Shareholders Play Key Role In Reducing Deforestation And Climate Risk

As investors analyze the climate resiliency of their portfolios, they should consider risks associated with the agricultural sector and especially the conversion of forests and peatlands to crop and pasture land.  The burning and razing of forests is one of the largest contributors to global greenhouse gas emissions. Deforestation contributes as many greenhouse gas emissions as the global transportation sector, with commodity-driven deforestation itself responsible for two-thirds of tropical forest loss.

Corporations that fail to adopt no-deforestation policies face unreliable supply chains, reputational damage and diminished financial returns. For example, deforestation already has exacerbated droughts in the Cerrado, a key region for soy production in Brazil, which has negatively affected regional yields, according to Chain Reaction Research.

As part of a strategy to minimize climate-related risks, investors have been pressing companies to adopt time-bound no-deforestation policies.” @Green__Century #ProxyPreview #Deforestation #Investors #ClimateAction

Shareholder resolutions regarding no-deforestation policies have pointed out risks in the four biggest commodities and their supply chains: palm oil, soy, cattle, and timber/pulp, helping to encourage companies to address the problem. 

How successful?  Since Green Century began working on forest protection in 2012, the percent of Southeast Asian palm oil refineries covered by these commitments has ballooned from 5 percent to 74 percent. And while tropical deforestation remains a global issue and risk, Indonesia actually experienced a 60 percent drop in primary forest loss in 2017. This is enormous progress. From 2007 to 2014, trees in Indonesia were razed at a rate of three acres every minute.

Protecting tropical forests has been a central focus of Green Century for several years. We focus on protecting tropical forests to combat climate change, to preserve necessary habitat for endangered species and to mitigate potential financial risks for investors. 

Most recently, Green Century worked with Aramark, one of the largest food service providers in the world, to develop and implement a comprehensive deforestation policy that addresses “No Deforestation, No Peat, No Exploitation” (NDPE) sourcing practices. Critically, Aramark also committed to explicitly excluding legal deforestation from its supply chain. 

Green Century has made progress in other supply chains, as well, by securing cross-commodity zero deforestation commitments from companies that include Archer Daniels Midland, Target and Kellogg. We also collaborate with other U.S. and global investors directly, through Ceres and the Principles for Responsible Investment (PRI) Steering Committee. 

Now, thanks in large part to investor pressure, more than 460 companies have made commitments to address deforestation in their supply chains. Investors are working to mitigate their exposure to deforestation risk posed by companies they own. Last year, CalPERS, the largest U.S. state pension fund, amended its investment policy to include deforestation as a material risk to be considered in its investment decisions.  

Works remains, however, and investors have an important role to play. We encourage them to incorporate the issue into proxy voting guidelines or join other investors in engagements with companies.

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Leslie Samuelrich
President, Green Century Capital Management