Increased Demand For Soybean Products; Investors Call For The Eliminate Deforestation Risks

Investors with $6.3 trillion in assets call on companies to cut climate, deforestation-related risks in global soybean supply chains

Deforestation

Picography / Pixabay

Increased demand for soybean products is destroying important biomes in South America, driving up emissions, and exposing companies that source these products from the region to various business risks.

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BOSTON/LONDON - As global demand for soybean products continues to increase, 57 investors with more than $6.3 trillion in assets under management are calling on companies to disclose and eliminate deforestation risks associated with meeting this demand in their soybean supply chains, with a view towards protecting the long-term value of their investments.

“While we recognise the important role of agriculture and soybean production to economic development and the livelihoods of farmers, we are also concerned that the environmental and social issues associated with unsustainable soybean production could have a material impact on companies that source the commodity.”

Agriculture production is a major source of global greenhouse gas emissions and is a major driver of tropical deforestation around the world. Soybean production, in particular, is the second largest soft commodity driver of deforestation, and production continues to escalate to meet a growing demand. More than one million square kilometers of farmland worldwide are now dedicated towards growing soybeans.

The Brazilian Soy Moratorium, which was put in place in 2006, has been successful in reducing deforestation within the Amazon biome. However, there is now growing concern that agricultural expansion and soybean production is leading to increased deforestation in other important regions and biomes within South America, such as the Cerrado and Gran Chaco.

The statement comes as the latest Intergovernmental Panel on Climate Change report calls on world governments to limit global temperature rise to 1.5-degrees Celsius to avoid the worst impacts of climate change.

“In light of the latest IPCC report urging the limiting of global temperatures to 1.5 degrees, addressing the emissions impacts from deforestation will be critical,” said Julie Nash, director of food and capital markets at the sustainability nonprofit organization Ceres. “Deforestation creates material market and reputational risks for companies, and EMBARGOED UNTIL 11:00 AM (UK)/6:00 AM (US) THURSDAY, MARCH 7, 2019 is a source of systemic risk across investment portfolios given its contribution to climate change.”

Investors are calling companies to commit to eliminating deforestation risks within their entire soybean supply chain. In the statement, the investors laid out several expectations for companies to meet including awareness and oversight of sustainability and deforestation issues at board level, and increased public disclosure on a wide range of issues including of scope 1, 2, and 3 (direct and indirect) greenhouse gas emissions.

“As a long-term investor, we consider climate change to be a systemic risk to our global investment portfolio and view the reduction of deforestation as one of many solutions to help manage our exposure to climate change risk,” said Beth Richtman, CalPERS managing investment director, sustainable investments program. “Effective management and reduction of deforestation by our investee companies in their agricultural supply chains, such as soybean, is critical to reducing our portfolio exposure to climate change related risks.”

“Much of the discussion around climate change has been focused on the energy sector,” added Danielle Carreira, Senior Manager, Environmental Issues at Principles for Responsible Investment (PRI). “However, agriculture, forestry and land use (AFOLU) is a very large portion of the problem. Increased deforestation and land conversion in important biomes is putting business and society at risk. As the problems associated with climate change and deforestation continue, companies will see more investors looking to engage with them on the issue.”


Investor expectations on deforestation in soybean supply chains

This statement is endorsed by 57 investors representing approximately US $6.3 trillion in assets.

As investors, we have a fiduciary duty to act in the best long-term interests of our beneficiaries. To that end, we are committed to the incorporation of material environmental, social, and governance issues into investment and active ownership practices, with a belief that these factors will impact the long-term financial performance of portfolio companies.

Agriculture, forestry, and land use accounts for almost a quarter of all anthropogenic greenhouse gas emissions. Deforestation driven by soft commodities is a major source of emissions in this sector, and soybean production is the second largest soft commodity driver of tropical deforestation.

Globally, more than one million square kilometres are now dedicated towards growing soybeans.

While we recognise the important role of agriculture and soybean production to economic development and the livelihoods of farmers, we are also concerned that the environmental and social issues associated with unsustainable soybean production could have a material impact on companies that source the commodity.

Companies that source soy products grown in South America are exposed to a number of deforestation-related business risks. These include reputational risks as consumers become aware that a company’s supply chain is linked with deforestation, or land and labour rights issues, operational risks from potential changes in local climate and falling agricultural yields, as well as regulatory and litigation risks, and market access risk.

Increased demand for soybean products, in particular soymeal for livestock feed, has been a significant driver of deforestation within South America and particularly Brazil, now the largest exporter of soybeans globally. This means that multinational companies could be increasingly exposed to deforestation risks associated with their sourcing of soy products.

While the Brazilian Soy Moratorium has been successful in reducing deforestation within the Amazon biome, there is now concern that agricultural expansion and soybean production will lead to increased deforestation in other important regions and biomes within South America, such as the Cerrado and Gran Chaco. For example, in recent years the Cerrado has seen significant conversion of native vegetation driven largely by increases in soy production. This biome plays an important role as a carbon sink, storing equivalent to approximately 13.7 billion tonnes of CO2, and deforestation in the region has been linked to changes in regional rainfall and reductions in agricultural yield. It is therefore important that attention is paid to these other globally important biomes.

We expect companies to demonstrate commitment to eliminating deforestation within their entire soybean supply chain, and will seek evidence of this on multiple levels1, including:

1. Awareness and Governance

a. Awareness and oversight of sustainability and deforestation issues at board

b. A publicly-disclosed, commodity-specific deforestation policy with a quantifiable, time-bound commitment covering the entire supply chain and sourcing

2. Risk Management and Traceability

a. Public disclosure of processes to identify, assess, and manage deforestation risks across the soy supply chain, including:

i. The materiality and/or dependence on soy products as inputs or

ii. A traceability commitment that is time-bound, quantifiable and covers both direct and indirect soy suppliers, tracking the percentage of soy procurement that is traceable to product

iii. Evidence of a well-documented and transparent monitoring and verification system for supplier compliance with the company’s deforestation

3. Strategy and Risk Mitigation

a. Public disclosure of the percentage of soy sourced from suppliers in compliance with the company’s deforestation policy.

b. Public disclosure of the protocol for supplier non-compliance including requirements for a time-bound corrective-action plan to return to

c. Public disclosure of a time-bound strategy to reduce Scope 1, 2, and 3 GHG emissions.

4. Metrics and Monitoring

a. Public disclosure of the metrics used to identify, assess, and manage soy-driven deforestation risks within the entire supply

b. Public disclosure of Scope 1, 2 and 3 GHG emissions, calculated in line with internationally recognised GHG estimation methodology and

We will therefore seek to engage relevant investee companies on deforestation-related risks within their supply chains, particularly those with direct or supply chain exposure to soybeans and related products, with a view towards protecting long-term value and mitigating risks.

Endorsed by:

Aberdeen Standard Investments

Achmea Investment Management

ACTIAM

Adrian Dominican Sisters

Aegon Asset Management

Affirmative Investment Management

APG Asset Management

Aviva Investors

Baldwin Brothers

Bâtirente

BMO Global Asset Management

BNP Paribas Asset Management

Boston Common Asset Management

CalPERS

Christopher Reynolds Foundation

Dana Investment Advisors

DNB Asset Management

Domini Impact Investments

Environment Agency Pension Fund

Epic Capital Wealth Management

Everence and the Praxis Mutual Funds

Falcons Rock Investment Counsel

First Affirmative Financial Network

Friends Fiduciary Corporation

Green Century Capital Management

Handelsbanken Asset Management

Hermes Equity Ownership Services

Hexavest

Impax Asset Management

Interfaith Center on Corporate Responsibility

Jlens Investor Network

The Joseph Rowntree Charitable Trust

JSA Financial Group

KBI Global Investors

Le Regroupement pour la responsabilité sociale des entreprises (RRSE)

Legal and General Investment Management

Maryknoll Sisters

Mercy Investment Services

Miller/Howard Investments, Inc.

Minnesota State Board of Investment

Mirova

MP Pension

Natural Investments

NN Investment Partners

Northwest Coalition for Responsible Investment

Rathbone Greenbank Investments

Robeco

Seventh Generation Interfaith Coalition for Responsible Investment Inc.

Socially Responsible Investment Coalition

Stephen Whipp Financial, Leede Jones Gable Inc.

Storebrand Asset Management

Sustainable Value Investors

Trillium Asset Management

Trilogy Global Advisors, LP

Trinity Health

ValueInvest Asset Management

Zevin Asset Management


  1. The four key expectations within this statement are intentionally aligned with the final recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). The signatories to this statement recommend that companies follow the TCFD’s guidance in their disclosures to investors.

The statement was coordinated by the Investor Initiative for Sustainable Forests (IISF). IISF is a joint initiative led by Ceres and PRI, which aims to transform industry practices to eliminate deforestation from cattle and soy supply chains. Financial support is provided by the Gordon and Betty Moore Foundation and is part of a conservation and financial markets collaboration. For more information, please see http://www.moore.org/FinancialMarkets.

About Ceres

Ceres is a sustainability nonprofit organization leading the most influential investors and companies to build leadership and drive solutions throughout the economy. For more information, visit www.ceres.org or follow on Twitter @CeresNews.

About PRI

The PRI is the world's leading proponent of responsible investment. It works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The PRI acts in the longterm interests of its signatories, of the financial markets and economies in which they EMBARGOED UNTIL 11:00 AM (UK)/6:00 AM (US) THURSDAY, MARCH 7, 2019 operate and ultimately of the environment and society as a whole. Visit the PRI website for more details: www.unpri.org



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver