Investors urge Brazil to reject ‘Amazon destruction’ bill

Engagement efforts will be stepped up while some could consider divesting exposed companies

Investors have joined forces with British supermarkets and food groups to sign a letter to the National Congress of Brazil criticising a proposed bill that could “enable faster destruction of the Amazon rainforest” if passed.

LGIM, EdenTree Investment Management, Swedbank Robur Fonder, KLP Kapitalforvaltning, and AP7 have joined supermarkets including Tesco, Sainsburys and Marks & Spencer in urging Brazil’s national legislature to reject the bill, which is backed by President Jair Bolsonaro. If the bill passes it “will put public land/forest that has been illegally occupied after 2014 up for sale”, meaning that illegal occupiers can buy it, according to the coalition.

“We are concerned by any legislative measures that would weaken the protection and stability of the Amazon rainforest, considering its value to global biodiversity and the climate system,” Flora Gaber, ESG Specialist at AP7, told RI. “While it’s difficult to compare the severity and possible impacts of various legislative proposals that could weaken the protection of the forest, it remains clear that any measures with that possible impact are of great concern.” 

Pia Gisgård, Head of Sustainability and Governance at Swedbank Robur, told RI: “The Amazon plays a critical role for communities, global biodiversity and for the climate regulating systems on our planet. As an investor we are dependent on the quality of local, national, regional legislation and reinforcement to support sustainable practices in the value chains of commodities with origin in the Amazon.”

“If legislation fails to support companies that struggle to perform fair and sustainable business conduct, we may have to consider divesting companies with exposure to the Brazilian supply chain” – Pia Gisgård, Swedbank Robur

Several of the signatories made the same call over a similar proposal last year, which was subsequently withdrawn before it was brought to the floor of the parliament. 

Recently, there have been signs that Brazil was making progress on climate; President Bolsonaro committed to ending illegal deforestation by 2030 and reaching emissions neutrality by 2050 at President Joe Biden’s Leaders Summit on Climate. And earlier this year, Reuters reported that the Treasury was planning a sovereign bond issue linked to its ESG credentials.

Institutional investors have increasingly been pushing the Brazilian government to act on deforestation in recent years. Most notably, the $4.6trn Investors Policy Dialogue on Deforestation (IPDD) initiative, which LGIM and AP7 are part of, has been engaging with the nation since last year.

This latest call is also emblematic of a growing awareness by the investor community to tackle biodiversity. Gaber at AP7 said that investors are also increasingly prone to engage with sovereigns “since they are key actors in the protection of valuable ecosystems”.

Moving forward, Gaber told RI that “regardless of the outcome” of the Brazilian bill, they will be taking their next steps via the IPDD.

Similarly, a spokesperson for Norwegian pension fund KLP Kapitalforvaltning told RI that it has been engaging with companies that undertake significant trade in agricultural products from Brazil. 

Divestment could also be on the cards for some investors. Swedbank Robur’s Gisgård explained: “If legislation fails to support companies that struggle to perform fair and sustainable business conduct, we may have to consider divesting companies with exposure to the Brazilian supply chain.”

Supermarket signatory Tesco recently came under pressure from NGO Mighty Earth, which claimed it is sourcing from “companies most responsible for driving deforestation in Brazil – including subsidiaries of JBS, the world’s largest beef company, and Cargill and Bunge, the two biggest soy traders globally – which manufacture animal feed ingredients”.

“Clearing forest land for crops must stop – we are committed to fully playing our part to prevent deforestation and have met our commitments including our 2020 industry-wide target of certified ‘zero net deforestation’ for our own direct soy sourcing a year early,” a Tesco spokesperson told RI. “Recognising there is more to do, we were the first UK retailer to set an additional industry-leading target for the soy we use in the UK to be from entire areas that are verified deforestation-free by 2025, as well as a roadmap to reach this.” 

Supermarkets in France, the Netherlands, and Germany were also criticised by the NGO.

RI reached out to Vanguard, BlackRock and Schroders, all of which have holdings in one or more of the supermarkets criticised by Mighty Earth apart from German EDEKA, according to Market Screener data.

“As these holdings are held in our index funds, divestment isn’t an option,” a spokesperson for Vanguard told RI. “We will continue to have open conversations with company leaders and boards on ESG issues and may call for increased disclosure in areas where significant risk is present.”

BlackRock pointed to its recent natural capital stewardship approach, which prioritises deforestation risk management as a focus area for engagement. The asset manager’s document also explained it may “take voting action at companies by voting against the re-election of responsible board directors when companies have not effectively managed, overseen or disclosed natural capital-related risks. We may also vote for relevant shareholder proposals addressing material natural capital risks if we believe a company could better manage such risks or report on its approach.”

Schroders declined to comment. 

Tesco health resolution withdrawn 

In other supermarket related news, an £140bn investor coalition including Robeco and JO Hambro Capital Management (JOHCM) and led by ShareAction, has withdrawn a health resolution following new commitments by Tesco. 

The shareholder proposal, which was a UK first resolution on health grounds, asked Tesco to disclose the proportion of its sales linked to healthy products, to set targets to increase that proportion over time and to publish a strategy aimed at achieving that goal. Subsequently, the investors and ShareAction have been engaging with the supermarket.

Tesco has today committed to increase its sales of healthier food and drink products across all of its group retail business. 

Alongside the proposal being withdrawn, a two-year process of engagement has been agreed between Tesco, ShareAction and investors in the Healthy Markets Coalition, which include BMO Global Asset Management, Rathbone Greenbank, and JOHCM, as the supermarket implements the new commitments.

Last week the retail giant claimed to make another UK first when it announced it will offer its supply base sustainability-linked finance in a new voluntary programme, due to be launched in September.

As part of this, Tesco suppliers will be offered preferential financing rates via Santander’s supply chain finance platform, which incentivises suppliers to make positive changes to their business while tracking performance and creating a culture of continuous improvement. The rates will be based on each supplier’s carbon data disclosure, emissions reduction targets and progress against sustainability goals.