Pat Miguel Tomaino
Director of Socially Responsible Investing

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“The Amazon rainforest is burning”

That revelation — spread by advocates, scientists and affected communities — demanded the world’s attention in 2019. This summer was a record fire season in Brazil’s Amazon region, often called “the lungs of the world” for the zone’s importance to our atmosphere and our climate. Brazil’s far-right president Jair Bolsonaro claimed that the fires were fabricated or overblown. We know that this is false thanks to satellite imagery and NGO reports.

Initially successful, pro-forest initiatives in Brazil have been getting weaker since a high-water mark around 2008, and the rainforest has since suffered at the hands of farmers, ranchers, and short-sighted policymakers. But the problem worsened after the anti-environment Bolsonaro took office promising to overturn environmental laws and threatening the indigenous groups and environmentalists who try to protect forests from illegal developers. In Brazil, deforestation is driven by a complex and lethal mix of government apathy, local criminality, and poor governance.

Beyond Brazil

But beyond Brazil, there is a deeper cause of deforestation and fires — a global economic force that involves us all. That is the worldwide surge in demand for agricultural products and, relatedly, the global proliferation of certain cash crops. Global companies and investors seek to both stimulate and profit from demand for valuable commodities ranging from beef (a newly prized protein in Asia) to palm oil (a valuable input for biofuels, food, and cosmetics).

As the global agricultural sector churns forward, policymakers in places like Brazil begin to promote large scale cultivation, poor countries start to produce for global value chains rather than local food supplies, and forested land (essential for our climate) becomes undervalued compared to cultivated fields.

This dynamic is playing out all over the world. According to the Yale School of Forestry, industrial agriculture drives 70 percent of deforestation in Latin America, and it’s a major factor in the destruction of forests in Africa and Southeast Asia. Vital forests in Indonesia, Malaysia, and parts of Africa are threatened by palm oil production. Brazil’s Amazon neighbor Bolivia also experienced severe forest fires in 2019 which were linked to new industrial agricultural, more settlements in the rainforest zone, and poorly managed slash-and-burn tactics. Fully 70 percent of deforestation is linked to the production of agricultural commodities that end up in food products eaten around the world.

The company connection

Multinational corporations are fueling the agriculture boom and resulting deforestation. Searching the globe for good deals, companies in the big food, consumer products, and industrial sectors drive demand for large volumes of cheap commodities. The major supply chains of concern are beef, wood and pulp, soy, and palm oil.

Several of our portfolio companies, including Unilever, Costco, Kroger, and Amazon, rely on those supply chains. The conduct of their suppliers (and in many cases their subcontractors) can present material environmental risks. In turn, poor stewardship of land resources can threaten suppliers’ access to essential resources, sour community relations, and damage customer reputation.

Consumer sentiment has pressed some companies to action. According to a June 2019 report from Ceres, nearly 500 companies have made commitments to take steps toward reducing deforestation in their supply chains.

How are we doing?

In the same Ceres report, however, it’s clear that the corporate commitments are not enough. Only 8 percent of companies with anti-deforestation pledges have committed to achieving zero deforestation in key supply chains, and only 21 companies have made any meaningful progress.

There is growing alarm that corporations are fiddling as the forest burns. As we near a tipping-point course toward 2-degree Celsius warming (scientists’ estimated point of no return on climate destruction), slow action on deforestation could seal our fate. Overall, tropical deforestation is the third largest source of greenhouse gases — more than all of the emissions from the European Union, and eclipsed only by the sizeable footprints of China and the United States.

Next steps

Yet experts like CDP and Rainforest Alliance agree that pressing companies is a viable way to “break the link between agricultural production and forest destruction.” Beginning three years ago, responsible investors have banded together on deforestation linked to palm oil production. Zevin Asset Management joined fellow investors pressing that industry to set zero-deforestation goals. The final policy adopted by the Roundtable on Sustainable Palm Oil (RSPO) came up short, but it was a critical update improving a rather lax set of original standards.

Going forward, we will continue urgent advocacy on the following:

• Company standards: Despite having some pro-worker policies, Costco has lagged behind other food retailers in addressing supply chain impacts. In an outreach earlier this year, we highlighted the discount chain’s lack of action in its meat supply chain and attendant deforestation risks. Costco aims for own-brand products containing palm oil to be 100 percent certified to RSPO good practice standards. We are beginning to engage Costco and other companies on how to address multiple supply chains and take additional steps toward a tougher “zero-deforestation” commitment that can help press front-line agriculture companies toward real change.

• Engaging industry and finance: Investors can also encourage entire industries to take a stand. In September, Zevin Asset Management joined more than 200 global investors in a letter expressing concern over the fires raging in Brazil and Bolivia and demanding that companies take action. Destruction and poor management in agriculture and other industries are often enabled by the financial institutions that lend to them. That is why we challenge large banks like India’s HDFC on their environmental and social due diligence procedures for big project lending and encourage them to assess climate impacts across their corporate loan portfolios. Since we began discussions two years ago, HDFC has elaborated its systems for analyzing environmental risks in its loan book. Going forward, we plan to encourage special attention to deforestation risks.

This summer we also joined with other investors to call for changes that would strengthen the Equator Principles, an industry-wide commitment of banks to address impacts of large project lending. Investors are pressing banks to go beyond those commitments and pay more attention to human rights, indigenous community concerns, and climate change risk — factors that all bear on deforestation.

• Seeking public policy action: Private sector pronouncements can help to move the needle. But as we have seen, they are in themselves not sufficient. As such, we will seek to educate policymakers and push for laws that require companies to identify and root out deforestation in their supply chains, as we did this summer when we joined other investors urging passage of a law to that effect in California.

There is no silver bullet for deforestation. The fire rages on even now, fueled by policy failure, industrial agriculture, and changing land prices. Investors can shine a light on ravenous supply chains, and we can push policymakers and bankers. But extinguishing this problem in time to prevent catastrophic climate change probably requires wholesale changes to our economic system.

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