Why investor Green Century has taken an active interest in fighting deforestation

Jessye Waxman is a shareholder advocate at Green Century Capital Management, where she uses the environmentally responsible investment firm’s leverage as a shareholder to guard forests.

Ceres talked with Waxman about Green Century’s concentrate on deforestation and its growing importance as a driver of climate change. It comes as deforestation — and associated greenhouse gas emissions and climate impacts — are mounting in lots of regions of the world. What follows is a flippantly edited interview.

The discussion is a component of Investors Talk Deforestation, a series of interviews with influential investors and partner organizations who supported the event of the Ceres Investor Guide to Deforestation and Climate Change. The guide goals to interact investors on deforestation emissions and other related risks across their portfolios and drive more corporate motion on the difficulty.

Julie Nash: Green Century has been engaging firms on deforestation risks for a few years. When did this work begin and the way has the firm’s strategy evolved through the years?

Jessye Waxman: We began working on deforestation in 2012. Initially, we focused on palm oil supply chains and urged firms to adopt no-deforestation policies. Eventually, we adopted a No Deforestation, No Peatland, No Exploitation (NDPE) framework. As we took a more comprehensive perspective of deforestation-related risks, we moved beyond palm oil to work on multiple forest risk commodities. In 2015, we actually began specializing in a cross-commodity approach (that yr we worked with [Archer Daniels Midland] to adopt a cross-commodity deforestation commitment, which was a primary for the grain traders). Along with continuing to work with recent firms to adopt policies, we do a variety of work now to make sure firms update, improve and implement the policies they already adopted.

Nash: Why is deforestation a very important issue on multiple fronts?

Waxman: Green Century may be very focused on environmental, social and governance (ESG) issues; so our investment strategy and shareholder engagement is driven by the evidence-backed conviction that firms that address ESG risks of their operations and provide chains may perform higher in the long term. 

Deforestation touches on a variety of the environmental and social issues investors are concerned about. Amongst other impacts, deforestation drives systemic risks like climate change and biodiversity loss that affect not only firms in agricultural supply chains, but firms throughout portfolios. These two risks, particularly, have long-term impacts, but can best be solved within the near term, making it necessary for investors to check with firms about now. 

Amongst other impacts, deforestation drives systemic risks like climate change and biodiversity loss that affect not only firms in agricultural supply chains, but firms throughout portfolios.

For instance, the Amazon is hugely necessary for precipitation patterns and food systems, each locally and globally. There’s research showing how deforestation losses within the Amazon can affect agricultural productivity as far-off because the American Midwest. 

Beyond these issues, deforestation has also been related to problematic labor practices, starting from withholding passports of migrant laborers to slave labor and child labor and land conflicts. 

Nash: Are you able to discuss specific successes Green Century has helped achieve?

Waxman: Prior to now yr, we’ve seen encouraging progress from the world’s second-largest meat processor, Tyson Foods, and food service giant Aramark. 

After several years of pressure from shareholders, Tyson agreed last fall to undertake a comprehensive deforestation risk assessment specializing in its global supply chain for palm oil, soybeans, beef and timber and paper products. The outcomes of the assessment will drive the corporate’s development of a Forest Protection Policy. The corporate still has a protracted approach to go, but that is a very important first step.

We were also encouraged by Aramark’s commitment to develop and fully implement a no-deforestation policy across its global supply chain, including legal deforestation, by 2025.

Nash: You briefly mentioned the greenhouse emissions related to deforestation. An enormous ask to firms in recent times has been the setting of science-based targets (SBTs) for reducing greenhouse gas emissions and having those targets approved by the Science Based Targets Initiative (SBTi). Are you able to speak to the importance of engaging firms to set a SBT, and why this might be difficult almost about emissions from deforestation?

Waxman: Science-based targets are a extremely helpful tool for firms to know the climate-related impact of their operations and provide chains. But we also need to comprehend that while you’re talking to an organization about how they’re addressing their environmental- and climate-related impacts, setting a science-based goal, at this point, definitely doesn’t cover all the things.

For a lot of firms that use forest risk commodities, an outsized portion of their emissions come from their supply chain and from the emissions released when those commodities are produced. Which means any associated emissions would fall under Scope 3.

[Scope 1 emissions are from sources owned or controlled by the company. Scope 2 are emissions released in generating electricity, heating or cooling used by a company. Scope 3 are other indirect emissions from a company’s supply chain. For most companies, emissions from agricultural production, deforestation and conversion fall under Scope 3.] 

A number of firms that ought to be looking way more closely at their supply chains and upstream impacts is probably not required to have a goal to scale back those emissions.

Currently, SBTi only requires approved targets to incorporate Scope 3 emissions if those emissions are in excess of 40 percent of the corporate’s total emissions. Beyond that, as of now, SBTi doesn’t have a strategy for measuring emissions related to deforestation and land-use change in its supply chains, so the overwhelming majority of firms which have set science-based targets are failing to incorporate a major a part of their emissions of their goal setting. In other words, a variety of firms that ought to be looking way more closely at their supply chains and upstream impacts is probably not required to have a goal to scale back those emissions, and will due to this fact be less motivated to deal with their suppliers’ exposure to deforestation and other agricultural practices.

Nash: Do you’re thinking that the best way investors are interested by issues like deforestation and climate change is evolving?

Waxman: There’s definitely a growing awareness amongst investors about deforestation as a climate risk. Prior to now, agriculture’s role in driving climate change has often been missed, with a variety of the main target being on the energy and transportation sectors. But, as the brand new Ceres Guide clearly illustrates, a firm can’t say that it’s comprehensively addressing climate risk if it’s not also addressing agriculture and deforestation.

A recent shareholder vote at Procter & Gamble (P&G) suggests that not only is awareness growing amongst investors, but investors might finally engage on the difficulty. The shareholder resolution on deforestation and forest degradation that Green Century filed with P&G received the support of 67 percent of the votes forged at its annual meeting. This is sort of 3 times what other deforestation resolutions have averaged over the previous few years, so I’m hopeful this might signal a turning point for the way the financial community approaches forest-related risks. 

Nash: Related to Scope 3 emissions and provide chains, are smallholder producers something you’re focusing more attention on?

Waxman: Yes. The smallholder conversation is particularly relevant in palm oil supply chains where considerable supplies — as much as 40 percent — are coming from farmers who own small amounts of land. As market expectations regarding sustainability have shifted, many larger producers have began to enhance a few of their practices to fulfill these heightened expectations. Subsequently, smallholders have gotten larger drivers, proportionately, of deforestation within the palm oil supply chain. Each from an ecological perspective and sustainable development perspective, working to include smallholders into sustainable supply chains is admittedly necessary.

Partially resulting from increasing pressure from investors and other stakeholders, we’ve seen more firms working directly with smallholders, including efforts to get groups of smallholders certified by the Roundtable for Sustainable Palm Oil (RSPO). Kellogg’s is one such company that helps hundreds of smallholder farmers, a lot of them women and lots of of them palm oil growers in Malaysia and Indonesia, on these sorts of issues. 

Nash: Are there other ways in which investors ought to be interested by deforestation risks that we now have missed?

Waxman: It’s necessary for investors to acknowledge that deforestation, like climate change, poses risks at each the company-specific and portfolio level. 

Climate change and its associated physical and transition risks may affect every industry and each company. Similarly, deforestation also creates portfolio-level risks, partly due to its large contribution to climate change, but in addition due to its impacts on global agriculture and biodiversity. 

Once we check with firms about risks of their supply chains, the solutions have to not only address the risks to the businesses but in addition help advance systemic change. Removing deforestation out of 1 company’s supply chain only to have it appear in a distinct company’s supply chain doesn’t help the issue. So long as deforestation remains to be occurring, the risks to firms, industries, investors and the environment persist.

The excellent news is that because many individuals have been working on deforestation for a very long time, there are best practices on the market, akin to those outlined in Part 5 of the Ceres Guide, which might be recognized as helping to comprehensively mitigate risks from deforestation. As investors engage with firms, they need to look not only at how an organization is managing these risks at a high level, but whether it’s implementing recognized best practices that help advance systemic changes of their industry.


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