Storebrand urges agricultural traders to act on Brazil deforestation risk

A $120bn Nordic asset manager has criticised two large US agricultural traders for moving too slowly to eliminate deforestation risk from their supply chains, as investors increasingly clamp down on environmental destruction in Brazil.

Storebrand has placed Illinois-based Archer Daniels Midland and Missouri-based Bunge on its “observation list”, which could eventually lead to divestment.

“In our perspective the progress is too slow . . . we also believe that the ambitions are too low,” said Jan Erik Saugestad, Storebrand’s chief executive. Discussions between Storebrand and the companies have been ongoing for several years and he said the asset manager intended to “escalate the dialogue to the next level”.

At the recent UN climate summit in Glasgow, more than 100 national leaders committed to halt deforestation by 2030, and 30 financial institutions, including Storebrand, promised to eliminate the harmful practice from their portfolios by 2025. However, the signatories, including Brazil, Russia and Indonesia, did not indicate how it would be implemented or tracked, and environmental campaigners remain sceptical.

ADM and Bunge are among the world’s largest traders moving Brazilian soyabeans around the world. The increase in production of the commodity, largely used for livestock feed, has been a leading cause of deforestation of the Amazon rainforest as well as the destruction of Cerrado savannah.

The scale of soyabean production on deforested land and differing standards about what qualifies as acceptable activity makes tackling its presence in supply chains challenging for companies.

Both Bunge and ADM strengthened their deforestation policies last year in response to calls from shareholders. Storebrand, together with US fund manager Green Century, tabled a proposal at Bunge’s annual meeting asking it to tighten its policies, which was backed by 98 per cent of shareholders. Bunge has said it is committed to not having soyabeans from illegally deforested land.

But Storebrand wants the groups to go further. “We would like to see more traceability and transparency of monitoring of their supply chain across their commodities,” said Saugestad.

The group, which owns a 0.2 per cent stake in Bunge and 0.07 per cent of ADM, also wants a commitment for them not to source from lands deforested after January 1 2020, whether legally or illegally.

ADM said it was surprised by the decision and looked “forward to our engagement with Storebrand”, adding that its direct and indirect soya supply chains in South America would be 100 per cent traceable by the end of the year. It has also pledged to be deforestation-free by 2030.

Bunge reiterated its pledge of making its direct and indirect supply chains deforestation-free by 2025 and said farmers, who were waiving the right to produce on land they own, needed to be compensated.

Although investors are doubling down on efforts to end deforestation, few have acted yet on threats to divest. Nordea removed JBS, the world’s largest meat processor, from its portfolio in 2020, while Norges Bank, which manages Norway’s state pension fund, late last year placed meatpacker Marfrig on its observation list.

Storebrand already has several palm oil companies on its exclusion list, including Cargill, the world’s largest agricultural trader, which deals in the commodity.

Proposed legislation in Europe and the UK to remove commodities linked to deforestation from supply chains is also likely to increase pressure on traders who act as middlemen. Brazil has dismissed the EU plan as “trade protectionism”.

At the end of last year, France highlighted the role of Bunge and Cargill as the leading importers of Brazilian soyabeans from areas at risk of deforestation.

Destruction of the Brazilian Amazon has surged under president Jair Bolsonaro, whose government environmentalists accuse of failing to clamp down on activities such as wildcat gold mining and illegal logging. More than 13,200 sq km of rainforest was razed in the 12 months between August 2020 and last July, the highest rate of deforestation since 2006, according to the country’s National Institute for Space Research.

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