'Deforestation risk' companies under increasing pressure from investors

photo by CIFOR shows an area of forest in Acre, Brazil, cleared for agriculture
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Investors are increasingly pushing some of the world’s biggest companies to commit to reducing their impact on the rainforest, according to new analysis of shareholder resolutions. And many of these resolutions are successful, with more than half (52%) of shareholder requests to address ‘deforestation risk’ in supply chains followed by a company commitment.

The findings come from a new briefing, Investor concern for forests, published by the Global Canopy Programme’s Forest 500 project. The Forest 500 identifies the 500 ‘powerbrokers of tropical deforestation,’ including the 250 most influential companies.

The analysis is based on the shareholder resolutions listed in the Ceres Investor Network on Climate Risk, a network of more than 130 US-based institutional investors collectively managing more than US$ 17 trillion in assets.

In the US, shareholders holding at least US$ 2,000 or 1% of a company’s total securities can submit a resolution requesting company action. Other investors vote on these resolutions. Proposals are advisory and non-binding, even when the resolution receives a majority vote of approval.

Shareholder resolutions: an increasingly targeted engagement strategy

Between 2011 and May 2017, members of the Ceres network filed 50 resolutions requesting that companies address deforestation risk in supply chains. These agricultural supply chains, including cattle, soya, palm oil, timber, and pulp products, are among those responsible for nearly three-quarters of tropical forest loss.

Over time, proposal requests are becoming increasingly ambitious and targeted. An increasing proportion are asking companies to address deforestation risk in all priority supply chains, not just those under public scrutiny. They are also becoming more specific, detailing the kinds of ecosystems to be protected and requesting time-specific implementation plans.

Many shareholder proposals are withdrawn after the company agrees to take action. Remarkably, more than half of resolutions filed between 2011 and 2017 were followed by a commitment to address the issue raised. Of those that go to a vote, proposals receive around 20% support on average.

It is difficult to attribute company policy change directly to one shareholder resolution, as corporate decisions take place in the context of wider business pressures. Nonetheless, it is clear that shareholder proposal filing is an effective method for encouraging company engagement on deforestation issues.

Even when companies have sustainable procurement commitments in place, these promises alone do not guarantee any actual change in practice or protection for the forest. In these cases, shareholders may continue to use resolutions to continue to hold them to account, ensuring action is as strong as the rhetoric.

This blog was written by Arthur Girling

Photo: Deforestation to make way for agricultural commodities in creating a "deforestation risk" for investors, by Kate Evans for Center for International Forestry Research (CIFOR), creative commons licence