizing that deforestation creates material risks to the market and reputation of companies, and is also a source of systemic risk in investment portfolios given its contribution to climate change.”
That statement is the first strong signal to companies that are highly exposed to Amazon deforestation that they must close this gap or face investor action.
The letter calls for “publicly disclosing and implementing a commodity-specific no-deforestation policy with measurable and timed commitments that span the entire supply chain” and the establishment of “a transparent monitoring and verification system for supplier compliance”.
Julia says that institutional investors are in a strong position to take effective action and adds: “They have interests aligned with the companies they invest in and they want those companies to prosper.
They can tell their suppliers that if they don’t take immediate action to eliminate deforestation from their supply chains, they could face a significant reputational risk that could impact their share price.”
Repression of deforestation in the supply chain
Greenpeace, an established advocate for ending deforestation in the Amazon, is also deeply concerned about companies failing to deliver on their promises.
In early 2019, while preparing the report, Countdown to Extinction, Greenpeace asked more than 50 traders, retailers, producers, and consumer goods companies to demonstrate their progress toward ending deforestation by making their supply chains transparent.
supplies for livestock products, cocoa, dairy products, palm oil, pulp and paper, and soy.
Greenpeace reports that no company has complied with the request and concludes: “The proliferation of corporate commitments has not translated into a significant change in reality”.
Greenpeace USA activist Daniel Brindis, talking to Mongabay, pointed out that: “The important thing is that these companies do not get away with psychologically manipulating the public, which is what they do with these supposed promises to eliminate deforestation in their supply chains without taking action”.
Ceres prefers to highlight the positive side of the story, noting that some progress is being made by a small minority of companies. In its “Vulnerable Situation” report, Ceres highlights three multinational companies that say they are making real progress:
- Nestlé, the Swiss food manufacturer, claimed in April 2019 that 77% of its agricultural commodities were verified as free from deforestation;
- consumer goods giant Unilever said in May 2018 that 56% of its palm oil was certified by the Roundtable on Sustainable Palm Oil (RSPO); and
- Palm oil production giant Wilmar reported in 2018 that 64% of its palm oil production and consumption was RSPO certified.
However, Greenpeace remains skeptical of the effectiveness of certification by bodies such as the RSPO, saying in its report that: “Government regulations and certification bodies – including the Roundtable on Responsible Soya (RTRS), the Roundtable on Sustainable Palm Oil (RSPO) and the Program for the Endorsement of Forest Certification (PEFC) – are not a pointer to the due diligence required to ensure that producer groups are not becoming engaging in deforestation or forest degradation, destroying mangroves or violating human rights”.
Some analysts support Greenpeace’s stance. For example, a June 2018 academic study notes that “few quantitative analyzes have been undertaken to assess the success of the RSPO in delivering social, economic and environmental outcomes with the proposed objective”.
The study of palm oil production in Borneo, Indonesia found “no significant difference between certified and non-certified plantations for any of the investigated sustainability measures”, and concluded: “To achieve the proposed results, the principles and criteria of the RSPO need substantial improvement and rigorous enforcement”.
Greenpeace also has doubts about Nestlé’s claims that 77% of its agricultural commodities have been verified free of deforestation.
The NGO reports that “the food giant arrived at this number by omitting to supply some of its commodities, including cocoa and all soy used as animal feed (which accounts for about half of its total soy footprint)”.
Even more, worrying for anti-deforestation activists is that, to eliminate deforestation from the supply chain, they will need to convince large transnational corporations, JBS (the world’s largest meat processing company) and Cargill, the commodity trading giant.
These two companies in the agricultural sector are repeatedly linked to deforestation and have resisted, until now, what Greenpeace calls “constructive engagement”.
Treating Brazil with a Commodity Boycott
While investors are focusing on global supply chains, environmental activists are pointing directly at the Bolsonaro administration’s draconian policies.
They say Bolsonaro’s environmental deregulation and his push for illegal deforestation were largely responsible for this year’s wave of fires.
Indeed, a significant new study has directly linked the massive Amazon fires that raged across northern Brazil in August to the deforestation that has taken place since Bolsonaro took office in January.
Maria Luisa Mendonça, with the Social Network for Justice and Human Rights, is calling for an international consumer boycott of Brazilian exports. “That is the only message Bolsonaro will hear. He doesn’t believe in climate change,” she said.
Former environment minister Rubens Ricupero agrees. He told The Guardian newspaper : Only “fear of economic consequences” – such as a boycott of Brazilian products or the impediment of a trade deal with the EU – can make Bolsonaro change his mind.
Christopher Garman, executive director of the Americas for US political risk consultancy Eurasia, believes that Brazilian commodity exports are at stake: “The risk now [to Brazil] is a consumer boycott. This is a direct cost created and exacerbated by Bolsonaro’s rhetoric, ” he told Folha de S. Paulo .
Some consumers, particularly those in Sweden, where environmental awareness runs high, are demanding action. According to Radio France International, Swedish consumers regularly post messages on Facebook calling on supermarkets to stop stocking Brazilian products.
Johannes Cullberg, owner of Paradiset, Sweden’s largest organic supermarket chain, is calling on people “to vote with their knives and forks” and has launched a boycott of Brazilian products in his stores.
Johannes says the response has been overwhelming, particularly in Brazil, where an article about him on Facebook has had more than 300,000 shares.
Some manufacturers have also taken action. VF Corporation, a clothing and footwear company in the US, which owns brands such as Timberland, Kipling bags, and The North Face, announced in August that it stopped buying Brazilian leather.
The company said it would only buy again when it had “confidence and assurance that the materials used in our products do not contribute to environmental damage in the country”.
These first signs of a global boycott have leather manufacturers in Brazil scared. “For an industry that exports more than 80% of its leather, bringing in more than US$2 billion in a single year, [the possibility of a boycott] is devastating news,” said José Fernando Bello, executive director of the Centro das Indústrias of Tannery of Brazil (CICB).
Other Brazilian companies are concerned that the boycott movement could spread. The Brazilian Business Council for Sustainable Development (CEBDS), which represents the country’s largest economic groups, has expressed “concern” and says it is pressuring the Bolsonaro government to change policies and curb deforestation.
In a statement on August 23, the CEBDS stated: “On behalf of our companies, which together have a turnover equivalent to 45% of the country’s GDP, the CEBDS calls for the control and monitoring systems to be improved to eradicate illegal deforestation in the short term in the Amazon and in all other biomes and reduce legal deforestation”. That statement stands in direct opposition to Bolsonaro’s plans to “develop” the “ unproductive Amazon ”.
Risk to the world’s biggest trade deal
In the long term, the most serious impact on Brazil, resulting from the fires in the Amazon this year, maybe the commitment to homologate the EU-Mercosur trade agreement, the biggest trade agreement the EU has ever established, signed in June after 20 years of negotiations.
The President of France, Emmanuel Macron, and the Prime Minister of Ireland, Leo Varadkar, have been clear that they will seek to block approval unless Brazil changes its environmental policy.
On September 13, Finnish finance minister Mika Lintilä said the EU should block imports of Brazilian beef and is considering suspending soy imports, putting pressure on the Brazilian government to contain the fires in the Amazon. Finland’s position is particularly important right now as it currently holds the rotating presidency of the EU.
Other big trading partners for Brazil are pressuring Bolsonaro, with the Chinese government privately saying it has expressed concerns. José Augusto de Castro, President of the International Trade Association of Brazil, is similarly concerned.
Brazil has already “lost the communication battle”, he said. “What the government needs to do is stop talking and let the country’s diplomats take over.”
For the moment, there are few signs that Brazil is moving away from its hard-line environmental positions. On September 4, the president’s spokesman, General Otavio Rego Barros, told Reuters that the government was not expecting a boycott.
The next day, the government launched an international publicity campaign to fend off the growing wave of criticism. This appears to have had little impact abroad.
The path remains uncertain. Although fires have largely disappeared from the headlines, the dry season in the Amazon has not yet reached its peak, which could very well mean more fires.
In fact, in September there was a huge fire in a rural area of Santarém, a city on the banks of the Amazon River, in Pará. One of the worst affected areas was Alter do Chão, a popular tourist resort for wealthy Brazilians.
The president has not withdrawn his anti-environmental views. Even as the fires raged, Bolsonaro, with the support of seven governors of states that are part of the Amazon, pledged to open indigenous reserves for mining and agriculture – currently illegal under the Brazilian constitution.