Global finance industry sinks $119bn into companies linked to deforestation

International banks and asset managers have prolonged a complete of $119bn of financing to twenty main agribusinesses linked to deforestation within the 5 years for the reason that Paris settlement was introduced into pressure, in line with an investigation by the International Witness marketing campaign group.

Main world lenders JPMorgan, HSBC and Financial institution of America had been among the many largest funders of the businesses, which included Brazilian meat producer JBS, every putting dozens of funding offers between 2016 and 2020, the analysis discovered.

Offers included nearly $730m-worth of financing for Olam Worldwide, one of many world’s largest meals ingredient suppliers, and its subsidiaries from JPMorgan through revolving credit score amenities, the info confirmed. Olam Worldwide is under investigation by the Forest Stewardship Council for allegedly destroying rainforest in Gabon.

Deforestation is a serious supply of carbon emissions, and tackling the difficulty is predicted to be among the many matters beneath dialogue by world negotiators on the upcoming COP26 UN local weather summit within the UK.

Regardless of the rising curiosity amongst firms in planting carbon-absorbing bushes, tackling deforestation in provide chains stays a much less of a mainstream difficulty for a lot of traders than different environmental considerations equivalent to measuring direct company emissions.

Information on greater than 5,000 offers, shared with the FT, point out that the highest 5 banks by whole deal worth — which included BNP Paribas and the Industrial and Business Financial institution of China (ICBC) — struck nearly 570 bond, credit score, and underwriting offers with 20 agribusinesses over the interval, price a mixed $32bn.

All 5 establishments besides the ICBC have “no-deforestation” insurance policies. All 20 agribusinesses have been publicly linked to deforestation, and had been listed in a database of firms energetic in forest-risk sectors, equivalent to soy palm and beef, assembled by the worldwide coalition of marketing campaign and analysis organisations beneath the Forests & Finance umbrella group.

“Although many of those banks have voluntary commitments on deforestation and on local weather change, they’re persevering with to have relationships with firms which are linked to deforestation,” mentioned Colin Robertson, senior forests investigator at International Witness.

“The overarching downside is there’s a lack of [legal] obligation on banks” to vary practices, he added.

Bar chart of $bn showing Top 10 banks that financed the 20 agribusinesses, by deal value

As the most important, China’s ICBC organized financing for eight of the 20 firms, the info present. That included offering about $1.1bn price of loans and revolving credit score amenities to commodities dealer Cofco Worldwide, which has been on the centre of allegations by advocacy group Mighty Earth that suppliers linked to Cofco had cleared greater than 20,000 hectares of forest in Brazil between 2019 and 2021.

Cofco mentioned that no unlawful deforestation occurred on farms it sourced from throughout that point.

JPMorgan, the second-largest financier, underwrote three bonds between 2018 and 2019 for commodities dealer Cargill, which has been accused of sourcing soy grown in deforested areas.

Final 12 months, the salmon producer Grieg Seafood identified Cargill over its “soy-related deforestation threat in Brazil”. JPMorgan declined to remark.

Cargill mentioned it didn’t provide soy from farmers who cleared land illegally or in protected areas, and suspended suppliers that had been discovered to be deforesting protected areas.

Barclays and Santander, in the meantime, every underwrote three bonds between 2018 and 2019 for JBS, the meat producer that has confronted scrutiny from activists and traders for hyperlinks to destruction within the Amazon rainforest.

JBS mentioned the corporate had a “zero-tolerance” coverage for deforestation, and had stopped working with suppliers that breached it.

Santander mentioned the financial institution was “dedicated to defending the Amazon” and anticipated its beef processing purchasers within the area to have a “totally traceable provide chain that’s deforestation-free” by 2025.

Though many banks and funding teams have “no-deforestation” insurance policies, they are often restricted of their scope. For instance, they could outline deforestation because the destruction of sure tropical or uncommon forests, somewhat than of any woodland. The ban may not lengthen to authorized deforestation.

Insurance policies will also be tough to implement and monitor. Banks could ask purchasers to make sure their suppliers will not be concerned within the destruction of forests, however many massive meals firms say they can’t account for the behaviour of each provider.

International Witness mentioned the 20 agribusiness’s “problematic observe information ought to have raised main crimson flags for financial institution compliance groups”. 

Though lawmakers within the EU, UK and US have proposed laws designed to remove deforestation from companies’ provide chains, none would lengthen the extra due diligence necessities to monetary establishments.

The International Witness analysis concerned evaluation of bond and share difficulty underwriting agreements, in addition to bond holdings and contours of credit score from lenders headquartered within the UK, EU, US, and China. Bond issuances had been the most important supply of funds, adopted by revolving credit score amenities and company loans. The 12 months that Paris accord on world warming got here into pressure, 2016, was the busiest dealmaking 12 months by worth, adopted by 2019.

Bar chart of $bn showing Bond underwriting and lines of credit were the main sources of financing

Along with direct financing, the 1,500 banks and asset managers tracked within the database held about $37.5bn price of shares within the 20 agribusinesses, as of the fourth quarter of 2020, the info confirmed.

HSBC mentioned the financial institution “has exited, is within the technique of exiting or has no banking relationship associated to forestry, palm oil or cattle with nearly all of entities named within the report”.

BNP mentioned the listing collated by Forests & Finance “doesn’t establish precise deforestation practices however somewhat ranks all firms whose actions could also be thought of ‘in danger’ for forests”. Ceasing to fund firms in dangerous sectors “would don’t have any constructive impression on their practices, as they might proceed to have the ability to depend on a variety of different lenders”, it added.

Barclays, Financial institution of America and Olam declined to remark. ICBC didn’t reply to a request for remark.

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