This impact story is from our 2021 annual report.
How can investors identify and assess deforestation risk in their portfolios to inform their choices on engagement and divestment with companies? Through the Trase initiative, SEI and Global Canopy worked with Storebrand Asset Management to show them how.
Some estimate that nearly half of all economic activity depends either “moderately” or “highly” on nature – around $44 trillion of global GDP. Yet we continue to live in a way that exceeds the limits of the Earth’s natural systems, threatening future prosperity.
Tropical deforestation carried out to clear land for agricultural production is a significant driver of biodiversity loss, altered rainfall patterns and climate change. It is estimated that up to 13% of all human greenhouse gas emissions originate from deforestation, meaning that we cannot tackle the climate emergency without tackling deforestation.
Enabling transparency for investors
Deforestation from agriculture creates risks for commodity producers and traders. These include reputational damage, constrained access to capital, loss of market access and competitive risk and operational risks from continued land clearance.
The complexity of agricultural production and supply chains creates a barrier to more effective investor action. Commodities such as cattle, soy and palm oil are sourced from land recently converted both legally and illegally, but investors are often unaware of how these commodities are ultimately sourced and how they are consequently financing climate change and biodiversity loss.
Comprehensive data
In the absence of comprehensive data on deforestation by financial data providers, Storebrand developed an approach using two monitoring and assessment tools: Trase, developed by SEI, Global Canopy and Neural Alpha, and Forest 500 by Global Canopy.
Storebrand selected companies in its portfolio for direct engagement using scores from Forest 500’s assessment to categorize companies into three groups: green, yellow and red.
For red category companies, Trase data were used to drill down and identify deforestation risk, measured in hectares of deforestation. Storebrand then mapped the highest risk companies to their portfolios to identify companies that score well for policies and commitments, but are linked to persistent and high deforestation risks and companies that have a low score for policies and commitments alongside high deforestation risk.
"To fulfill our commitment to have a deforestation-free portfolio by 2025, we need quality data on companies' exposure to and management of deforestation risk. We have found that using a combination of data from Forest 500 and Trase allows us to identify companies at risk in our portfolio and to develop company-specific engagement strategies."
– Vemund Olsen, Senior Sustainability Analyst, Storebrand Asset Management
Holding companies to account
Storebrand uses proxy voting to exert extra influence over companies they are working with or to signal the importance of sustainability issues. It will also consider filing shareholder resolutions if a company is not responsive to making necessary improvements in its policies.
In 2021, Storebrand co-filed a shareholder resolution with Green Century Capital Management at the annual general meeting of commodity trader Bunge, requesting that the company improve its implementation of its zero-deforestation policy. The shareholder resolution set out the case for the potential risks associated with the degradation of natural systems in the regions from which Bunge sources soy.
Trase supply chain data was used to strengthen the analysis that linked Bunge to areas of soy production where deforestation continues. Trase was able to provide a quantitative risk estimate for deforestation measured in hectares in aggregate and a measure of disaggregated sourcing to the state level for all of Bunge’s exports of soy from Brazil. Where needed, Trase can also supply more detailed data at the level of municipalities.
What now?
Investors have a critical role to play in redirecting investment and finance towards sustainable business. The transition from unsustainable to sustainable production not only reduces deforestation risks, but also presents opportunities for investors.
Trase aims to support other investors looking to identify and remove tropical deforestation from their portfolios and to demonstrate their contribution to reductions in biodiversity loss and climate change.
Storebrand’s work with Trase shows that there are simple and effective steps that investors can deploy now to identify deforestation risks in their portfolios and to engage high-risk companies as a first step to signalling the requirement for improved performance.
To support financial institutions, Trase will produce a series of case studies showcasing practical and implementable measures to support financial institutions manage deforestation risk and develop new green finance products to fund the transition to zero deforestation.
Strategy in action
Priority for change
Commodity sourcing strategies and standards that address deforestation and biodiversityThrough the Trase initiative, SEI and Global Canopy worked with Storebrand Asset Management to demonstrate how investors can identify and assess deforestation risk in their portfolios and take appropriate action.
Type of outcome
Improving decisionsTrase works with investors towards reducing biodiversity loss by enabling them to identify and remove tropical deforestation from their portfolios.
Delivering on our priorities
Read the annual round-up of SEI's research, engagement and operations in 2021 and how we delivered change – with a spotlight on climate.
