Sustainability and climate risk are increasingly becoming important considerations for investors, a trend that is driving the world’s largest companies to commit to reducing their impact on global forests, says a new analysis of shareholder resolutions published by the Global Canopy Program.
According to an analysis of resolutions put forward by members of the Ceres Investor Network between 2011 and 2017, more than half (52 percent) of shareholder proposals to address deforestation risks in companies’ supply chains led to some form of commitment from the company.
The resolutions, all filed in the US, targeted high profile companies such as Kraft, DuPont and Mondelez, which are exposed to deforestation risks through their reliance on the production of soy, palm oil and timber or the raising of cattle.
More than two thirds of the companies targeted are ranked by Global Canopy’s Forest 500 project as being among the 250 most influential companies with the power to end tropical deforestation.
“It is really encouraging to see that investors are engaging with companies on the deforestation risks in their supply chains,” said Tom Bregman, Senior Sustainable Finance Associate at Global Canopy. “Every day, tropical forests are being cleared to make way for commodity crops, impacting the climate and the security of food and water supplies.”
“Investor engagement can be the first step in improving policies — and practice, helping to reduce the threat to tropical forests from agricultural commodities.”
Shareholder proposals are becoming increasingly ambitious and targeted, asking companies to work towards solutions for deforestations risks in all priority supply chains — including palm, soy, pulp and paper, timber and cattle products, which are the main drivers of tropical deforestation globally. Proposals are increasingly featuring details such as time-specific implementation plans and the kinds of ecosystems.
The majority of the shareholder proposals analyzed resulted in commitments from the company to address the issue and were withdrawn before being put to a vote at the annual general meeting. Of the proposals that went to a vote, 52 percent were followed by a company commitment to address the forest issue raised. For example, Archer Daniels Midlands (ADM) introduced a ‘no deforestation’ policy for soybeans and palm oil with stronger, time-bound commitments, following a shareholder resolution in 2015.
More than 70 percent of the companies assessed by Forest 500 in 2016 had a commodity specific policy for addressing the risks that related to at least one commodity in their supply chain.
The results of the analysis echo those of a recent study by Ernst & Young, which examined the connection between nonfinancial performance and investor behavior. The company’s findings revealed that investors are increasingly using nonfinancial performance indicators to draw conclusions on value and to better inform their decisions. According to the report, attention to environmental, social and governance issues often serves as an indicator of operational excellence.
Recent action taken by BNP Paribas to put a stop to deforestation further supports the findings of Global Canopy’s analysis. Earlier this summer, the global financial institution announced a new palm oil policy that sets responsible palm oil production as a pre-condition for financing.