Uncovered: Businesses Linked to Deforestation Loans and Strategies for Investors to Interact
In a recent report by the Anthropocene Fixed Income Institute (AFII), it has been revealed that Johnson & Johnson issued $9.2 billion of debt linked to deforestation risks, and PepsiCo followed suit with a $3.5 billion bond issuance. This trend is concerning, as Citi, JP Morgan, and Bank of America Securities are major beneficiaries of such bonds, earning syndication fees.
The report highlights the significant role played by these financial institutions in the global food industry, where deforestation risks are often overlooked in downstream supply chains. To mitigate these risks, bondholders are encouraged to engage in due diligence and advocate for sustainability policies across their investment portfolios.
Key strategies include monitoring deforestation linked to supply chains, demanding transparency, and collaborating with companies to adopt and implement deforestation-free sourcing policies. This aligns with regulations such as the EU Deforestation Regulation (EUDR), which aims to exclude products linked to deforestation from European markets.
To broaden deforestation policies effectively, bondholders can engage with banks by encouraging them to integrate deforestation risk assessments into their lending and underwriting frameworks. This could involve promoting commitments to sustainable finance principles like the EU's Sustainable Finance Disclosure Regulation (SFDR).
Investor coalitions can also amplify pressure on financial institutions, urging them to extend their deforestation criteria to all sectors linked to food production and forestry. Collaborative efforts are key to steering capital away from deforestation-driven activities in the food industry.
Supporting banks in adopting preventive and restorative strategies like sustainable forest management, peatland protection, and carbon sequestration initiatives is another important step. These strategies are key components of national and international forestry policies.
Such engagement is aligned with global trends encouraging financial institutions to address environmental risks and integrate biodiversity conservation into their risk management. This combined approach fosters systemic change by steering capital away from deforestation-driven activities in the food industry.
In the coming months, companies such as Amazon, Shell, Target, PepsiCo, and GSK are expected to seek new financing. Unfortunately, many of these companies do not currently disclose their full deforestation footprints, making it difficult for investors to make informed decisions.
AFII's Deforestation Debt Universe resource aims to improve transparency around nature-related risks for fixed income investors. By engaging with banks and advocating for broader deforestation policies, investors can help drive sustainable practices in the global food industry.
In summary, by demanding transparent supply chains and sustainable business practices, and influencing banks to broaden their deforestation policies through active engagement, regulatory alignment, and collective investor action within sustainable finance frameworks, bondholders can mitigate deforestation risks and foster systemic change in the food industry.
- bondholders should engage in due diligence to discern deforestation linked to supply chains within the food industry, aligning with the EU Deforestation Regulation's (EUDR) aim to exclude products linked to deforestation from European markets.
- Through collaborative efforts with banks, investors can promote commitments to sustainable finance principles, like the EU's Sustainable Finance Disclosure Regulation (SFDR), to integrate deforestation risk assessments into lending and underwriting frameworks.
