The world’s largest asset manager says it will do more to address deforestation but will the rest of the finance sector follow?
by Sarah Rogerson and Beate Triantafilidis
BlackRock, the world’s largest asset manager, recently revealed it was prepared to take the issue of deforestation to board level if engagement with companies that they invest in did not lead to progress.
Michelle Edkins, the Global Head of BlackRock’s Investment Stewardship team, was speaking at a webinar to launch sustainability advocacy group Ceres’ Investor Guide on Deforestation and Climate Change.
With over USD$7 trillion under management, BlackRock is a financial force that matters. They hold shares and voting rights in thousands of companies – including many companies with high forest-related risks.
In the latest Forest 500 assessment the 500 most influential companies and financial institutions in forest risk supply chains, Global Canopy identifies BlackRock as one of the major financiers of companies in forest risk commodity supply chains.
Loud on climate, failing on forests
BlackRock has been vocal on its intentions to act on climate change, but until now, its action on deforestation has been minimal, despite deforestation making up 10% of greenhouse gas emissions globally. In the latest Forest 500 ranking BlackRock scored 4/100, receiving points only for having awareness of deforestation as a problem. It doesn’t have a publicly available policy on deforestation for any of the key forest-risk commodities of cattle products, palm oil, soy and timber.
BlackRock’s voting record on deforestation has also been exposed. Friends of the Earth and Amazon Watch found that BlackRock voted against 15 out of 15 shareholder resolutions to tackle deforestation between 2012 and 2019.
102 of 150 financial institutions have no deforestation policies
Blackrock is not alone among financial institutions in performing badly on deforestation. Last year, 102 of 150 financial institutions assessed in the Forest 500 had no policies on deforestation. Not a single financial institution received a top score in the assessment.
Still, some financial institutions are ahead of the pack. Twenty eight of the financial institutions assessed have deforestation policies covering all key forest risk commodities. Top performers include BNP Paribas, Standard Chartered, and the Norwegian Government Pension Fund (see the full list here).
Storebrand, a Norwegian investment and pension fund, goes even further: in addition to their own publicly available financing policies on deforestation across all of the key forest risk commodities, in June they led a group of investors in calling on the Brazilian government to do more to reduce deforestation.
That BlackRock is now speaking publicly on addressing deforestation may signal a shift in its policies and practices. To show that it is truly committed to tackling deforestation, Blackrock needs to launch a publicly available financing policy and engagement strategy across the key forest-risk commodities. Updating policies and engagement strategies to explicitly address forest protection is recognised as a key first step for financial institutions.
Publicly available policies signal priorities to companies, while allowing stakeholders to hold financial institutions to account.
In its policy, BlackRock should clarify the extent of their corporate engagement. Does it plan to engage with all the companies in its portfolios which are involved in forest risk commodity supply chains, or only some? It should also clarify what the consequences will be if companies fail to make progress towards deforestation-free supply chains.
Once BlackRock does have a policy and strategy in place, it’s essential that financial institutions monitor and report on performance and progress.
Financial institutions have the tools to act
An increasing number of tools are available to help BlackRock and other financial institutions develop robust policies and practices on deforestation.
Ceres’ new Investor Guide on Deforestation and Climate Change lays out how investors should consider deforestation as part of their climate policies. Later this year, an expanded version of the ENCORE tool, a joint initiative by Global Canopy and UNEP-FI, will enable financial institutions to assess their portfolios against global biodiversity targets. And Trase Finance, which launches later this year as a collaboration between Stockholm Environment Institute, Global Canopy and Neural Alpha, will provide financial institutions with data on their exposure to deforestation risk through the specific companies that they are financing.
An opportunity for leadership
BlackRock’s lack of policies on deforestation does not make it an outlier. But its position as the world’s largest asset manager means what it chooses to do next can have a disproportionately positive impact. If BlackRock were to follow up its latest statements with ambitious deforestation policies and targets, it would set an example for the rest of the finance sector to follow.
Despite its poor performance on deforestation to date, BlackRock has the opportunity to show real leadership.
Image: Charging bull New York City, Sam Valadi on Flickr