French investment firm joins international call against deforestation in Brazil
More than two dozen financial companies in seven countries including France have warned the government of Brazil that rampant deforestation in the Amazon could have consequences on investment in the country.
A total of 29 investment firms controlling assets worth 3.75 trillion US dollars, or about 3.3 trillion euros, sent the letter on Monday requesting meetings with Brazilian ambassadors France, Denmark, the Netherlands, Norway, Sweden, the UK and the US.
“As financial institutions, we see deforestation and the associated impacts on biodiversity and climate change as systemic risks to our portfolios,” read the letter, whose signatories include Comgest of France and LGIM of the UK.
Brazilian President Jair Bolsonaro has sought to extend mining and farming in the Amazon, which critics say is harmful to biodiversity, Indigenous peoples and the targets of the Paris Agreement on climate change.
“Much has been said about the fact that due to Covid-19, carbon emissions are down,” says Sébastien Thévoux-Chabuel, ESG analyst and portfolio manager with Comgest.
“But Brazil is on track to emit at least 10 to 20 percent more this year than in prior years, and this is really the result of deforestation, which itself is growing at a pace of about 20 percent just for the first five months of 2020.”
Using coronavirus to bypass environmental rules
Satellite images released by Brazil's National Space Research Institute in June showed deforestation has increased by 22 percent between January and May of 2020 compared with the same period in 2019, when such practices were already expanding.
While Bolsonaro claims Brazil is a model for conservation, critics blame his administration for creating conditions that saw forest fires rage in the Amazon through the summer of last year.
More recently, judges released a video in May of a cabinet meeting a month earlier in which Brazilian Environment Minister Ricardo Salles urged the government to take advantage of the media casting its attention on the Covid-19 pandemic to “change and simplify” environmental rules.
The group of investors also expressed concern about proposed laws that would legalise private ownership of public lands, thereby impinging on Indigenous peoples and continuing deforestation.
“We see a role not only for investors but also companies to take a stand and put constructive pressure on the government to perhaps amend or cancel those laws,” Thévoux-Chabuel says.
Risk of divestment
The firms' warning adds to international pressure about the Brazilian government's environmental record throughout Bolsonaro's mandate, which also saw France and others refuse to ratify a free-trade deal between the European Union and the Mercosur bloc of South American countries last year.
While the investors do not explicitly threaten divestment, they underlined issues around deforestation were important to their clients.
“The escalating deforestation in recent years, combined with reports of a dismantling of environmental and human rights policies and enforcement agencies, are creating widespread uncertainty about the conditions for investing in or providing financial services to Brazil,” the letter read.
“We are concerned that companies exposed to potential deforestation in their Brazilian operations and supply chains will face increasing difficulty accessing international markets. Brazilian sovereign bonds are also likely to be deemed high risk if deforestation continues.”
Comgest said it does not invest in Brazilian sovereign bonds but that it did divest from two Brazilian companies due to related concerns in recent years.
“When we talk to our clients, we receive the same signals, that they do care about those topics, maybe because some of them are quite long-term – pension funds, foundations, endowments and so forth – and they expect us to do what we can,” Thévoux-Chabuel says.
“If we want to have a chance to shape outcomes, we need to put pressure on those companies, so they will put pressure on their suppliers, and we need to put pressure on those ambassadors so they can relay that message to Brazil and the state.”