Investors Talk Deforestation: Q&A With Lauren Compere, Boston Common Asset Management
Lauren Compere is a managing director and director of shareholder engagement at Boston Common Asset Management, a management firm specializing in responsible investing with $2.8 billion in assets under management. Ceres talked with Lauren about deforestation and climate change and how her firm is engaging banks and other companies on these systemic financial risks. It comes as deforestation – and associated greenhouse gas emissions and climate impacts – are skyrocketing in many regions of the world. What follows is a lightly edited Q&A.
The Q&A is part of Investors Talk Deforestation, a series of interviews with influential investors and partner organizations who supported the development of the Ceres Investor Guide to Deforestation and Climate Change. The Guide aims to engage investors on deforestation emissions and other related risks across their portfolios and drive more corporate action on the issue.
Question: Boston Common Asset Management has been engaging with companies on deforestation risks for about 15 years. Can you discuss your strategy over the years?
Answer: As a sustainable investment firm, we do not invest in companies with egregious environmental practices. We seek companies that are looking to integrate sustainable practices and minimize their environmental impacts into their core business model.
Our first foray almost 15 years ago into deforestation was focused on palm oil production and engagements with the banking sector, beginning with a dialogue with the European investment banking firm HSBC on the promotion of the Roundtable on Sustainable Palm Oil (RSPO) certification with palm oil producers and their downstream clients.
Since then, we have also engaged with food and beverage companies, mostly on palm oil, but also on other soft commodities such as cattle, where we’re seeing significant deforestation and associated greenhouse gas emissions. In addition to our individual engagements, we also participate in collaborative initiatives, including the Cerrado Manifesto, which focuses on Brazil, and the Investor Initiative for Sustainable Forests, a joint Ceres/PRI initiative that is expanding investor efforts to address deforestation in soy, timber and cattle supply chains.
In these ways, we look to engage across the value chain, but also across sectors and markets. Through the years, our engagements have expanded to include other companies like Japanese consumer staples and personal care product manufacturers, such as Koa and Shiseido which use palm oil as well as cardboard in their packaging.
Q: What is driving your focus on deforestation?
A: Deforestation has an enormous impact on the climate, but if you map out the risks from deforestation and environmental degradation against human rights risks, you can see that there’s almost a direct correlation. These environmental issues are closely linked to some of the worst human rights abuses. This is something more investors are looking at.
Q: Ceres’ new resource, the Investor Guide to Deforestation and Climate Change, is focused on investors who are not yet engaging on deforestation. As an investor with a longer history of work in this space, what actions do you look for from companies regarding their response to deforestation?
A: We look at how companies are assessing their deforestation risks across regions and value chains. While many companies are focused on the four key commodities–palm oil, timber products, cattle and soy--we are asking them to focus on all agricultural commodities they source that may be produced with deforestation.
We also look at how companies are managing these risks in their supply chains and whether they are adhering to their industry’s best practices, such as standards set through certification programs like the RSPO or the Forest Stewardship Council (FSC). Beyond certification, we look for commitments to achieve net-zero deforestation, with practices that help the company achieve No Peat, no Deforestation, no Exploitation (NDPE).
There has also been a recent shift where more investors are looking beyond just risk mitigation to how companies are capitalizing on opportunities in this space. For example, are companies looking at ways to not just stop deforestation, but also to invest in carbon sinks via regenerative agriculture and reforestation efforts?
It is also important to understand that deforestation is usually happening at the end of a supply chain, so we have to look at the leverage points. What kind of supplier contracts does a company have? Are they directly sourcing palm oil? Most likely not, so how do they engage intermediaries in their supply chain to raise expectations and best practices? Ultimately, it is about complete supply chain accountability and traceability. If a company is demanding that a palm oil supplier be RSPO, how is that supplier pushing that message and that expectation down the supply chain? And what steps are they taking if there is non-conformance with the RSPO?
In summary, we look for company participation in certification schemes with supply chain audits, and their joining with other industry players to level set or standardize the expectation regarding deforestation depending on the commodity.
Q: Can you highlight specific examples of progress you have seen from companies?
A: We have a long-term systematic engagement with Bank Rakyat in Indonesia on palm oil producers and the financing of palm oil production. We have seen a step-up in the bank’s willingness to engage its palm oil clients to go beyond the expectations of the Indonesian Sustainable Palm Oil (ISPO) mandatory regulatory requirement, and move towards higher expectations under RSPO certification. They have not required RSPO certification, but seeing them ramp up their client engagement on it has been promising.
The soy deforestation challenge has been a tough one to crack. Through our participation in the Ceres/PRI initiative, we found that Mondelez International, the multinational food and beverage company, had an action plan for a number of major commodities with deforestation risk but in terms of their prioritization it was palm oil, cocoa and then soy. This is because the company’s exposure to soy is primarily indirect through the soy in feed used by its dairy suppliers. Due to the large volume of dairy they source, Mondelez has the potential to influence this indirect supply chain, so we asked the company to look beyond its direct soy sourcing to their indirect exposure through its dairy suppliers. I’ve been really pleased to see the company thinking of ways to look at its dairy sourcing in this regard. We have seen similar progress with some other companies as well.
Q: In providing feedback on the Ceres investor guide, you mentioned that investors should be engaging not just with companies but also research providers. Can you elaborate on this, particularly in regard to Scope 3 emissions?
A: For starters, we ask companies with supply chain exposure to deforestation to respond to the CDP Forest Survey. That has been a core ask for many years. Although not a research provider, CDP helps standardize disclosures and is a great resource for investors to find out more about companies’ deforestation risk.
In terms of research providers, increasingly we are looking not only at company-specific deforestation risks, but how we can map out deforestation risks across the entire investment portfolio. We have yet to identify a way to do this that we are satisfied with. It would be interesting to be able to assess a portfolio’s alignment with net-zero deforestation and see how a portfolio is tilted in this regard.
Another challenge is Scope 3 emissions. It is difficult to evaluate an agricultural company’s overall climate risk without knowing what its Scope 3 emissions are. While we have more data now, a lot of it is still estimations. A higher level of focus on disclosure of GHG emissions linked to deforestation would be very helpful.
There has also been a concerted effort by U.S. and European investors to move beyond just deforestation to other interconnected issues such as the loss of biodiversity. Raising assessment levels and knowledge building to an earth-system level where we could assess systemic risk and how different issues mitigate or exacerbate other problems is what we would like to see more of. Research providers offering more relevant biodiversity data would certainly help with this.
Q: The Investor Guide references your 2019 report, Banking on a Low-Carbon Future: Finance in a Time of Climate Crisis. Can you speak to the findings of the report and the importance of investors engaging banks on deforestation risks?
A: Banks are a critical leverage point in the commodity supply system and it is essential that more investors engage banks on deforestation. Boston Common has published impact reports on how banks are managing climate risks and opportunities for the past five years. In the two most recent iterations, we have moved beyond looking just at bank policies to implementation and action. This was important for us to address because there is a direct link between financing and perpetuation of practices like deforestation.
In our study, we benchmarked 58 banks and found that one of the biggest gaps was in addressing deforestation risks as a part of overall climate risk, with only a minority (16%) of banks requiring soft commodity clients (cattle, soy, palm oil, and timber) to adopt no-deforestation policies. That is really dismal.
If banks are providing financing to companies that are agricultural producers, especially those with soft commodities linked to high deforestation risks, they are perpetuating these practices. It implies that they tolerate this as a risk. If financial institutions come out and say that they are going to require a higher threshold or a higher level of practice, they have an opportunity to influence and change practices. As a linchpin in the system, banks have the influence to either set higher standards or to exacerbate these issues.
Q: Are there any takeaways from what we are seeing today with COVID-19, a global pandemic and deforestation risks?
A: Two things concern me about COVID-19:
I am concerned that lockdowns and lack of travel enhances the risks of companies that are sourcing soft commodity products in other areas of the world. It inhibits their ability to meet directly with suppliers and for auditors to ensure that practices are being maintained around their deforestation commitments.
The other concern is that in order to meet demand for commodities like soy and palm oil, the suppliers themselves and those down the production line will take more chances. They will send their workers out into the fields because they need to meet quotas, but there won’t be a proper focus on the health and safety of workers. I am concerned these kinds of pandemics will put those most vulnerable in supply chains, including migrant workers, at risk.
Sometimes checks and balances–such as environmental protections and enforcement–go out the window during times of global crises. We are already seeing statistics showing that deforestation, especially in the Amazon, has continued during COVID-19.
Next up in the Investors Talk Deforestation series: a conversation with Jessye Waxman, shareholder advocate at Green Century Capital Management.
KEYWORDS: Deforestation, green finance, CERES, Lauren Compere, Boston Common Asset Management