Foreign Investors Threaten to Leave Brazil If Amazon Destruction Not Halted

RIO DE JANEIRO, BRAZIL – A group comprising nearly 30 financial institutions worldwide are demanding that the Brazilian government halt the growing deforestation in the country, according to the British newspaper Financial Times (FT), published on Tuesday, June 23rd. For the group, the continuity of the practice has created “widespread uncertainty about the conditions for investing in or providing financial services to Brazil”.

The letter was delivered to the Brazilian government on Tuesday amid growing concerns that investors may begin to disinvest from Latin America’s largest economy should Jair Bolsonaro’s government fail to contain environmental destruction.

“As financial institutions, who have a fiduciary duty to act in the best long-term interests of our beneficiaries, we recognize the crucial role that tropical forests play in tackling climate change, protecting biodiversity and ensuring ecosystem services,” said the letter, signed by 29 financial institutions that manage over US$3.7 trillion (R$18.5 trillion) in total assets. Signatories include Legal & General Investment Management and Sumitomo Mitsui Trust Asset Management.

“Considering increasing deforestation rates in Brazil, we are concerned that companies exposed to potential deforestation in their operations and supply chains in Brazil will face increasing difficulty accessing international markets. Brazilian sovereign bonds are also likely to be deemed high risk if deforestation continues,” they wrote, as the paper reproduced.

The FT pointed out that deforestation in the Amazon forest has increased in Brazil since Bolsonaro was elected, presenting him as a former captain of the right-wing army, which traditionally favors the opening up of protected lands to commercial activity. According to the publication, in the first four months of this year, an area twice the size of New York City was destroyed by illegal loggers, and prospectors took advantage of the reduction in surveillance during the Coronavirus pandemic to cut down forests. The land is typically converted to pasture to raise cattle, the daily continues.

The report emphasized that Environment Minister Ricardo Salles also fuelled controversy when he was filmed during a contentious cabinet meeting on April 22nd, saying the government should take advantage of the media’s focus on the Covid-19 pandemic to “change and simplify” environmental rules.

“We want to stay invested in Brazilian companies, but there needs to be a stable and predictable regulatory and environmental framework and policies that are aligned with sustainability that will make a change in course,” said Jan Erik Saugestad, chief executive of Storebrand Asset Management, a Norwegian group that has US$80 billion under its management. “Eventually if we don’t see this kind of change, the risk of staying invested may reach a point where we might not stay invested,” he continued.

Meatpackers

A portfolio manager from a European asset management group, who signed the letter, said: “It’s not only a threat. We would consider divesting. We believe that Brazil may face structural economic challenges if it does not adjust its course of action.” Investors, the FT continued, said they were particularly concerned about the Brazilian meatpacking industry, which risks being excluded from international markets because of its alleged role in deforestation. JBS do Brasil has been repeatedly accused by environmentalists of buying cattle from deforested lands in the Amazon.

Last month, more than 40 European companies, including the largest British supermarket chain Tesco and retailer Marks and Spencer, warned that they would boycott Brazilian products if the government fails to act on deforestation. “The biggest fear is always that our assets will lose value. This could be through those companies losing market access, but also through reputation damage,” said the European portfolio manager.

The FT recalled that last year, Nordea’s asset management arm suspended purchases of Brazilian government bonds after fires in the Amazon caused by loggers and farmers clearing deforested land. Gabriella Dorlhiac, executive director of the São Paulo International Chamber of Commerce, said these campaigns have “a very real impact on companies here. It’s not just the loss of contracts. Look at the EU-Mercosur trade agreement. There is a threat that something that took 20 years to be finalized will be jeopardized.” The EU-Mercosur trade agreement was reached by the two blocs last year, but little progress has been made towards ratification.

“The Brazilian government should take steps to urgently reverse the increasing rates of deforestation,” said Jonathan Toub, Aviva Investors’ equity fund manager. “In our equities portfolios, we had a positive bias to Brazil at the start of the year. However, policy missteps have increased our concerns about the government’s priorities. We have reduced our exposure to Brazilian assets in recent months.”

Source: Estadão