STATE OF THE RAINFOREST 2014
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Rainforest Foundation Norway has for years advocated that the
GPFG must reduce the impacts of its investments on tropical forests
systematically, not merely by excluding a few worst cases. With the
release of the report
Beauty and the Beast: Norway’s investments in
rainforest protection and rainforest destruction
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in 2012, the issue
was placed on the national agenda. During a hearing in Parliament
in June the same year, the then Minister of Finance, Sigbjørn Johnsen
of the Labour Party, announced that he had requested Norges Bank
(central bank of Norway) to consider how tropical forest destruction
could be included in the Fund’s ‘active ownership’ work. A few
months later, Norges Bank included tropical deforestation as a
priority issue under its strategy for climate-change risk management.
The first result/action/implementation of this policy change came
in early 2013, when the GPFG declared that it had divested itself of
all its shares in 23 palm oil companies whose business models were
not deemed sustainable. The GPFG believes that long-term financial
sustainability depends on social and environmental sustainability,
and the massive deforestation caused by the palm oil industry in
Southeast Asia was seen as a liability.
The announcement sent shock waves through the industry.
Unfortunately, the GPFG failed to specify the basis for deciding which
companies to divest itself of. This caused considerable confusion,
as it was not clear that all the divested companies were worse than
the palm oil companies the GPFG continued to invest in. By not
providing a transparent decision based on clearly defined criteria,
the Fundmissed an opportunity to encourage all palmoil companies
to improve. Nevertheless, since the GPFG’s announcement, there
has been movement towards greater sustainability in the sector,
with several large companies adopting no-deforestation policies.
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While taking on tropical deforestation as a priority issue was
laudable, the GPFG has still not set a specific, time-limited goal
for reducing forest destruction in its investment portfolio, or put in
place the tools necessary to achieve that goal. A systematic strategy
of engagement should be based on a set of guiding principles that
specify the Fund’s expectations to companies whose operations
may have an impact on forests, as well as criteria and methodology
for assessing both the real and the potential impact of portfolio
companies on forests. Through the use of tools such as shareholder
resolutions, voting guidance and dialogue with companies,
investees should be encouraged to report on forest impact and set
targets for reduced forest destruction. Companies for which forest
destruction is an integral part of the business model should be
removed from the Fund’s portfolio, as well as companies that after
extended engagement fail to make progress towards the stated
goals. To maximize effectiveness, the GPFG should engage not only
with companies that directly cause forest destruction, but also with
off-takers and finance providers.
Just as the recommendations from the Council on Ethics are
routinely followed by a large number of investors internationally,
the GPFG’s efforts to reduce forest destruction by exerting influence
on investees could potentially become best practice in the investor
community. Whether this work will succeed depends on how
seriously the GPFG takes the issue, now and in the future.
