Since the global financial crises and food price crisis of 2007-2008, land and the commodities grown on it have become both significant asset classes inviting investment as well as huge sites of conflict and environmental destruction. Among the land-based commodities leading the charge, palm oil tops the list. Palm oil is used in thousands of consumer branded products around the globe and is now the world’s most widely traded and used vegetable oil. With its high profit margins for growers and traders, rapid plantation expansion in many countries and its incredibly broad range of consumer uses, palm oil has attracted tens of billions of dollars in private investment, which has, in turn, fueled the industry’s unprecedented growth.
Palm oil’s rise in the last two decades, however, has relied to a great degree on externalizing the real costs of production – the millions of hectares of rainforests and peatlands that have been destroyed for plantations in Southeast Asia, Latin America, and sub-Saharan Africa, and the multitudes of indigenous peoples, smallholder farmers and others whose customary lands and livelihoods have been subsumed into the palm oil plantation sector.
At Friends of the Earth we have been following the money to find ways to slow the expansion of the palm oil industry, and we have found that the financing for palm oil production comes from a wide spectrum of global commercial banks and a broad swatch of equity investors from Asia, Europe, and the U.S. On the equity side, this means that average Americans with their retirement savings invested through commercial outlets like Vanguard, JP Morgan Chase, and BlackRock, or through public and private pension fund managers like TIAA-CREF and CalPERS, are unknowingly financing land grabs and rainforest destruction, to the tune of billions of dollars.
Ethically speaking, this is not acceptable, but legally speaking, there are few if any avenues for redress. Friends’ of the Earth’s new report, Are You Invested in Exploitation? begins by questioning both the ethics and the long term financial responsibility of a model where personal savings at home are partly financed by environmental and social exploitation abroad. We have named the top ten U.S asset managers with shareholdings in palm oil production, and laid out a set of recommendations. Along with the report, we have also created a web-based transparency tool — DeforestationFreeFunds.org — to allow ordinary people with savings or investments in mutual funds to see if their funds are tied up in palm oil, and then take action.
In presenting a case on palm oil, deforestation, and exploitation to asset managers and institutional investors we have found that:
- Equity investors, like all other organs of society, have human rights duties, which have been articulated in the UN Guiding Principles on Business and Human Rights. However, there are no clear laws in the U.S. requiring that investment firms or institutional investors disclose their environmental, social and governance (ESG) impacts and risks; until such time as there are, it is up to the firms themselves to uphold their human rights duties.
- Private sector agribusiness interests and consumer brands are increasingly recognizing their responsibility to take a proactive approach to reducing deforestation and landgrabbing throughout their supply chains, through consumer company commitments to “No Deforestation and No Exploitation.” But for these commitments to be effective they must be accompanied by similar efforts in the finance sector.
- Opaque investment chains can serve to insulate investors from awareness of both risks and impacts – and make due diligence exceedingly difficult. Therefore, investors should undertake regular disclosures, institute commitments that hold investee companies to account, and make it clear that investee companies that fail to meet these standards will be excluded from investment portfolios.
- Sound management of ESG risk is a critical component of fiduciary duty. Investment firms should commit to deforestation-free, landgrab-free finance policies in order to reduce exposure to ESG risk and drive change in investee companies in the palm oil and other soft commodities sectors.
- There is no one-size fits all deforestation-free, landgrab-free investment policy, any more than there is a single approach to managing ESG risk. However, there is abundant guidance available for the development and implementation of such a policy.
- The UN Guiding Principles require companies to provide “access to remedy,” but the challenge of doing this has yet to be widely taken up. Investment firms and institutional investors can drive investee companies to take up the challenge of providing remedy for past harms by requiring investee companies involved in forests, land acquisitions and commodity crops, to have active grievance mechanisms and to commit to ecosystem restoration. In the broader context, remedy, and what we at Friends of the Earth call “repair,” implies shifting investments towards sectors that do as little harm and as much social good as possible.
In our campaign to #Defund Deforestation, Friends of the Earth is calling on investors to adopt an approach based on four pillars of responsibility: to disclose exposure to deforestation and land risk in palm oil and other soft commodities sectors; to commit to a deforestation and landgrab-free Investment policy; to exclude companies that cannot meet this standard; and to repair the damage by supporting robust accountability processes and restoration of ecological damage.
Jeff Conant is Senior International Forests Campaign Manager at Friends of the Earth-U.S. Click here to read the report Are You Invested in Exploitation? Click here to have a look at DeforestationFreeFunds.org. Click here for other related resources. In the coming months, Friends of the Earth will be ramping up its efforts to urge U.S asset managers to reduce their deforestation and landgrabbing footprint.