Stockholm (NordSIP) – Deforestation is still lagging behind other environmental, social, and governance (ESG) issues for many asset managers, with many large ESG-labelled investment funds incorporating some of the worst offenders within their portfolios. This the conclusion of research carried out by investigative environmental non-governmental organisation (NGO) Global Witness and published on 2 August 2024.
The research was based on Eikon Refinitiv data from June 2024, which revealed that 15 ESG-labelled funds held $11.6m in various bonds issued by controversial meat producer the JBS Group (JBS). JBS’ American subsidiary was sued by the New York Attorney General earlier this year over its allegedly misleading environmental claims. According to Global Witness, the likes of BlackRock and Vanguard should not be investing in the company, which stands accused of sourcing its meat from multiple farms responsible for vast amounts of illegal tree felling in the Amazon region, despite having a high-level zero-tolerance deforestation commitment at COP26.
The holdings in JBS are singled out by Global Witness as symptomatic of the problem of self-regulation by fund providers, who are effectively ‘marking their own homework’ when determining their sustainability credentials. The NGO points to the fact that over the last 3-year period 22 large institutional investors have excluded the JBS Group from their investment universe based on a series of grave governance concerns and the company’s ongoing detrimental environmental impact. Large asset managers often claim that corporate engagement justifies the retention of controversial holdings. Global Witness believes that cannot apply to the likes of JBS, citing the example of the Cardano Group which divested from the firm after several years of unfruitful engagement.
According to Global Witness, the issue of deforestation applies not only to the ESG-labelled funds from large US asset managers but implicates much of their product offering. It cites BlackRock and Vanguard as holding a combined $4.5 billion worth of assets in forest-risk companies as identified by Forests & Finance.
Regulatory authorities in the US and Europe are gradually introducing clearer and more stringent requirements for ESG-labelled funds. However, Global Witness believes that the rules are still far from clear, especially in the US where the Securities and Exchange Commission’s (SEC) efforts are being hindered by political pressures. With Morningstar data showing the global universe of sustainable open-ended and exchange-traded funds attracting an roughly USD 4.3 billion of net new money in the second quarter of this year, closer scrutiny and appropriate regulation of the underlying portfolios should be a top propriety for sustainable investors.
