Why Protecting Tropical Rainforests Reduces Investor Risk
In the last several years, investor interest and action around tropical deforestation has grown significantly. What is behind this heightened concern and what should investors do this proxy season to address it?
Tropical deforestation is a leading cause of increased carbon emissions and contributes nearly the same amount of greenhouse-gas emissions as the entire global transportation sector. The conversion of land for palm oil, cattle, and soy commodities has caused the loss of about 129 million hectares of forest since 1990. Deforestation also threatens endangered species, disrupts water cycles, and ignites land conflicts with local communities.
These factors pose reputational risk, competitive disadvantage, market access disruption, regulatory risk and even standard asset risks to the companies operating throughout the supply chain. These risks are why Green Century Capital Management began its work on this issue more than five years ago. To minimize these risks, companies need to adopt zero deforestation policies, provide thorough disclosure and achieve timebound implementation benchmarks. Green Century has made progress by securing zero deforestation commitments from companies including ConAgra Brands, Archer Daniels Midland and Kellogg, while working with other investors and organizations to do the same. Since Green Century began this work in 2012, the proportion of refined palm oil supply covered by zero deforestation commitments has increased from 5 percent to 74 percent.
Despite this success, we need more progress to ensure fully sustainable supply chains. That is why this year, Green Century and New York State Common Retirement Fund filed a shareholder proposal at the agribusiness giant Bunge Limited on the company’s contribution and exposure to deforestation. Bunge declined to become a signatory to New York Declaration on Forests, unlike competitors Cargill and Wilmar International, and its 2015 Non-Deforestation Policy does not address the legal deforestation in at-risk regions of Brazil, where the company is the largest agricultural exporter. Specifically, Bunge does not exclude the sourcing of raw material originating from areas of recently cleared natural vegetation identified as having high conservation value, nor does it have plans to improve its sanctioning mechanisms and non-compliance protocols. However, according to the research consortium Chain Reaction Research, Bunge could mitigate reputational risks if it stops sourcing deforestation-linked soybeans from Piauí, a state in the Brazil’s contentious Cerrado biome.
Green Century's Tropical Forest Protection campaign encourages other investors to stay up to date on this engagement and support the proposal should it appears on the upcoming Bunge proxy statement.
President, Green Century Capital Management