Asset managers fail to keep promises to divest Brazil

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Several European investment groups that threatened to pull out of Brazil over increasing deforestation last year have failed to do so, even though new figures show the rate of destruction of the Amazon rainforest is at its peak. worst since 2006.

European food retailers, including Britain’s Tesco and M&S, have also given up on threats to boycott Brazilian products, now claiming they favor a united industry and government approach to stop the logging of the world’s largest rainforest.

The lack of action has raised concerns about the commitment of asset managers and retailers to take effective action if environmental goals are not met. It has also raised concerns that the administration of President Jair Bolsonaro – which has long advocated opening up the rainforest to commercial development – might feel emboldened if it thinks the boycotts will not happen.

“The latest data highlights that the real change has unfortunately not happened yet [in the Brazilian Amazon]. This worries us more and more, because we do not want to be accused of “cleaning up engagement”, that is to say having a certain dialogue to look good, without however making real progress “, a said Thede Rüst, head of emerging market debt at Nordea Asset Management – one of two in seven investment groups to follow through on their divestment threats.

“If nothing happens, [then] this can potentially hurt future engagements as countries learn they can deflect criticism by engaging without taking action, ”said Rüst, noting that Nordea had ceded shares in the EU in August last year. Brazilian meat packer JBS worth $ 40 million against its environmental record.

In June 2020, more than two dozen financial institutions around the world wrote to the Brazilian government asking it to curb the increase in deforestation which they say has created “widespread uncertainty over the conditions for investment or provision of financial services in Brazil “.

Seven of the companies – including Norway’s largest pension fund KLP and UK Legal & General Investment Management – explicitly threatened divest from abattoirs and grain traders linked to deforestation as well as Brazilian sovereign bonds, if the situation does not improve.

Jeanett Bergan, then head of responsible investment at KLP, told Reuters at the time that divestitures could take place “as early as this year [2020]. “

Since then, deforestation has continued to skyrocket. Over 13,200 km² of rainforest was cleared in the 12 months between August last year and July – a 22% jump from the previous year and the highest deforestation rate in 15 years – according to data from the Brazilian National Institute for Space Research. .

The forest is typically cleared to make way for cattle ranching, soybean cultivation or gold mining, much of which infiltrates through poorly regulated supply chains in international markets.

Of the seven groups, only Nordea and the Dutch group Robeco have made divestitures in the past year, with the majority of companies now declaring themselves in favor of a “commitment” – especially after the recent COP26 summit in Glasgow, where Brazil has won praise for pledging to eradicate illegal activities. deforestation by 2028.

“Exclusions and active ownership are two equally important tools that we as an investor have at our disposal. Divestment may be the solution, but it is not always the case. Sometimes engagement takes us further, ”said Sara Skärvad of Storebrand, who co-chairs the Investor Policy Dialogue on Deforestation (IPDD), an investor lobby group.

Graham Stock, partner at BlueBay Asset Management – who spoke to the Brazilian government as another IPDD co-chair – said: “I don’t think we should abandon the engagement yet,” adding as new data showing a decrease in fires in the Amazon over the past three months suggested that a “slightly better picture” was emerging.

“[Our clients] want to hear about engagement. They do not limit their interests in Brazil to this one issue. There are other elements in the ESG [environmental, social and governance] story. Divestment would be a blunt instrument and an overreaction, ”he said.

Norwegian firms KLP, Storebrand and UK asset manager LGIM told the Financial Times they had not withdrawn from Brazil for environmental reasons over the past year. Swedish state pension fund Ap7 said it had not caved in, but added it had “blacklisted JBS a few years ago” because of concerns about labor practices.

Oslo-based DNB Asset Management said it had “previously excluded” companies because of the risk of deforestation, and Brazilian companies linked to illegal deforestation were not among its actively managed mandates. He said he was in “constant dialogue” with agribusiness group Bunge, which is included in the index funds the group manages.

All of the investment groups that spoke to the Financial Times said they would still consider divesting if Brazil did not take further action.

BS did not immediately respond to requests for comment. Bunge said he “does not source soybeans from illegally deforested areas” and is “committed to sustainable supply chains”.

The problem has become more pressing in recent weeks following a Brussels bill that would ban imports into the EU of agricultural products, including beef and soybeans, from deforested land.

If the proposal is adopted, it could strongly affect large Brazilian meat processors, such as JBS and Marfrig, but also international grain traders, such as Cargill, which maintain operations or source products from the Brazilian Amazon. and the Cerrado savannah region.

“[The EU proposal] This alone sends a strong signal to the market of what is expected, ”said Jan Erik Saugestad, Managing Director of Storebrand, adding that his company could still divest itself“ if the results do not occur ”.

Several food retailers have backed down from earlier boycott threats. Last year, more than 40 European companies, including Tesco and Marks and Spencer, warned they could boycott Brazilian products if a land reform bill widely believed to boost Amazon deforestation passes Congress.

While the bill did not advance, deforestation continued to increase. Many companies are now claiming that governments and businesses need to be unified in solving the problem.

“We are determined to play our part in the fight against deforestation, but we need the whole food industry and governments to join us,” a spokesperson for Tesco said in comments echoed by Co- op, Sainsbury’s and the British Retail Consortium, which also represents MME.


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