Asset managers fail to live up to their pledge to divest from Brazil

Several European investment groups last year threatened to divest from Brazil because of excessive deforestation have failed to do so, even as new figures show the rate at which destruction of the Amazon rainforest is taking a turn for the worse. Best. since 2006.

European food retailers, including Tesco and UK M&S, have also stayed away threats boycotting Brazilian products, saying it now supports a unified approach by industry and government to stop the cutting of the world’s largest rainforest.

The lack of action has raised concerns about the commitment of property managers and retailers to take effective action if environmental targets are not met. It also led to worries that the administration of President Jair Bolsonaro – who has long advocated open rainforest commercial development – can feel encouraged if it believes that boycotts will not happen.

“The latest data underscores that unfortunately real change has yet to happen [in the Brazilian Amazon]. This worries us more and more because we don’t want to be accused of ‘washing the commitment’ – meaning having some dialogue that looks good, but doesn’t make real progress,” said Thede Rüst, head of emerging markets debt at Nordea Asset Management – is just one of two of seven investment groups to watch for their divestment threat.

“If nothing happens, [then] This can jeopardize future commitments as countries know they can deflect criticism by engaging without taking action,” said Rüst, noting that in August last year Nordea sold a stake in Brazilian meatpacking company JBS worth $40 million against its environmental record.

In June 2020, more than two dozen Financial institutions around the world have written to the Brazilian government, asking the country to rein in increased deforestation, which they say has created “widespread uncertainty about investment conditions or provide financial services to Brazil.”

Seven of the companies – including Norway’s largest pension fund KLP and the UK’s Legal & General Investment Authority – clearly threatened divest meatpackers and grain traders linked to deforestation as well as Brazilian government bonds, if the situation does not improve.

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

Since then, deforestation has steadily increased. More than 13,200 square kilometers of rainforest is Raze in the 12 months from last August to July – a 22% increase from the previous year and the highest rate of deforestation in 15 years – according to data from Brazil’s National Institute for Space Research.

Forests are often razed to make way for livestock grazing, soybean farming or gold mining – much of which enters poorly managed supply chains into international markets.

Of the seven consortiums, only Nordea and Dutch group Robeco have made dives in the past year, with the majority of companies now saying they favor “participation” – especially after the summit the recent COP26 summit in Glasgow, where Brazil won much praise for its commitment to eradicating illegal practices. deforestation by 2028.

“Exclusion and active ownership are two equally important tools that we as investors can use. Divestment can be the solution but not always. Sometimes engagement takes us further,” said Sara Skärvad of Storebrand, co-chair of the Investor Policy Dialogue on Deforestation (IPDD), an investor pressure group.

“I don’t think we should abandon the commitment,” said Graham Stock, partner at BlueBay Asset Management – who spoke to the Brazilian government as another co-chair of the IPDD – adding new data. shows that the drop in fires in the Amazon over the past three months suggests a “slightly better picture” is emerging.

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

Asset management firm KLP, Norway’s Storebrand and UK’s LGIM told the Financial Times they had not divested from Brazil over environmental concerns over the past year. Swedish state pension fund Ap7 said it had not yet divested, but added that it “blacklisted JBS a few years ago” because of concerns about labor practices.

Oslo-based asset manager DNB said it had “previously excluded” companies based on deforestation risk, and Brazilian companies involved in illegal deforestation were not included in the mandate. under their active management. It said it was in “ongoing dialogue” with agribusiness group Bunge, which is included in the index fund it manages.

All investment groups who spoke to 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 soybeans from illegally deforested areas” and is “committed to sustainable supply chains”.

The problem has become more pressing in recent weeks after a proposed draft law from Brussels would ban imports into the EU of agricultural products, including beef and soybeans, which are derived from deforested land.

If the proposal is made into law, it could hit Brazil’s big meatpackers, such as JBS and Marfrig, as well as international grain traders, such as Cargill, who only maintains operations or supplies in the Brazilian Amazon and the Cerrado savanna.

“[The EU proposal] Jan Erik Saugestad, chief executive of Storebrand, added that his company could still divest “if the outcome is not successful”.

Some food retailers have backed down from earlier boycott threats. Last year, more than 40 European companies, including Tesco, Marks and Spencer, warned they could boycott Brazilian products if a land reform bill believed to promote deforestation in the Amazon was approved by the National approved by the association.

Despite the bill’s lack of progress, deforestation continues to increase. Many companies now say that a unified push by governments and businesses is needed to tackle the problem.

“We are committed to playing our part in tackling deforestation, but we need the entire food industry and governments to join us,” a Tesco spokesperson said. A Tesco spokeswoman said in comments to Co-op, Sainsbury’s and the British Retail Consortium, also representing her.

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