Investors with US$6.3 trillion in assets call on companies to cut climate, deforestation-related risks in global soybean supply chains

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Soy-deforestationIncreased demand for soybean products is destroying important biomes in South America, driving up emissions, and exposing companies that source these products from the region to various business risks.

As global demand for soybean products continues to increase, 57 investors with more than US$6.3 trillion in assets under management are calling on companies to disclose and eliminate deforestation risks associated with meeting this demand in their soybean supply chains, with a view towards protecting the long-term value of their investments.

“While we recognise the important role of agriculture and soybean production to economic development and the livelihoods of farmers, we are also concerned that the environmental and social issues associated with unsustainable soybean production could have a material impact on companies that source the commodity.”

Agriculture production is a major source of global greenhouse gas emissions and is a major driver of tropical deforestation around the world. Soybean production, in particular, is the second largest soft commodity driver of deforestation, and production continues to escalate to meet a growing demand. More than one million square kilometers of farmland worldwide are now dedicated towards growing soybeans.

The Brazilian Soy Moratorium, which was put in place in 2006, has been successful in reducing deforestation within the Amazon biome. However, there is now growing concern that agricultural expansion and soybean production is leading to increased deforestation in other important regions and biomes within South America, such as the Cerrado and Gran Chaco.

“Deforestation creates material market and reputational risks for companies, and is a source of systemic risk across investment portfolios given its contribution to climate change”, said Julie Nash, director of food and capital markets at the sustainability nonprofit organization Ceres.

Investors are calling companies to commit to eliminating deforestation risks within their entire soybean supply chain. In the statement, the investors laid out several expectations for companies to meet including awareness and oversight of sustainability and deforestation issues at board level, and increased public disclosure on a wide range of issues including of scope 1, 2, and 3 (direct and indirect) greenhouse gas emissions.

“As a long-term investor, we consider climate change to be a systemic risk to our global investment portfolio and view the reduction of deforestation as one of many solutions to help manage our exposure to climate change risk,” said Beth Richtman, CalPERS managing investment director, sustainable investments program. “Effective management and reduction of deforestation by our investee companies in their agricultural supply chains, such as soybean, is critical to reducing our portfolio exposure to climate change related risks.”

“Much of the discussion around climate change has been focused on the energy sector,” added Danielle Carreira, Senior Manager, Environmental Issues at Principles for Responsible Investment (PRI). “However, agriculture, forestry and land use (AFOLU) is a very large portion of the problem. Increased deforestation and land conversion in important biomes is putting business and society at risk. As the problems associated with climate change and deforestation continue, companies will see more investors looking to engage with them on the issue.”

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