Private Power in a Dysfunctional Political World

    By Matthew Smith (Picture), Head of Sustainable Investments at Storebrand Asset Management.

    Sometimes it takes a genuine threat to shake people up and stimulate to new solutions from unlikely sources. It seems the recent spike in forest fires in the Amazon basin is just such a threat. Borne out of the laissez faire environmental policies of the Bolsonaro government, the fires demonstrated ever so clearly how fragile the Amazon ecosystem has become and how close we are to an ecological “tipping point”. A point where clearing has reached such an extent as to threaten remaining forest areas. With loss of tree cover comes loss of rainfall, and in the summer months the forest becomes a tinder box, greatly exacerbating seasonal fires. In essence, we risk seeing much of the forest transform into savannah-like grassland with only a fraction of the once rich diversity of life intact. In addition to loss of biodiversity, the burning of the forest releases enormous stores of carbon into the atmosphere, speeding up climate change.

    In the face of this ever-worsening crisis, what is staggering to witness is the total inadequacy of the national and international political response. In a bout of domestic populism, the Brazilian government has conspired to turn the entire issue of Amazon protection into a question of national sovereignty. Not that the international stage provided much consolation. At the recent G7 meeting, the world’s largest economies managed to concoct a $20 million save the Amazon scheme that both proved inconsequential in itself and fired up under President Bolsonaro’s seething post-colonial hangover. The Amazon for the time being is Brazil’s responsibility alone, and no amount of posturing from Western nations seems likely to alter this uncomfortable fact. Even the drying up of Norway’s multi-billion dollar forest fund, conditional on effective forest management, has proved powerless to alter Brazil’s course.

    What then can be done to alter this destructive course of events and bring effective forest management to one of the world’s most important ecosystems? Part of the answer lies far from the halls of political power, in the private sphere of financial capital.

    Last week an international coalition of 230 Investors, with USD $16.2 trillion in assets under management, signed a call for corporate action on deforestation. Investors from around the world have recognized the financial and environmental risks associated with deforestation and are using the power inherent in their investments to try to force change. The call to action asks companies to publically map their own operations and supply chains and to follow up with monitoring and verification that deforestation is under control. Many of these investors are also members of existing commodities based investor coalitions, that are already putting pressure on high-risk companies Producers and Traders of commodities such a palm oil, soy, timber and cattle in particular, are under the spotlight.

    Not surprisingly, the call to action has made headlines in Brazil and forced the Bolsonaro government into a public defence of its record on de-forestation. What seems clear is that despite the Brazilian government’s defiance of international political pressure, they are not likely to risk a widespread private investment drought, caused by environmental concerns. Moving forward, the important development needed now, is for all of these 230 investors to use all of the tools at their disposal to ensure that the call to action has the teeth to affect meaningful change. To this end, investors must be very clear in their continuing dialogue with companies; that they risk shareholder activism, public criticism and at worst divestment should they continue to cause rainforest destruction. In this way, the private financial sector will be able to demonstrate just how much can be achieved in ecosystem preservation. All that is required is a common purpose and some serious monetary clout.

    Image courtesy of Storebrand

    Latest Posts

    NordSIP Insights Handbook

    What else is new?