Investors want companies to take action to reduce deforestation. A number of institutional investors (230) representing $16.2 trillion in assets under management called on companies to take action in light of the Amazon fires. Around 30 percent of the biggest investment managers and asset owners are signatories to a statement that calls on companies to deal with the financial and material deforestation risks within their operations and global supply chains.
“We, therefore, call for business leadership to reverse the worrying deforestation trends we are witnessing,” the investors proclaimed in their statement. The investors specifically called on companies to take action by:
- Publicly disclosing and implementing a commodity-specific no deforestation policy with quantifiable, time-bound commitments covering the entire supply chain and sourcing geographies.
- Assessing operations and supply chains for deforestation risk and reduce this risk to the lowest possible level, disclosing this information to the public
- Establishing a transparent monitoring and verification system for supplier compliance with the company’s no deforestation policy.
- Reporting annually on deforestation risk exposure and management, including progress towards the company’s no deforestation policy.
Although many companies have goals in place to reduce deforestation, they lack teeth. A Ceres report found that out of 484 companies with commitments to source commodities that put forests at risk more sustainably, only 72 have zero/zero-net deforestation commitments in place. And of those 72 companies, only 21 (29 percent) have disclosed quantitative progress towards their deadline.
California Public Employees' Retirement System (CalPERS) was one of the signatories of the statement. Anne Simpson, CalPERS' director of board governance and strategy and Climate Action 100+ steering committee member, said that the agency is “ready to do our part as fiduciary investors to ensure we protect assets, manage risks, and realize sustainable returns for our members.”
Desertification is a big problem
Desertification is a process of land degradation where dry areas are turned into a desert. Several reports by the UN reveal that desertification is a big problem. There are about 500 million people globally who live in areas experiencing desertification, according to a report by UN’s Intergovernmental Panel on Climate Change (IPCC). “Drylands and areas that experience desertification are also more vulnerable to climate change and extreme events including drought, heatwaves, and dust storms, with an increasing global population providing further pressure,” the report states.
Desertification has reached nearly 20 percent of the world’s land since the 1970s, a report by the UN’s Principles for Responsible Investing (PRI) states. The Amazon rainforest could “reach a tipping point if temperatures rise by 3-4°C or if deforestation reaches 40 percent,” according to the report.
Clearing land for agriculture is a driver of the Amazon wildfires. Commercial agriculture accounts for two-thirds of tropical deforestation. Cattle, soy, and palm oil are the top commodities that drive tropical deforestation. Agriculture and deforestation associated with agriculture combined account for 19 to 29 percent of global greenhouse gas emissions.
The Investor Initiative for Sustainable Forests
The Investor Initiative for Sustainable Forests (IISF) is a collaborative investor engagement initiative with global companies that are either directly or indirectly exposed to soy and cattle from South America. The aim of the IISF, which is led by PRI and Ceres, is to transform industry practices so deforestation from cattle and soy supply chains is eliminated. Many of the signatories of the statement are involved with the IISF.
An advisory committee comprised of seven institutional investors from different places around the world leads the IISF. The IISF raises investor awareness of the potential financial risks of deforestation for companies that source commodities like cattle and soy from South America. It regularly hosts calls and webinars to raise awareness within the investor sector.