The titans of world capital markets have become super-conscious of sustainability in recent years. Look at the website of any big bank or investment firm and you will be left in no doubt of its concern for the environment, racial equality, empowering women and other praiseworthy causes.
Firms such as BlackRock, JP Morgan and Bank of America are not supporting or investing in these issues because they expect to make money from them directly. It is because they want to be seen by their stakeholders — customers, investors, politicians — as good corporate citizens.
More than that, the firm itself — whether you locate the centre of its personality in its CEO, board, senior management, the staff in general or its shareholders — also no doubt genuinely wants to be a good egg.
But companies do not have souls. Virtue is not its own reward. When it comes to corporate social responsibility, the standard firms should be judged by is not intentions, but results.
Does all the noble posturing actually achieve anything? When it comes to a choice between social benefit and profit, what does the firm choose?
Most of the time, it is difficult to answer these questions. Banks may invest in programmes to combat racial injustice, for example — but does their support of the overall shape and balance of the economy which disadvantages ethnic minorities outweigh any progress achieved by their responsibility efforts?
A few concerned investors and NGOs peer into the details, but society in general is inclined to give Big Finance the benefit of the doubt.
Drying out
There are some cases, however, where the difference between good and bad outcomes is so stark, and the causes so clear, that banks and investment firms really have no excuses for half-hearted measures.
The Amazon rainforest may be gone in 20 years. Scientists believe it could be near a point of no return: this might be as close as two years away.
This fragile ecosystem — one of the most biologically diverse on earth — relies on its own trees to generate 50% of its rainfall. If deforestation continues much further, the whole region could suddenly become much drier, and the rainforest would die, to be replaced with an open savanna that supported far less plant and animal life.
This could alter the weather across much of the Americas and would lead to an enormous release of stored carbon into the atmosphere, as well as a drastic loss of carbon sequestering capacity, so vital for slowing global warming.
The change would be irreversible. Regrowing rainforest trees in a dry savanna would be impossible.
Faced with such an immediate danger, an urgent and decisive response is needed.
Banks and investment firms are not governments, nor is it their duty to solve all the world’s problems. But they themselves recognise and embrace a responsibility to help society through their actions. Moreover, they have immense and untapped power.
Present danger
Right now, no cause is more pressing than saving the Amazon. It is not the only rainforest under threat — forests in Indonesia, for example, are also threatened by indiscriminate logging and burning for short term gain, aided and abetted by corruption and weak government.
But the Brazilian Amazon’s distress is particularly keen because the forest destroyers have captured the government. Since president Jair Bolsonaro took office in January 2019, he has cut the funding of environmental protection agencies and replaced their staff with unqualified soldiers.
In the Amazon, often the only defenders of a tract of rainforest are indigenous people who live there, and have an ancestral claim to the land. Some of these claims are formally recognised in Brazilian law; many are in a legal limbo as the state has delayed recognising them.
Encouraged by a Congress packed with supporters of the agribusiness lobby, the president has attacked the rights of indigenous people, making it easier for farmers, loggers and ranchers to take over land illegally, clear it, use it for agriculture or industry and sell it.
Inevitable harm
A report published last week by the Association of Brazil’s Indigenous Peoples (Apib) and Amazon Watch, a US NGO, should be required reading for the CEOs of Western banks and asset managers.
It details the destruction being visited on the Brazilian Amazon in the name of economic development. Crucial to understand are two facts.
One: it is not just deliberate deforestation across wide areas, to clear land for farming, that is killing the forest. Roads, railways, ports, dams, electric power lines, mines, oil and gas extraction might be seen as limited, benign or necessary infrastructure. But all of these cause local deforestation; many pollute waterways; all attract more people, more settlement, industry and urbanisation. Even if the original developer’s intention is to be careful and restrained, the result is spiralling deforestation.
Two: big commodity producers such as Cargill, the US foods group active in the Amazon soy market, and JBS and Marfrig, the Brazilian beef processors, have devoted a lot of effort to producing policies and actions that support a more sustainable Amazon. How genuine their actions are, and how effective, can be debated. Apib and Amazon Watch — as well as Greenpeace and other NGOs — have a different view from the companies themselves.
But even if these companies are 100% honest and correct in everything they claim, their activities can still lead to deforestation. It is very difficult to tell where soybeans or beef have come from. Big companies can have policies to buy only from responsible farms on land that has not been recently deforested, but it is very hard to verify that their immediate suppliers have not themselves bought cattle or beans from other farmers. Direct products of deforestation can therefore enter the supply chains of not just Cargill or JBS, but from there the whole international food market.
And even without that taint, the infrastructure and markets they create stimulate agricultural production. Cargill, for example, is building a port on the Tapajós River in the state of Pará, to allow the export of 5m tonnes of grain a year. This “has been identified as a decisive factor in the growth of soybean production in the area, which has incited local land disputes and increased socio-environmental pressure on Indigenous lands,” according to the Apib/Amazon Watch report.
On your watch
The gathering environmental atrocity of the Amazon is not happening in some wild, distant place remote from New York or London. Financially, they are directly connected.
The authors of the report home in on 11 companies whose activities they argue risk causing destruction in the Amazon, and on six US institutions which are among their biggest international funders.
BlackRock, Vanguard, JP Morgan, Citigroup, Bank of America and Dimensional Fund Advisors have between them, since January 2017, funnelled $18bn to nine of these companies, including Vale, Anglo American, Cargill, JBS, Cosan, Energisa and Eletrobras.
Many other banks and asset managers do the same, just on a smaller scale.
When GlobalCapital covered the report last week, many of these firms explained the policies they have in place to guard against either directly causing, or financing, harm to the Amazon.
Some of the guidelines have obvious weaknesses. For example, both Bank of America and JP Morgan ban illegal logging and the use of uncontrolled fire to clear land. Their policies say nothing of controlled fire, nor legal logging.
Nevertheless, the banks and asset managers feel they should be given credit for their efforts. Unfortunately, the problem is too severe for pats on the back, gentle encouragement and ‘could do better’.
Halt now
Financial leaders like BlackRock and JP Morgan have to give their investee companies and clients, active in the Amazon, a stark message: cease and desist.
There must be a complete and immediate stop on all development or expansion that involves, or could lead to, any deforestation — above all on indigenous lands, but also on unprotected territory.
Blue chip companies like Vale, Anglo American, Cargill and JBS need access to international capital markets. If lenders and investors speak strongly, and credibly threaten to sell their shares, stop lending them money and quit underwriting their bonds, they will have no choice but to comply.
The same strict policy should be applied to Brazilian banks, which could otherwise act as a back channel for international money to flow to Amazon damagers.
Ending new development is not enough. To the extent that they have investments in the Amazon already, these companies have to change from poachers to gamekeepers. With the Brazilian government careering in the wrong direction, these firms must become bulwarks against destruction, setting up and policing new industry-led initiatives to save the rainforest.
And they must become vocal advocates for forest protection and indigenous rights, especially in Brazil, where firms like Vale, JBS and Energisa are stars of the corporate firmament.
This year, a $3.7tr coalition of Western investors threatened Brazil with disinvestment if it did not stop deforestation. A separate group of companies including many supermarkets has said they might not be able to buy products from Brazil if there is no improvement.
These threats have not been heeded and should be backed up with action. None of the firms named in this article were among the signatories.
It is shocking that so late in the day, international finance is still, despite its scruples, part of the problem.
West is free-riding
But what is equally incredible is that the root cause of the problem has never been properly dealt with. The developing economies, where most the world’s rainforest lie, are sovereign nations with every right to pursue their own domestic agendas without foreign interference.
Most European countries cut down nearly all their forests centuries ago to build with, to craft ships, making way for fields and mines — why shouldn’t Brazilians, southeast Asians or Africans do the same?
As matters stand the world financial system incentivises the local stewards of these forests to neglect them. The loss of a rainforest will ultimately harm every European or Chinese as much as it does every Brazilian. But the gains from ripping up forest and raising cattle or digging mines will accrue to specific, private actors, with local influence.
The world’s wealthy want the rainforests kept; so far, they have not offered to pay for it in any sufficiently convincing way.
Unless the system changes, there will always be another developer and another willing lender.
Establishing a global system to remunerate countries for protecting forests must be a top priority. Just paying will not do. History suggests such subsidies are leaky due to endemic poverty and corruption. A foolproof monitoring system with a well financed and equipped domestic taskforce that has powers to set penalties and bonuses is also needed.
Developed nations in the West have every incentive to put in place a robust framework with a generational time horizon that cannot be undermined by short term political opportunism. With these strong foundations set, the incentives for countries like Brazil and Indonesia can be changed, from exploiting forests to preserving them.
Big private firms like Cargill or Citigroup can play a role here, too. Politicians tend to think anything that sounds expensive or harmful to business is impossible. The business and finance sector underestimates its own power to tell legislators: yes, we can do it.
Above all, this cannot just be about pretty intentions, policies and statements on websites.
What matters is results. Satellite imagery and reports from indigenous people and activists on the ground make it all too clear how much land is being burnt and cleared every year. Only when this stops can anyone involved in the long chains of destruction — which reach right into Western boardrooms, pension funds and supermarkets — feel they have done enough.