Client Affairs

Asset Managers Slammed On Deforestation Disclosure

Jackie Bennion Deputy Editor 27 January 2021

Asset Managers Slammed On Deforestation Disclosure

A new report has ranked BlackRock, Fidelity, and Vanguard among the worst for reporting on the deforestation risks of their investments, despite more big asset houses burnishing their climate credentials.

BlackRock - overseeing $8.677 trillion -  is one of around 100 asset houses being called out for not disclosing how they are combatting deforestation, while also funnelling trillions into potentially worsening climate and biodiversity conditions, according to a report by Global Canopy.

The environmental non-profit’s annual Forest 500 Report found that 95 of 150 major banks and institutional investors don’t publish policies on how companies they are investing in are tackling deforestation. Those missing basic disclosure information include Vanguard, Fidelity, State Street and BlackRock, which account for four of the top five global asset managers.

The report admonished the industry for making pronouncements on climate change but failing even to have a deforestation policy in place. "It sends a terrible message to the market,” Niki Mardas, executive director of Global Canopy, said. The World Economic Forum has estimated that roughly half of global GDP is at significant risk from escalating nature loss.

As more forests are cleared to make way for palm oil, soy, beef, timber and other commoditites, a third of the companies involved in this trade have made no public supply chain commitments to avoid deforestation, according to the report, and only a quarter have policies in place for all the commodities at risk. Ten of the biggest funders without deforestation policies were US institutions, research showed.

Growing pressure from environmental groups comes as the US is under new management and climate is back on the policy agenda.

BlackRock, Vanguard and other big asset managers have drawn fire from shareholders for their complacency in setting the $90 trillion managed by the industry on to a low-carbon transition path.

Billionaire hedge fund manager Christopher Hohn has been one on their case. "They talk but they don’t actually do anything effective," Hohn said.

BlackRock didn't respond for comment but its head of stewardship Michelle Edkins said the firm has been addressing deforestation for several years using the OECD’s responsible business guidelines to monitor company activity.

"The deforestation we were seeing in Asia, primarily in Indonesia and Malaysia, prompted us to focus our engagements with companies producing and sourcing palm oil," Edkins told the California-based Ceres group recently. " Our reasoning behind engaging on deforestation is really about a company’s ability to sell products into a global supply chain, which is obviously a business risk that needs to be well managed."

Since the 2014 New York Declaration on Forests, when governments and companies pledged to deliver deforestation-free supply chains by 2020, tropical forest loss has increased by an average 44 per cent, mostly because of agricultural expansion. In its 2020 update, the alliance said there remains "a general lack of transparency in how and whether financial institutions avoid investments with high forest risks," even among those that have put in safeguards, it said.

“There is no solution to climate change without a solution to deforestation," Global Canopy's Mardas said.

The environmental non-profit compiled data on the 350 companies that produce, trade, or consume the largest amounts of the commodities most linked to deforestation, and the 150 largest institutions that finance them, through bonds, loans and holdings that are worth roughly $5.5 trillion.

It found that the third of financial institutions that do have deforestation policies often have problems implementing them. "HSBC, Santander, Deutsche Bank and BNP Paribas all have policies but between them provide at least $6.4 billion to companies with no published deforestation commitments," the report said. Only a fifth of the institutions with the most influence on deforestation have published policies for all the major forest-risk commodities. Those given high marks for prioritising the issue included Rabobank and UBS, the report said.

Goldman Sachs, Standard Life Aberdeen and Brazilian investment group BTG Pactual were listed among nine firms that have failed to disclose how they identify or deal with companies that aren't meeting their policies. The report called on financial institutions to set policies covering all key commodities, monitor and engage with companies to drive progress, and divest from those who fail to act.

BlackRock's CEO sends a letter
By coincidence, the report came out as BlackRock’s chief executive, Larry Fink, trumpeted the firm’s environmental and sustainability credentials in his “2021 letter to CEOs”, sent to the chief executives of firms in which the fund manager invests.

"BlackRock is committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. We are taking a number of steps to help investors prepare their portfolios for a net zero world, including capturing opportunities created by the net zero transition.

The firm said it is committed to publishing a "temperature alignment metric" for public equity and bond funds; publishing the share of its AuM aligned to "net zero"; as well as adding impacts of climate change into its capital markeet assumptions. It is also putting to work a model in active portfolios to chedk for securities that pose "significant climate risk", and is launching investment products that have "explicit temperature alignment goals".

"Because the global economy today is itself carbon intensive, the portfolios of most diversified investors – including the portfolios of BlackRock’s clients in aggregate – remain carbon intensive. That cannot and will not change overnight, and BlackRock’s aggregate portfolio will necessarily be subject to the investment decisions of our clients. Nonetheless, there is significant global momentum towards a net zero economy, and BlackRock believes that our clients are best served by being at the forefront of that transition," Fink wrote.

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