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Reducing Deforestation Risk in UK Pensions: A Storebrand Asset Management Perspective

How growing concerns over deforestation can be addressed by mapping portfolio risk areas and tackling the companies responsible

Published 07.03.2022 by Vemund Olsen

According to a recent survey [1], deforestation is pension holders' top concern for their pension investments, ahead of fossil fuels, labour rights violations and weapon manufacturing. It deserves to be a top priority – research estimates that nearly a third (31% or £306 billion) of UK pension fund assets are invested in companies with a high-risk of causing deforestation [2].

High-risk sectors are defined as those linked directly or indirectly to deforestation. Of those contributing directly, agriculture and forestry production is responsible for almost three quarters (73%) of global deforestation with seven high-risk commodities (beef / leather, palm oil, soy beans, coffee, cocoa, rubber and paper / timber,) accounting for 26% of forestry loss, according to the report.

The world is estimated to be losing forests equivalent to the size of London every week [3], causing huge biodiversity loss and contributing significantly to climate risk – global deforestation accounts for 10-15% of all CO² emissions [4].

As well as threatening our biodiversity and climate, and the human rights of indigenous peoples and other forest-dependent communities, deforestation also poses huge investment risks to portfolios (and therefore retirement income). Companies in high-risk sectors are exposed to increasing physical, regulatory and reputational risks, negatively impacting financial performance and shareholder returns.

Deforestation-free portfolios

Storebrand’s ambition is that none of our investments will contribute to deforestation by 2025. We established a strict deforestation policy in 2019 that combines a range of strategies to achieve this goal.

We have assessed our portfolios for deforestation risk and selected 50 companies for engagement. Our aim is to influence companies to end deforestation in their operations and supply chains, but we are ready to divest those that prove unwilling or unable to comply. In addition, we are cooperating with other financial institutions to promote standards for measuring, monitoring and reporting on direct and indirect deforestation risk, and are also encouraging companies to disclose information on deforestation.

Understanding deforestation risk

A challenge for investors is the lack of a recognised standard for reporting on deforestation risk in investment portfolios. In 2020 Storebrand began mapping its portfolio exposures and produced a report assessing the tools and data sources available, as well as their suitability for use by institutional investors in their global equity portfolios [5].

Storebrand was also a member of the Informal Working Group for the Task-Force on Nature-related Financial Disclosure (TNFD). This important initiative will create a reporting framework to help organisations manage biodiversity risks and identify opportunities, with sustainable forest management identified as key driver of achieving the Paris climate agreements [6].

The complexity of agricultural production and supply chains presents a sizeable challenge to understanding underlying portfolio exposures and risks. Last year we worked with Trase, an organisation which maps the trade and financing of high-risk commodities, to help investors identify the links between holding companies and deforestation, which can then inform investment decisions and ownership engagement .

A key focus of Storebrand's engagement initiatives has been Brazil, where more than 10,000 square kilometres of forest in the Amazon were destroyed in 2021, a staggering 31% increase on the previous year [7]. We co-chair the Investor Policy Dialogue on Deforestation (IPDD), an initiative formed in 2020 to engage with public agencies and industry associations in response to deforestation in Brazil and other countries.

We recently placed Bunge and Archer Daniels Midland on our observation list, freezing investments until the US companies eliminate deforestation from their soy supply chains in Brazil.

According to the Make My Money Matter polling¹, 77% of UK of pension holders would be unhappy to discover that their savings were contributing to deforestation. We share their concerns and are committed to playing our part.

You can read more about Storebrand's work to halt deforestation on our website, www.storebrandfunds.co.uk




[1] Source: Pensions Age, February 2022

[2] Source: Make My Money Matter, Cutting Deforestation from Our Pensions, February 2022

[3] Source: We Lost a Football Pitch of Primary Rainforest Every 6 Seconds in 2019, World Resources Institute, June 2020

[4] Source: Climate Change and Land: an IPCC special report on climate change, desertification, land degradation, sustainable land management, food security, and greenhouse gas fluxes in terrestrial ecosystems, IPCC 2019

[5] Source: Deforestation tools assessment and gap analysis: How investors can manage deforestation risk, August 2020

[6] Source: TNFD proposed technical scope, June 2021

[7] Source:Imazon, December 2021

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Vemund Olsen_sirkel
Vemund Olsen, Senior Sustainability Analyst