The investors, which collectively manage $6.4trn (£4.9trn) of assets, have signed an open letter stating that they will “seek evidence” of a commitment to eliminate supply chain deforestation “on multiple levels” before making an investment or granting a loan.

Signatories of the letter, including Hermes Equity Ownership Services, Legal & General Investment Management (LGIM) and BNP Paribas Asset Management, have pledged to stop offering investments to companies which do not publicly disclose their processes to identify, assess and manage deforestation risks.

To qualify for investment from one of the 44 signatories, companies will also have to regularly discuss deforestation at board-room level, work collaboratively on forest-protection initiatives and publicly disclose which metrics they use to assess cattle-driven deforestation risks and opportunities.

“With a view toward protecting long-term value and mitigating risks, we will seek to engage relevant investee companies on deforestation risk within their supply chains, particularly those with direct or supply chain exposure to cattle and related products,” the letter states.

The voluntary commitment was convened by non-profit Ceres and the Principles for Responsible Investment (PRI), after research from Ceres revealed that cattle was responsible for 65% of gross deforestation from 2001-2009, with most of the forestry lost in South America’s tropical regions.

Ceres’ director of food and capital markets Julie Nash said that tackling deforestation driven by cattle, soy and palm oil production will be a “top priority”, as governments and corporates strive to meet the aims of the Paris Agreement.

Echoing Nash’s sentiments, PRI’s senior manager for environmental issues Danielle Carreira said: “There is growing awareness amongst institutional investors of the material risks that deforestation poses to investee companies – in particular, the link between tropical deforestation and greenhouse gas emissions – as such many investors are increasingly looking to engage with companies to discuss this issue.”

Divestment drive

The pledges come at a time when banking and insurance giants are announcing plans to make their portfolios more sustainable by divesting from coal companies and those linked with deforestation, amid concerns that the next financial crash will be climate related.

The Cerrado Manifesto – a voluntary commitment act to prevent deforestation in Brazil’s tropical savanna – has been signed by 76 big-name investors to date, for example, after LGIM, APG and Robeco signed up in July.

Similarly, LGIM this year announced that it would divest from a host of companies it believes are showing “persistent inaction” on addressing climate risks.

More recently, a coalition of almost 400 investors with $23trn in collective assets have pledged to step up their climate action plans in a bid to help the global finance sector meet the aims of the Paris Agreement. The 392 asset managers announced last Wednesday (12 September) that they have committed to follow the principles of the Investor Agenda, which provides a blueprint for climate action across the fields of investment, corporate engagement, investor disclosure and policy advocacy.

Sarah George

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