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Asset managers fail to act on pledges to divest from Brazil

Several European investment groups that last year threatened to divest from Brazil over soaring deforestation have not done so, even as new figures show the pace of destruction of the Amazon rainforest is at its worst since 2006.

European food retailers, including Britain’s Tesco and M&S, have also shied away from threats to boycott Brazilian produce, saying now that they favour a united approach by industry and government to stop the felling of the world’s largest rainforest.

The lack of action has prompted concerns about the commitment of asset managers and retailers to take effective action if environmental targets are not met. It has also led to worries that the administration of President Jair Bolsonaro — who has long advocated opening the rainforest to commercial development — could feel emboldened if it believes boycotts will not happen.

“The latest data highlights that true change has unfortunately not yet occurred [in the Brazilian Amazon]. This increasingly concerns us as we do not want to be accused of ‘engagement washing’ — meaning having some dialogue to look good, yet not achieving real progress,” said Thede Rüst, head of emerging markets debt at Nordea Asset Management — just one of two investment groups out of seven to follow through on their threats of divestment.

“If nothing happens, [then] this may potentially harm future engagements as countries learn that they can deflect criticism by engaging without taking actions,” said Rüst, noting that Nordea had in August last year divested shares of Brazilian meatpacker JBS worth $40m over its environmental record.

In June 2020, more than two dozen financial institutions around the world wrote to the Brazilian government, demanding it rein in surging deforestation which they said has created “widespread uncertainty about the conditions for investing in or providing financial services to Brazil.”

Seven of the companies — including Norway’s largest pension fund KLP and the UK’s Legal & General Investment Management — explicitly threatened to divest from meatpackers and grain traders linked to deforestation as well as Brazilian sovereign bonds, if the situation did not improve.

Jeanett Bergan, then head of responsible investment at KLP, told Reuters at the time that divestments could happen “as soon as this year [2020].”

Since then, deforestation has continued to soar. More than 13,200 sq km of rainforest was razed in the 12 months between August last year and July — a 22 per cent jump from the previous year and the highest rate of deforestation in 15 years — according to the data from Brazil’s National Institute for Space Research.

The forest is typically razed to make way for cattle ranching, soyabean farming or gold mining — much of which seeps through poorly regulated supply chains into international markets.

Of the seven groups, only Nordea and Dutch group Robeco made divestments in the past year, with the majority of the companies now saying they favour “engagement” — particularly after the recent COP26 summit in Glasgow, where Brazil won plaudits for pledging to eradicate illegal deforestation by 2028.

“Exclusions and active ownership are two equally important tools that we as an investor have at our disposal. Divestment can be the solution but isn’t always. Sometimes engagement takes us further,” said Sara Skärvad of Storebrand, which co-chairs the Investor Policy Dialogue on Deforestation (IPDD), an investor pressure group.

Graham Stock, partner at BlueBay Asset Management — who has been talking to the Brazilian government as the other co-chair of the IPDD — said: “I don’t think we should give up on the engagement yet,” adding that new data showing a decrease in Amazon fires in the past three months suggested a “slightly better picture” was emerging.

“[Our clients] want to hear about engagement. They are not narrowing their interests in Brazil to this single issue. There are other elements in the ESG [environmental, social and governance] story. Disinvestment would be a blunt instrument and an overreaction,” he said.

Norway’s KLP, Storebrand and UK asset manager LGIM told the Financial Times that they had not divested from Brazil over environmental concerns in the past year. Swedish state pension fund Ap7 said it had not divested, but added that it had “blacklisted JBS a couple of years ago” because of concerns over labour practices.

Oslo-based DNB Asset Management said it had “previously excluded” companies based on deforestation risk, and Brazilian companies with links to illegal deforestation were not a part of its actively managed mandates. It said it was in “ongoing dialogue” with agribusiness group Bunge, which is included in index funds the group manages.

All of the investment groups that spoke with the Financial Times said they would still consider divesting if Brazil did not take further action.

BS did not immediately respond to requests for comment. Bunge said it “does not source soy from illegally deforested areas” and was “committed to sustainable supply chains”.

The issue has become more pressing in recent weeks following a proposed draft law from Brussels which would ban imports into the EU of agricultural products, including beef and soyabeans, which come from deforested land.

If the proposal is made law, it could sharply affect Brazil’s big meatpackers, such as JBS and Marfrig, but also international grain traders, such as Cargill, which maintain operations or source produce in the Brazilian Amazon and the Cerrado savannah region.

“[The EU proposal] alone sends a strong signal to the market of what is expected,” said Jan Erik Saugestad, chief executive of Storebrand, adding that his company could still divest “if results fail to happen”.

Several food retailers have backed away from earlier threats of a boycott. Last year, more than 40 European companies, including Tesco and Marks and Spencer, warned they could boycott Brazilian produce if a land reform bill widely expected to spur Amazonian deforestation passed Congress.

Although the bill did not progress, deforestation has nonetheless continued to increase. Many of the companies now say there needs to be a unified push by governments and business to address the issue.

“We’re committed to playing our part in tackling deforestation, but we need the whole food industry and governments to join us,” said a spokesperson for Tesco in comments echoed by Co-op, Sainsbury’s and the British Retail Consortium, which also represents M&S.


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