Investors Double Down on Deforestation Engagement
PRI Spring launches new assessment framework to help investors track focus firms’ progress amid rising regulatory red flags.
Investor scrutiny of company pledges to avoid deforestation is intensifying ahead of a 2025 deadline, according to speakers on a stewardship panel at ESG Investor’s second Nature Data for Institutional Investors event.
As well as bilateral engagements by individual asset owners and managers, these efforts include collaborative initiatives and tools which set and track industry-level expectations.
The Principles for Responsible Investment’s (PRI) Spring, endorsed by 224 investors with US$16 trillion AUM, has launched its Company Assessment Framework to track progress of focus companies against expectations set out in Spring’s Investor Statement. The number of focus firms increased from 40 to 60 in June.
Speaking at ESG Investor’s event on the day of the launch, Marine Le Calvez-Yassine, Stewardship Specialist – Nature at the PRI, said the framework would offer investors a roadmap to conduct “high-quality, outcome-oriented” engagements. Initial baseline assessments of Spring’s focus companies against the framework are set to be published in 2025.
“The framework provides investors with a way to track the performance of companies on topics which we think are particularly relevant for our areas of focus,” said Le Calvez-Yassine. “There are already many frameworks available and we didn’t want to reinvent the wheel, so we have opted to leverage existing frameworks.”
Launched at last year’s PRI in Person in Tokyo, Spring aims to address the systemic risks posed by biodiversity loss to protect the long-term interests of investors, contributing to the global goal of halting and reversing biodiversity loss by 2030. Spring currently focuses on investee companies’ policies and practices around deforestation and land degradation as a source of biodiversity loss, although its scope is expected to expand to other loss drivers in future.
At the COP26 climate conference in Glasgow in 2021, 145 countries – representing 90% of the world’s forests – signed a deforestation pledge, committing to halt and reverse global deforestation by 2030. At COP26, the UN also set a deadline for companies and financial institutions to eliminate commodity-driven deforestation by 2025.
Spring has integrated indicators from existing benchmarks into a single framework, including the World Benchmarking Alliance (WBA)’s Nature Benchmark, the Global Standard on Responsible Climate Lobbying, and the InfluenceMap Biodiversity Assessment.
Le Calvez-Yassine said the factors the framework was designed to follow include business operations, strategy and risk management performance, supply chain management, and responsible political engagement, which have been “translated into measurable KPIs that investors can track over time”.
Fellow panellist Melis Ford, Engagement Lead for Nature at the WBA, said the alliance was “very keen” to align with other engagement initiatives, such as Spring. “We quite often get asked why there are so many stewardship initiatives, but there are so many companies to tackle and engage with, and no one initiative can do them all,” she said.
Driving for data
Izzy McConnell, Assistant Manager – ESG Integration at Federated Hermes, said the firm had taken a number of steps to increase due diligence on deforestation to enhance its stewardship efforts.
“We’ve developed a risk assessment framework that’s helped us to flag high risk holdings that can be prioritised during engagement. This framework will provide investors steps to assess both exposure and policy risk,” she said.
“We’ve been able to put this in practice this year and hopefully it can be used in some engagements next year,” she added. “Next year will be a vital year for deforestation, with engagers checking in to see how companies have made progress on meeting these commitments.”
Federated Hermes acts as the lead investor on engagements at two PRI Spring focus companies and supports two others as a collaborative investor.
Last year, disclosure platform CDP found that less than 10% of 1,043 companies had publicly committed to end deforestation by 2025. According to CDP, firms face up to US$80 billion in losses due to deforestation risk exposure, an average of US$300 million per reporting company, while the annual economic gain from a deforestation-free future could reach US$895 billion by 2030.
While Le Calvez-Yassine noted that there are relatively high amounts of deforestation data available to investors, she warned company disclosures must be taken with a pinch of salt.
“We need to ensure that investors are not just taking company disclosures at face value,” she said. “Engagement is acting upon data, but data for stewardship must be reliable to help investors ask meaningful questions. The data also needs to be actionable, so engagement can provide a more granular understanding of the company for investors and help drive outcome-oriented engagement.”
Lee Backhouse, Senior Responsible Investment Manager at Scottish Widows, said that insufficient regulatory requirements are the greatest barrier to high-quality nature data from companies. While disclosure requirements are increasing, regulatory efforts to prevent deforestation are facing increasing pressure.
Earlier this week the EU’s Deforestation Regulation (EUDR) – which is due to impose rules on importing products with high deforestation risks such as beef, palm oil, and timber – was formally delayed for a year, a move criticised by investors.
Brazil’s Soy Moratorium, which has been credited with preventing 17,000 square kilometres of deforestation since its 2006 introduction – also faces intensifying pressure from agribusiness organisations, politicians, and global trading companies, according to recent media reports.
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