Disclaimer: Views in this blog do not promote, and are not directly connected to any Legal & General Investment Management (LGIM) product or service. Views are from a range of LGIM investment professionals and do not necessarily reflect the views of LGIM. For investment professionals only.

Engagement in practice: sustainable food for thought

Decarbonisation isn’t just about oil and coal, so we engage governments and businesses across the economy on climate change.

 

Without urgently tackling and reversing the deforestation associated with food production, meeting the net-zero challenge will be impossible.

The Intergovernmental Panel on Climate Change (IPCC) land-use report highlights that to limit global warming to 1.5°C, reforesting an area the size of India may be necessary. As such, halting deforestation in biodiversity hotspots and systemically important biomes such as the rainforests in the Amazon and Southeast Asia is a key component of global decarbonisation efforts.

We have set out before why this aspect of climate change should not be overlooked, and we continue to urge policymakers to take it more seriously. We act on it too.

Following steps by the Brazilian government to loosen environmental protections, for example, in mid-2020 we joined an investor coalition to engage directly with senior Brazilian government officials including the vice president, the governor of the central bank, and other ministers. We expressed our concerns, warning of potential divestment from local food companies and even government bonds.

The Brazilian government responded by introducing a moratorium on setting fires in the Amazon, and the investor group had a follow-up engagement with senior officials.

New data, however, show that the rate of deforestation in the Amazon is sadly continuing to increase. We will be watching developments closely, and will continue to engage with the food companies in our portfolio with exposure to soy and cattle products which are linked to deforestation. Going forward, the remit of the investor group will expand to focus lobbying efforts in Southeast Asia too.

A Gamble worth considering

On the corporate side, we have also engaged with consumer-goods giant Procter & Gamble* (P&G), supporting a shareholder proposal on the elimination of deforestation from its supply chain and encouraging the company to increase the percentage of the pulp it uses that is Forestry Stewardship Council (FSC) certified.

P&G used both forest pulp and palm oil as raw materials within its household-goods products. The company had only obtained certification from the Roundtable on Sustainable Palm Oil for one-third of its palm oil supply, despite setting a goal for 100% certification by 2020. Two of its Tier 1 suppliers of palm oil were linked to illegal deforestation. Finally, the company used mainly Programme for the Endorsement of Forest Certification (PEFC) wood pulp rather than FSC certified wood pulp.

Palm oil and forest pulp are both considered leading drivers of deforestation and forest degradation, which is responsible for approximately 12.5% of greenhouse gas emissions that contribute to climate change. The fact that Tier 1 suppliers have been found to have links with deforestation calls into question due diligence and supplier audits. Only FSC certification offers guidance on land tenure, workers’, communities’ and indigenous people’s rights and the maintenance of high conservation value forests.

Although P&G had introduced a number of objectives and targets to ensure its business does not impact deforestation before the shareholder proposal, we felt it was not doing as much as it could. The company had not responded to CDP Forest disclosure; this was a red flag for us in terms of its level of commitment.

The resolution received the support of 67.68% of shareholders (including LGIM), and we will continue to engage with P&G on the issue and will monitor its CDP disclosure for improvement.

Our investment and stewardship teams also engaged repeatedly with Nestlé* last year on sustainability issues including water scarcity, packaging, recycling, and its supply chain. The company has since committed to: i) net-zero emissions by 2050, and ii) 100% recyclable or reusable packaging by 2025. We will be meeting with the company’s chief executive this year to follow up on these commitments.

One of our key priorities is to ensure that companies we invest our clients’ assets in are not contributing to deforestation, so we will continue to focus on this issue across our portfolio.

We will be publishing our 2020 Active Ownership report on 31 March, which will contain further detail on our approach to responsible investing and additional case studies.

 

*For illustrative purposes only. Reference to a particular security is on a historical basis and does not mean that the security is currently held or will be held within an LGIM portfolio. The above information does not constitute a recommendation to buy or sell any security.

 

 

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