Fires in the Amazon: Why Investors Are Calling on Companies to Help End Deforestation

Tropical rainforests play a critical role in tackling the global climate crisis, protecting biodiversity and helping ecosystems thrive. Major investors and corporations, in particular, increasingly recognize the material financial costs and risks of failing to address deforestation in investment portfolios and along their operations and supply chains. In just the past five years, we have seen a proliferation of environmental, social and governance (ESG) indices and a growing shift to include these issues as material aspects of investment portfolio management and risk mitigation.

In response to the fires, a record number of more than 230 institutional investors representing USD $16.2 trillion in assets under management issued an urgent call to action last month for companies to tackle deforestation in their operations and global supply chains. Their message was clear: “As investors, who have a fiduciary duty to act in the best long-term interests of our beneficiaries, we recognize the crucial role that tropical forests play in tackling climate change, protecting biodiversity and ensuring ecosystem services.” Specifically, these investors are asking companies to publicly disclose commodity-specific no deforestation policy, establish a transparent monitoring and verification system for supplier compliance, and report annually on deforestation risk management, including progress on implementation of their no-deforestation policy.

There is growing momentum among institutional investors demanding action from their portfolio companies on climate change mitigation, alignment with the Paris Agreement goals, and eliminating deforestation in soybean and cattle production. Investor engagement with companies at this unprecedented level has gained increased exposure in the media, both in the US and Brazil, and has spurred responses with many of the Brazillian supply chain companies. The Brazilian Coalition for Climate, Forests & Agriculture and the Brazilian Business Council for Sustainable Development, recently issued a clear response that companies are recognizing that action on deforestation is a business fundamental and regional responsibility.

Recognizing this shift in the market, some of the world’s largest consumer goods companies have made important strides towards implementing no-deforestation policies. Nestle has made a commitment to no-deforestation since 2010 and recently announced that 77 % of its agricultural commodities are verified as deforestation-free. Unilever has also committed to a no-deforestation supply chain and sourcing 100% of their raw materials sustainably. By 2020, they are projecting to hit 70% sustainable sourcing overall.

While these examples are encouraging, the majority of companies have made little progress and our world’s rainforests remain undervalued and underprotected. As Ceres’ new report found, only 21 of 500 of the largest global companies have effectively disclosed their progress on deforestation practices and commitments. Disclosure provides deep insights into both corporate progress and impact, and without it, stakeholders can’t assess the progress companies are making in reducing their own purchases of deforestation-linked commodities or verifying that their portfolio company’s suppliers are eliminating deforestation across their entire operations and supply chains. Investors want companies to demonstrate measurable improvements over clear timelines, work towards strengthening supply chains, and purchase exclusively from suppliers who demonstrate transparent and verified implementation of aligned commitments.

Worsening climatic events, such as the Amazon fires, mirror the urgent findings in the Intergovernmental Panel on Climate Change report on Climate Change and Land, supporting the breath of current scientific consensus painting a dire picture of catastrophic resource scarcity from the combined effects of climate change, pollution, and deforestation, among many factors. Scientists also warn there is no way to limit average global temperature rise to 1.5 degrees Celsius—and thus avoid catastrophic social and financial impacts—without halting deforestation. Companies must prudently adapt to the latest science and climate paradigm to thrive and remain profitable, while shaping a world habitable for the communities that supply, produce, and purchase their products.

Deforestation exacerbates systemic risk across investment portfolios by contributing to the climate crisis and creates material financial risks for companies — including reputational and regulatory risks. If global governing bodies and business leaders fail to act, deforestation, as well as other commodity-driven environmental degradation will amplify the worst effects of climate change. Business leaders must ask the question: can we continue to erode the natural resource base supporting our industries and society, while remaining successful? The evidence-based answer, is no.

Although the smoke over the Amazon is thick, the way forward is clear—to address the global threat of deforestation to ecosystems and the economy, the global business community has a financial motive and ethical mandate to act now and protect the world’s largest rainforest. The stakes for investors, companies, rural communities—and all of us—couldn’t be higher.