As deforestation escalates in the Amazon rainforest, the sustainability nonprofit Ceres, along with institutional investors and leading scientific experts, released today a new first-of-its-kind engagement framework for investors to spur more bold corporate action on global deforestation – a major driver of the climate crisis.
New research from Ceres’ scientific partners found that commodity-driven deforestation – the clearing and burning of forests for agricultural production – is associated with five percent of all global greenhouse gas emissions. Meanwhile, new data from Brazil shows that deforestation in the Amazon rose more than 50 percent in the first four months of 2020 compared to the same period of time last year. Ceres’ new Investor Guide to Deforestation and Climate Change aims to engage investors right now on deforestation emissions and other related risks across their investment portfolios.
“As more investors wake up to the broader climate risks in their portfolios, we want deforestation-driven climate risks to be top of mind. Protecting and restoring forests has three-quarters the climate mitigation potential as all renewable energy technologies combined. Investors must tackle this issue with the same vigor and urgency as they do with other material and financial risks,” said Meryl Richards, director of food and forests at Ceres, and author of the Ceres’ Investor Guide to Deforestation and Climate Change. “Just as investors engage fossil fuel giants to reduce their carbon footprints, they should also engage large food and apparel companies and other makers of consumer goods to eliminate deforestation in their supply chains.”
Ceres’ Guide provides investors with clear guidance on how investors can assess their deforestation-driven climate risks at both the portfolio and security level. It includes key action steps to deepen their engagements with large companies in various sectors and geographies who source different commodities such as soybeans, beef and palm oil. Commodity-driven deforestation releases large amounts of greenhouse gas emissions into the atmosphere and eliminates the land’s ability to store additional carbon. These emissions are embedded in corporate supply chains that are disrupted by climate-fueled physical risks, such as more extreme droughts, flooding and wildfires, and by transitional risks as the world shifts to a net-zero emissions economy.
“To mitigate climate risk, we must end deforestation,” said Jessye Waxman, shareholder advocate at Green Century Capital Management. “Investors need to recognize the risks posed by deforestation, decide what constitutes best practices for verifying deforestation-free supply chains, and hold companies accountable for implementing those practices.”
Companies that fail to mitigate deforestation emissions and other related risks face reduced market access, reputational risks, legal sanctions and other forms of financial exposure due to increasingly stringent policies, regulations and investor expectations on climate change. The Guide outlines exactly what investors should look for in corporate management of these risks, as well as the opportunities around corporate climate and no-deforestation commitments.
It was developed for investors with input from major institutional investors, including BNP Paribas, BlackRock, and the Office of New York City Comptroller, and other investors, as well as an influential Advisory Committee made up of leading data and science experts. In the last few years, investors have become increasingly concerned over the risks associated with commodity-driven deforestation. In fact, following last year’s devastating fires in the Amazon, 251 investors with $17.7 trillion in assets under management called on companies to take urgent action, stating their concerns about the “potentially increasing reputational, operational and regulatory risks,” that investee companies face.
With this new engagement framework, Ceres’ hopes to reach even more investors who are new to the issue and emphasize the wide-ranging impacts of inaction.
“The Intergovernmental Panel on Climate Change reported restoring landscapes and forests, and decreasing deforestation is one of the most cost-effective options to combat the impacts of our changing climate,” said Natalie Wasek, Shareholder Advocacy Manager at Seventh Generation. “We also know agricultural commodities are the key drivers of deforestation. Investor support and company engagement can increase attention to these risks and opportunities.”
Deforestation also poses other salient environmental and health risks. It contributes to global biodiversity loss and disrupts local and global precipitation patterns – something the Amazon region is already seeing with reduced rainfall and shorter growing seasons. It also may be linked to the increased occurrence of animal-borne infectious diseases due to animals losing habitat and being driven closer to human contact.
“As we see a ramp up in commodity-related deforestation in the Amazon in contrast with the goal of becoming net carbon zero by 2050, it is essential that investors assess and engage on portfolio-wide deforestation and biodiversity risk,” said Lauren Compere, Managing Director, Boston Common Asset Management. “Ceres’ Investor Guide to Climate Change and Deforestation lays out a helpful roadmap to assess and engage.”
“The stakes and opportunities for investors and companies are enormous,” said Julie Nash, program director of food and forests at Ceres. “The actionable steps laid out in the Ceres Investor Guide to Deforestation and Climate Change are an achievable way to eliminate deforestation emissions and systemic portfolio-wide climate risks.”
As the Guide makes clear, now is the time for bold and urgent investor and corporate action. The Amazon is approaching a disastrous tipping point where vast areas of rich forest are being transformed into dry, degraded savannah and scrubland. Progress in limiting global temperature rise to 1.5 degrees Celsius – the most ambitious goal of the Paris Climate Agreement – is behind schedule, and a huge shift in wide-ranging human activities is needed immediately.
“No-deforestation corporate commitments are a linchpin of this shift to a net-zero emissions future,” added Nash.
“Meeting the net-zero target set out in the Paris Agreement will be impossible without urgently tackling and reversing deforestation,” Yasmine Svan, Senior Sustainability Analyst at Legal & General Investment Management. “As deforestation rates continue to rapidly increase, so does the risk of runaway climate change. We are actively engaging food manufacturers to establish no-deforestation commitments, and to implement the tracing processes necessary to ensure compliance. We urgently need the food and agricultural sector, as well as other investors, to more actively and cohesively work together in rooting out deforestation.”