Money to Burn: how iconic banks and investors fund destruction of rainforests | Global Witness (2024)

Forests

REUTERS/Bruno Kelly

• Barclays, HSBC and Santander among high street names behind companies implicated in rainforest destruction.

• Iconic investment banks such as Goldman Sachs, JPMorgan, Bank of America and Morgan Stanley also among key financiers.

The burning of the Brazilian Amazon this summer illustrated in the most graphic way possible humanity’s war on the planet.

Butsuch scenes play out every year in rainforests all around the world to make wayfor big agribusiness, away from the horrified stare of global televisionaudiences.These forests are earth’s front-line defenceagainst climate breakdown.One famous study published in 2017 estimatedthat forests and other ecosystems could make up more than a third of the totalcarbon mitigation by 2030 needed to limit global heating to a 2° Celsius rise.

Yet between 2001 and 2015, over 300 millionhectares of tree cover was destroyed: nearly the size of India. About a quarterof this loss was driven by the production of commodities such as beef and palmoil, according to a recent study. It also found that in south-east Asia alone,deforestation for growing commodities such as palm oil is responsible for asmuch as 78% of tree cover loss. This is madness.

That being the case, it is unsurprising many banksand investors proudly trumpet policies on ethical dealing, promising not topump money into companies that fell and burn precious rainforests. There isonly one problem: the same financial institutions often break their ownpolicies at will, making them barely worth the paper they are printed on. AGlobal Witness investigation now exposes the sheer size and scale of thesefinancial flows – and reveals how a veritable A to Z of global finance isenabling the destruction of the world’s biggest rainforests.

A forest of skyscrapers:Canary Wharf icons Barclays, HSBC and JPMorgan all feature in this report.Shutterstock

The companies razing forests to produce palm oil, beef, and rubber are currently able to secure financing for new projects at commercially attractive rates from banking hubs in the US, Europe and Asia. Global Witness investigated the financing of six huge agribusinesses: three operating in the Amazon, two in the Congo Basin, and one in New Guinea.

Global Witness has discovered that between 2013 and 2019, they were backed to the tune of $44 billion by over 300 investment firms, banks, and pension funds headquartered across the globe. The household name institutions our exposé highlights will be familiar to anyone who has looked at the skyline of Wall Street or Canary Wharf, read a quality newspaper or opened a current account.

While some of these institutions have developed their own deforestation policies, there is no penalty if they ignore them – and they often do. Governments’ failure to regulate the financing of deforestation has left the foxes in charge of the hen-house. Members of the public may be shocked to learn the institutions they bank with enable the sort of apocalyptic destruction witnessed in the Brazilian Amazon this summer.

Ordinary people’s pension funds and investments are channelled into companies revving up the climate crisis, stripping indigenous peoples of their ancestral lands and destroying the forests home to untold numbers of species.

Over the last decade, many financial institutions have committed totackling deforestation, so often associated with human rights abuses orcorruption. One group of 56 investors managing approximately $7.9 trillion in assets hasurged the palm oil sectorto commit to no-deforestation policies.Some 12 banks adopted theSoft Commodities Compact,aiming to achieve net zero deforestation by 2020 in the soy, palm oil,beef and pulp/paper supply chains of around 400 companies with combinedsales of 3.5 trillion euros.

But there remains little transparencyand accountability over how banks put commitments into practice, andsignatories now admit they will miss the 2020 target.Meanwhile, theworld’s largest financial institutions continue to sink vast sums intocompanies either levelling forests themselves or via other companies,often in blatant violation of their own deforestation policies andpublic commitments.

The NGO Global Canopyassessed 150 financial institutionsandfound nearly two-thirds had no policy covering four key forest-riskcommodities, beef, soy, palm oil and timber.Yet as our investigationshows, even existing policies are widely ignored.

One of the most biodiverse regions in the world isbeing cleared, mostly to make room for a single species: cattle. Getty Images

What we did

Global Witness commissioned research from Dutchnot-for-profit analysts Profundointo backers of six of the majoragribusinesses most implicated in destruction of climate-critical rainforests.They used databases of loans, investments and other types of financing kept by Bloomberg,Thomson Reuters Eikon, Orbis and others, along with company reports andwebsites to build up a picture of how these companies finance their operations.It was impossible to determine which specific ground-level activities thismoney financed - but such funding is critical to agribusinesses’ expansion.

This sprawling piece of data journalism revealswith new starkness the golden sinews that link London, Berlin and New York Cityto the dwindling rainforests of the Amazon, the Congo Basin and the island of NewGuinea. These are the three largest uninterrupted rainforest regions in theworld.

Still standing: the Amazon remains the biggestrainforest in the world, and a vital check on climate change. Getty Images

The Brazilian Amazon

A few years ago, deforestation in the Amazon wasdeclining, partly thanks to government action. But that progress is beingundone under the rule of far-right President Jair Bolsonaro, with cattleranching the biggest culprit, according to numerous industrystudies.

The three largest beef companies in theBrazilian Amazon, JBS S.A., Marfrig Global, and Minerva Foods,account for more than 45% of the region’s cattle-slaughtering capacity.All three have committed to measures that shouldhelp protect the forest. Yet their supply chain is tainted by deforestation –and famous names in finance help keep them afloat.

JBS,the world’s biggest meatpacker,has a history of buying animals from deforestedareas. A decade ago, responding to pressure from Greenpeace, JBS signed an agreement not to buy cattle from suppliers that had deforested land afterOctober 2009.They also vowed not to source cattle from suppliersthat used slave labor or infringed on indigenous communities’ lands.

Finally, JBS committednever to purchase cattlefrom suppliers embargoed by the Brazilian Institute of the Environment andRenewable Natural Resources (Ibama) for illegal deforestation, nor fromsuppliers that raised, reared, or fattened cattle on land overlapping withprotected areas.In 2009, JBS became a party to a similaragreement with the Federal Prosecutor’s Office in the Amazonian state of Pará. Sincethen, however, the company has made a mockery of these commitments:

• In 2015, JBS was accused by the Brazilian FederalPolice of having bought hundreds of cattle from the mother of an alleged land-grabberdescribed by the police as the “largest deforester of the Amazon”.The suspected land-grabber has been tried and isawaiting verdict. JBS said it has blocked the sourcing of cattlefrom the land-grabber’s mother and claimed that auditing had shown the companywas over 99% compliant with its Greenpeace commitment.

• In 2017, Ibama discovered two JBSslaughterhouses had bought 49,468 cattle from embargoed areas, for which thecompany was fined 24.7 million reais, almost $8 million at a 2017 conversionrate.Global Witness estimates these cattle purchasesmay have required up to 38,000 hectares of deforestation. JBS denied the purchasing claims, saying it doesnot buy animals from farms involved in deforestation of native forests or areasembargoed by Ibama.

• Last year, the Amazonian state of Pará published an audit of JBSthat found breaches of its commitments covering almost 20%of its 2016 cattle purchases.Global Witness estimates the cattle JBS boughtthat year from ranchers responsible for deforestation may have required an areathe size of 65,000 football pitches. JBS said they had been hinderedby the lack of detail on the criteria for analysis and by discrepancies in thedatabases of public sector institutions. It said it had selected an auditor witha "conservative" view in the cases where there were doubts about theinformation.
  

• An investigationcarried out by Repórter Brasil,the Guardian and the Bureau of Investigative Journalism in July alleged thecompany was still purchasing cattle from embargoed areas.JBS denied this claim.

JBS told Global Witness the issues raised aboutthe company’s environmental policies make “no sense” because it had“implemented rigorous systems and controls” and “does not purchase from farmsinvolved in deforestation”.

Given these transgressions, it might be surprising JBS can attract mainstreamfinancing at all. In fact, it enjoys support from some of the world’swealthiest banks and investment managers. After a family-owned holding companythat is the largest shareholder, its second-largest investor is BNDES, the biggest development bank in theAmericas.BNDESheld over $2.7 billion of JBS stock as of April 2019.

Itis perhaps unsurprising Brazil’s development bank would aid the expansion ofthe country’s biggest companies. (BNDES did not respond to Global Witness’sinquiries.)

Remainingsilent: BlackRock was one of numerous banks and investors that did not respondto Global Witness’s questions. Bloomberg

But where else does JBS receive financial succour? Step forward the US and Germany.

For JBS’s next largest investor is the AmericanCapital Group,which claims to manage over $1.7 trillion in equity and fixed income assets for millions of investors. According to our research, it held shares in JBS worth over $800 million as of March 2019.Then comesBlackRock.Headquartered in New York with offices in 30 countries, this is another of the richest and most powerful financial institutions in the world, managing more than $6 trillion in assets.As of May 2019, these investments included over $218 million of JBS stock. Global Witness could find no deforestation policy on either fund’s website. Capital Group declined to comment on Global Witness’s findings, and BlackRock did not respond to our enquiries.

Since 2017,Deutsche Bank’senvironmental policyhas stated it will not knowingly finance projects or activities involving the clearance of primary moist tropical forests.As of April 2019, however, it held over $11 million in JBS shares.In addition, albeit pre-dating the policy, in 2013 it loaned the company $56.7 million.

This is not the first time Deutsche Bank has been accused of irresponsible investments. In 2013, Global Witnessrevealedhow two Vietnamese companies, bankrolled by Deutsche Bank, leased vast tracts of land for rubber plantations in Laos and Cambodia - with disastrous consequences for local communities and the environment.

A Deutsche Bank spokesman said they were unable to comment on client relationships,but added: “We can reaffirm that we take our responsibilities for the environment and society very seriously. We apply our environmental and social risk management policies and procedures in the assessment of any new or existing client relationship. The information you provided is much appreciated and will be considered in any potential decision we have to take.”

But there are also major red flags that JBS’scompetitors acquire cattle from deforested land.

Marfrig Global Foods claims to be one of the world’s leading beef producers. Its beef divisionboasts 28 operating units that can slaughter 21,500 cattle per day in total.In 2009, it signed the same Greenpeace pledge asJBS.But research by Brazilian NGO Imazon, publishedin 2017, found Marfrig’s Amazon slaughterhouses could be buying cattle fromdeforestation-risk areas covering over 1.3 million hectares, including propertiesembargoed by Ibama for illegal deforestation and places deforested between 2010and 2015.

Furthermore, the Imazon report claimed half thecompany’s cattle purchases come from ‘indirect suppliers’, where animals passthrough numerous ranches before slaughter.As part of Marfrig’s Greenpeace pledge, they hadagreed not to purchase any cattle from indirect suppliers who had deforestedthe Amazon.Yet in four successive auditsofthe company’s Amazon cattle purchases between 2015 and 2018, its auditor DNV-GLconcluded: “Indirect suppliers are not systematically verified yet.”

This means Marfrig cannot say its supply chainis deforestation free. (Marfrig insisted to Global Witness that it had acommitment to zero deforestation in the Amazon, with a rigorous and technologicallyadvanced sourcing procedure.)

Moreover, this August,Repórter Brasildisclosedthat a cattle ranchercarried out illegal deforestation in Pará and laundered cattle from that areathrough another property to make them appear legal.Ibama investigated and theproperty was embargoed.Repórter Brasil claimedMarfrig purchased cattle from the property despite Ibama’s embargo, breachingthe company’s commitment to not purchase cattle from such areas.

The municipality where thisranch was located, São Félix do Xingu, was among those highlightedafter recent Amazon fires led to an international outcry. Marfrig argues the ranch was not on Ibama’sindex of embargoed areas when they purchased the cattle. Repórter Brasil disputes this, finding the areawas on Ibama’s publically available list prior to the purchase.

Yet these warning signs have not deterred Marfrig’sfinanciers – despite public commitments to ethical dealing. Global Witnessestimates Santander,the largest bank in the Eurozone, underwrote over $1 billion in financing to Marfrigbetween 2013 and 2018, including more than $300 million in 2018 alone.

Santander committed to the Soft CommoditiesCompact in 2014. However, the bank's soft commodities policy does not explicitlyprohibit financing activities that involve deforestation. A Santander spokeswoman said: “As aresponsible bank, we share your concern regarding social and environmentalimpacts linked to our financing activities. In Brazil, we conduct annual reviews of morethan 2,000 clients, including large soy producers, soy traders and meatpackers,especially about their supply chain. Atthe time of our analyses, Marfrig was in compliance with these agreements [withGreenpeace and another with the Brazilian government], which involvedthird-party audits of ranchers.”

The bank did not address the fact that Marfrigis not in compliance with the Greenpeace pledge in relation to systematicallyverifying its indirect suppliers, as flagged by successive audits from its auditor DNV-GL. Although Santander’s financing took place beforethe recent Repórter Brasilallegations against Marfrig, these are of obvious relevance to decisionsabout whether to do business with the company in future.

Marfrig also enjoys major US investment. Its second-largestshareholder is the San Diego-based BrandesInvestment Partners, which held$94.8 million in stock at the time of this research.Shockingly, Brandes’s “Responsible InvestmentStatement” explicitly states it does notautomatically avoid investment in any industry or company based on its ESG(environmental, social and governance) practices. The financier did not respond to numerous requests for comment.

A third major beef company based in Brazil, Minerva Foods, prides itself on being aSouth American leader in the “production andsale of fresh beef and its byproducts”.From beef to leather to tallow biodiesel,Minerva offers it all. But the NGO Imazon found that, like Marfrig, Minerva’sAmazon slaughterhouses could be buying cattle from almost one million hectaresof land at risk of deforestation, areas embargoed by Ibama and areas deforestedbetween 2010 and 2015. Despite also signing the Greenpeace pledge, Minervatoo buys cattle from indirect suppliers, which the company claims is challengingto monitor. Thus it too cannot say it complies with the Greenpeacezero-deforestation pledge.

The leafy environs of a Bank of America office.Global Witness estimates it underwrote half a billion dollars in credit for thecontroversial Brazilian beef company Minerva. Getty Images

YetBank of Americaseems unconcerned. Global Witness estimates based on Profundo’s research that, as Minerva’s largest US creditor, the bank underwrote nearly half a billion dollars in credit for the company in the period surveyed. (It also provided over $50 million in loans to Marfrig.) This is despite the bank’s currentForest Practices Policyforbidding it from financing deforestation activities in primary tropical moist forests, intact forests, or high-conservation value forests, but only at the level of specific on-the-ground projects. Bank of America did not respond to several Global Witness requests for a comment.

Yet this is not Minerva’s only big name financial backer. In 2013, even theWorld Bank– whichaims to combat povertyworldwide and touts its investments in “sustainable solutions”– gave a ten-year loan to the company via the International Finance Corporation worth 137 million reais (approximately $61 million at 2013 exchange rates). Several years later, the bank embraced a newForests Action Plan. One of its aims is to not have “interventions in other sectors come at the cost of forest capital”.

A spokesman for the World BanksaidMinerva had to adhere to its “Performance Standards”, which included staying in “close contact” with one supervisory visit a year. The spokesman said all Minerva’s direct purchases were from zero deforestation areas, but admitted monitoring indirect suppliers was “extremely challenging,” stating that “further progress” against deforestation depends on government legislation and law enforcement in Brazil.

“As of today, none of the players… are able to trace indirect suppliers,” the spokesman admitted. “This does mean Minerva (and other signatories) does not yet meet Greenpeace’s requirement." "We share your concerns on this important issue,” the spokesman concluded, arguing Minerva was a “high performer” compared to other Brazilian beef companies. For its part, Minerva told Global Witness: “We proudly reinforce our commitment to manage and mitigate… deforestation,” insisting Imazon’s report did not mean its slaughterhouses did in actuality purchase cows from deforested areas.

None of this is good enough for Greenpeace Brasil, which signed the three companies up to its pledges back in 2009. Amazon Campaigner Adriana Charoux told Global Witness: “Despite the three biggest beef traders in Brazil having made commitments to control their indirect suppliers, until now they have done nothing toward that aim. This exposes them to suppliers that still deforest and destroy the Amazon for production.”

Congo Basin

Smallholder agriculture is the major driver ofdeforestation across central Africa’s Congo Basin, but the threat of large-scaleindustrial agriculture is expected to grow.A rash of concessions since 2003 have already seenan estimated 1.3 million hectares of land allocated to industrial agriculture,including oil palm and rubber.

The Congo Basin is anotherdeforestation hotspot. Getty Images

In 2016, as part of a merger with the Chinese conglomerate Sinochem to create the world’s largest rubber supply chain manager, Singapore’sHalcyon Agri Corptook control of rubber plantations in Cameroon spanning tens of thousands of hectares.These plantations adjoin the Dja Faunal Reserve, a UNESCO World Heritage site home to lowland gorillas and chimpanzees.Breaking up blocks of forest is one of theforemost causesof tropical biodiversity loss.

According to a Greenpeace analysis, the plantations’ local operator Sudcam cleared over 11,600 hectares of forest between 2011 and December 2018. Based on an expert carbon stocks analysis undertaken for Global Witness by the University of Edinburgh’s School of GeoSciences, this emitted the equivalent of over 11 million tonnes of CO2, more than the UK’s entire industrial process emissions in 2017.

Some 2,300 hectares of this forest, an area greater than Geneva,was clearedbetween April 2017 and April 2018, after Halcyon acquired a controlling stake in Sudcam. The project has also been criticized for itsprofound impacton communities in the area - including indigenous Baka Forest People groups — who depend on the forests. Many have reportedly been forced from their homes and denied access to their customary lands.

In 2015, major banks includingABN Amro, the third-largest bank in the Netherlands, and Singapore’sDBS Bank,facilitateda three-year, $388 million revolving credit package for Halcyon.This is a form of loan that a company can repeatedly draw down, similar to an overdraft. Although this financing was approved before Halcyon took control of the plantations in Cameroon, these financiers failed to withdraw support when Halcyon became involved in deforestation.

In its 2019 sustainability policy, DBSstatesit requires new borrowers in the palm oil sector to “demonstrate alignment” with NDPE (no deforestation, no peat, no exploitation) policies. It also prohibits the conversion of HCV and HCS [high conservation value and high carbon stock] forests into palm oil plantations.

ABN Amro said: “We would like to state that ABN Amro Bank has not financed any rubber producers since 2017.” Pushed on whether it did any due diligence on Halcyon, a spokesman added: “As a matter of privacy policy, ABN Amro does not comment on individual client relationships. In general however, our policy as regards to accepting clients in high-risk sectors [or] countries ... is to always perform an ESG assessment.” DBS did not respond to persistent enquiries from Global Witness.

DBS and Standard Chartered (offices of bothpictured here in Singapore) both financed destructive agribusinesses. Enabling rainforest destruction is a truly global pursuit. Getty Images

Zürich-based giant wealth manager Credit Suisse also helped to facilitate the credit facility, and separately arranged a bond issuance for Halcyon Agri in 2017. A spokesman for the bank told Global Witness the revolving credit facility and bond issuance to Halcyon pre-dated the publication of Greenpeace’s report and proceeds funded Halcyon's rubber activities in south-east Asia, not Cameroon.

The spokesmanalso statedthat based on due diligence before the bond issuance, “which included discussions on environmental and social matters … we perceived issues with Halcyon Agri operations in Cameroon were being adequately addressed at the time”.

In July 2018, GreenpeacelabelledHalcyon’s Cameroon operations “the most devastating new forest clearance for industrial agriculture in the Congo basin.”At the end of that year, the company announced an end to deforestation inside the Sudcam concessions.These changes came too late for one of Halcyon’s major investors, the giantGovernment Pension Fund of Norway. In 2019, itannouncedit would from Halcyon based on an “unacceptable risk that the company is responsible for serious environmental damage.”

But as of March 2018, theChina Development Bankwas Halcyon’s largest investor by far, holding over $73 million worth of shares.The bank does not publish a policy related to deforestation, and its 2018 sustainability report does not address it. That is despite China’s President Xi Jinping issuing ajoint statementwith President Emmanuel Macron of France in March 2019 calling for “reorienting public and private investment toward fighting climate change and protecting biodiversity”. The China Development Bank did not reply to inquiries either.

But Halcyon Agri told Global Witness: “Since Halcyon took over management of Sudcam in late 2016, it has been a priority to address the legacy issues we inherited in Cameroon. There is no ‘overnight’ solution to fixing the issues.” The company insisted it had ceased all felling and clearing in Cameroon and established a community forest.

Majority-owned by the government of Singapore, the Olam Group is an agribusiness that attracted massive funding from famous banks during a period when it was accused of widespread clear-cutting in the world’s second largest rainforest.In a December 2016report, the NGO Mighty Earth calculated that Olam had cleared approximately 20,000 hectares of forest inside its Gabonese oil palm plantations since March 2012.Olam is still operating on this land.

During that time, the companysecureda $2.2 billion revolving loan facility. This arrangement was provided by multiple household names in the banking world, includingHSBCandStandard Chartered Bank.They were among the Senior Mandated Lead Arrangers of that loan. Global Witness estimates HSBC provided $1.1 billion in loans and $583 million in underwriting services to the company between 2013 and 2019. Standard Chartered, meanwhile, provided an estimated $187 million in underwriting services and $1.16 billion in loans.

In 2017, HSBC proudly released a new policyrequiring palm oil producers to consent to the bank disclosing that they are acustomer. Pushed on whether a single client had so far been named, HSBC made nocomment. Getty Images

In 2017, Olam agreed with Mighty Earth to change its practices and suspend deforestation in Gabon for palm oil and rubber plantations,althoughboth parties saidthere remained “important issues to resolve.” An Olam spokesmantoldGlobal Witness the company is committed to no further expansion until all their plantations achieve full certification with the Round Table on Sustainable Palm Oil in 2021. He said Mighty Earth’s report contained factual errors, and that Olam’s palm oil plantations in Gabon were developed on “savannahs, regenerated farmland and degraded logging areas”.

A Standard Chartered spokesman confirmed it had provided financial services to Olam, but said he was unable to share any environmental assessments. All clients were subject to an environmental analysis, he said. The spokesman pointed out that Mighty Earth and Olam released a joint statement in January 2018 stating “significant progress has been made” by Olam.

The Norwegian pension fund dropped Olam from its holdingsin 2018following “assessments of governance and sustainability risks."HSBC, however, said it was “unable to comment on specific companies, even where there may be information in the public domain”. “This confidentiality extends to our own due diligence,” said a spokesman.

Global Witness also questioned the bank on its Agricultural Commodities Policy, and whether it had disclosed the names of any palm oil clients since adopting this in 2017, as per the framework. Thepolicyreads: “New customers are required to consent, before financial services are provided, to HSBC being able to disclose publicly whether the customer is or was a customer of the bank.” The spokesman said: “HSBC’s requirement to be able to disclose publicly whether we bank a specific new (palm) oil customer does not extend to an annual, or other periodic declaration of all new palm oil customers.”

Pressed further on whether the bank had published the name of a single new customer, he made no comment. However, the spokesmansaidHSBC was one of the first banks to introduce a forests policy, in 2004, and had “long recognized that development in forest areas can have a major impact on the environment.” The bank says it requires all palm oil clients to be certified sustainable. There is an apparent contradiction between HSBC saying it requires all palm oil clients to be certified sustainable and its client Olam aiming to achieve RSPO certification by 2021.

A spokesman for the Singaporean Ministry of Financesaidits holding company’s mandate was to deliver “sustainable value over the long term” and added: “Investment decisions are the responsibility of its board and management, and independent of the Government.”

From the trading floors of the world’s biggestinvestment banks to the dwindling redoubts of some of earth’s lastwildernesses, money makes the world go round. Getty Images

New Guinea

Theworld’s third-largest rainforest extends across the island of New Guinea, fromIndonesian-controlled West Papua into Papua New Guinea.This forest directly supports the livelihoods ofrural Papua New Guineans.Although almost all land in Papua New Guinea islegally controlled by indigenous groups, agricultural projects including palmoil have co-opted millions of hectares of land and forests, with grave resultsfor community lives and livelihoods.

Much of Papua New Guinea’s rainforests remain ahaven of nature. But for how long? Getty Images

The Papua New Guinean government plans to have 1.5 million hectares of plantations by 2030, and a2016 study commissioned by the World Bank identified the expansion of oil palm as the most significant threat to Papua New Guinea’s forest cover.

TheRimbunan Hijau Group(RHG, ‘Forever Green’ in Malay) is a Malaysian conglomerate withpalm oil operations on tens of thousands of hectares in Papua New Guinea.Global Witness haspreviously documentedthe controversy surrounding these operations, which includes credible allegations of fraud and forgery perpetrated at the expense of indigenous landowners.Rimbunan Hijau has consistently denied this, claiming local communities support the project and the company has not broken any laws.

Since 2008, RHG has deforested more than 20,000 hectares at its plantations in the province of East New Britain, with the intention of planting an eventual 31,000 hectares of oil palm.The group’s financiers include the office ofSarawak’s State Financial Secretaryof Malaysia, which held shares in the group worth over $6 million as of March 2018, and the MalaysianAffin Bank, which provided over $33 million in loans in the time-framestudied. Neither institution has any public deforestation policy nor responded when contacted repeatedly by Global Witness.

According to the UN Intergovernmental Panel on Climate Change,humanity now has eleven years left to avoid the worst effects of climatechange.Tostand a chance, we need to keep our forests standing.Tropical deforestation alone is currently responsible for about 8% of theworld’s annual greenhouse gas emissions. That is more than the emissions of the entire European Union,and only just behind the United States.

Yet forests do not need to be destroyed for agribusinesses toplant crops and raise cattle. There is no need to choose between protectingforests and producing food. Farming intensification practices have been shownto increase agricultural production in the tropics while avoidingdeforestation.Expanding farming onto degraded land, and reducing the third of all food produced that is lost or wasted, are additional ways to put more food onpeople’s tables while safeguarding forests.

The investing strategies exposed in this report are cynical andshort-sighted. Investments driving climate change present material risks toshareholders. For instance, when the agribusiness United Cacao was delisted bythe London Stock Exchange over claims of illegal deforestation, its investorslost $42 million in one quarter.Asgovernments begin regulating against products grown on deforested land, andmarkets increasingly value commodities produced without deforestation,financiers run the risk of ending up with stranded assets.

Meanwhile, the development of niche green finance products and PRlauding green credentials are fig leaves that fail to address the fundamentalproblems associated with finance’s bankrolling of environmental destruction.

Instead, those in the financial sector must take responsibility forthe impact of their financing and investments on forests, people and theclimate. They have a responsibility to the planet and its people, theirinvestors, and future generations, to ensure that they are not fuelingdeforestation or human rights abuses. Financial sector companies must ensuremore rigorous due diligence, strengthen their deforestation policies andcommitments, and take meaningful measures to ensure that they implement themeffectively.

But self-regulation alone is not enough. Policy makers mustaddress the systemic failure of the financial system, and the companies itfinances or invests in, to tackle deforestation and human rights abuses byintroducing regulatory measures, including mandatory due diligence, andproperly enforcing them. Without urgent action and powerful new laws, the global financialsystem will only pour fuel on the deforestation wildfires.

Recommendations

Key governmental and private sector commitments on deforestationset targets to achieve by 2020, making it a critical year for forests. Allactors must seize the opportunity to renew and strengthen their efforts totackle deforestation by committing to time-bound action plans, which areindependently verifiable and publicly reported to ensure accountability for theirdelivery.

For government:

• Governments need to regulate the financial sector to stop thefinancing of, and investment in, deforestation. Regulation should include,among other possible measures, mandatory due diligence requiring investors andthe financial sector to identify, prevent and mitigate environmental, social(including human rights) and governance risks and impacts. It should involvestandardised disclosure and transparency through regular public reporting ondue diligence policies and practices, proportionate penalties to ensurecompliance, and complaint mechanisms for third parties and affectedindividuals.

• Regulatory approaches must also enableforest communities to uphold and defend their rights, and ensure thatfinancial institutions are not profiting from, or handling any proceedsof, forest-related crime and related human rights abuses.
  

Financiers, investors and others in the financial sector need to:

• Commit to a Deforestation and Land Grab free policy for their financingand investment. This should include a commitment to zero deforestation and zeroexploitation, including respecting the principle of Free, Prior and InformedConsent of local communities for all activities affecting them and theirrights.

• Undertake due diligence on investmentsto identify, prevent and assess environmental, social (human rights) andgovernance risks and impacts, take action on risks identified, monitor andtrack responses and remedy harms done. This should be particularly rigorous insectors associated with deforestation e.g. agricultural commodities sourcedfrom countries with tropical rainforests.

• Ensure monitoring, implementationand enforcement of deforestation policies and report in a way that allowsindependent verification by interested third parties. This should includewriting policy compliance into loan contracts with agribusiness customers. Asenior corporate representative, such as a board of director at the financialinstitution should be responsible for the policy’s implementation and financier’scompliance with that policy. This could include engaging with companies todrive positive change, but ultimately being prepared to withhold financing ifcompanies are unable to show that they meet financiers’ policies ondeforestation.

• Disclose their exposure to palm oil, soy, timber, beef and other softcommodities associated with deforestation. At minimum, this should includeinvestors publishing all their holdings, lenders making public the name ofcorporate agribusiness clients as is already accessible to the financial sectorvia corporate databases, publishing social and environmental impact assessmentsand ensuring local communities are provided information on financial sectoractors and their policies.

• Advocate for regulation to stop the financing of, and investment in,deforestation, including mandatory due diligence regulation to ensure a levelplaying field and develop standards for due diligence and disclosure.

• Ensure justice for affectedcommunities through meaningful accountability processes.

• All financiers of or investors in JBS, Marfrigand Minerva should initiate an immediate investigation into how the sourcing ofcattle through indirect suppliers passed their internal due diligenceprocesses.

Money to Burn Financier Dataset

Methodology

Global Witness commissioned the sustainability and supply chain analysis company Profundo to research financial flows to the selected agribusiness companies named in this report, as well as their group level holding companies, group financing vehicles, and their relevant subsidiaries. This research relied primarily on financial databases for the collection of financial data, including Bloomberg and Thomson Reuters Eikon, as well as on company reporting. It also included in-depth analysis of company websites, annual reports, company registers, databases such as EMIS and Orbis, and other industry sources.

The scope of this research for credit activities is January 2013 to March 2019. Bond and shareholdings were analysed at their most recent filing date as of April/May 2019.

Financial databases do not always include details on the levels of individual financial institutions’ contribution to a deal. Individual banks’ contributions to syndicated loans and underwriting were recorded to the largest extent possible where these details were included in the financial databases. In many cases, the total value of a loan or issuance is known, as well as the number of banks that participate in this loan or issuance. However, the amount that each individual bank commits to the loan or issuance has to be estimated. This research uses a two-step method to calculate this amount. The first uses the ratio of an individual institution’s management fee to the management fees received by all institutions. This is calculated as follows:

Participant’s contribution: ((individual participant attributed fee)/(sum of all participants attributed fees )*principal amount)

When the fee is unknown for one or more participants in a deal, the second method is used, called the ‘bookratio’. The bookratio (see formula below) is used to determine the commitment distribution of bookrunners and other managers.

Bookratio: (number of participants – number of bookrunners)/(number of bookrunners)

Table 1 shows the commitment assigned to book runner groups with this estimation method. When the number of total participants in relation to the number of bookrunners increases, the share that is attributed to bookrunners decreases. This prevents very large differences in amounts attributed to book runners and other participants.

Table 1

Commitmentassigned to bookrunner groups

Bookratio Loans Issuances

>1/3 75% 75%

>2/3 60% 75%

>1.5 40% 75%

The number in the denominator is used to let the formula start at 40% in case of a bookratio of 3.0. As the bookratio increases the formula will go down from 40%. In case of issuances the number in the denominator is 0.769800358.