Virtuous investors need serious benchmarks

An ambitious campaign to stop deforestation in Brazil hints at how institutions’ fiduciary clout can help bring about crucial change – and under what conditions.

The Farm Animal Investment Risk and Return, an $8 trillion investor network, can justly be described as hyperactive. Since its launch less than three years ago, the group has led several highly visible campaigns to address issues related to animal production, from antibiotics overuse to rising risk factors facing the protein supply chain. The idea behind the group is simple: when investors have something to say, stakeholders listen, because everybody knows who holds the purse strings.

Yesterday, FAIRR publicly put its weight behind another worthy cause – halting deforestation in Brazil. In September 2017, a coalition of 60 Brazilian civil society organizations released the Cerrado Manifesto, which decried the huge forest destruction resulting from soy and cattle expansion and called for immediate action to protect the Cerrado region. A month later, 23 companies issued a statement of support, stating their intent to work with local and international actors to stop deforestation.

That club, dubbed the Statement of Support group, has since grown to 70 members. Its steering committee, which includes consumer-facing businesses such as Walmart, McDonald’s and Unilever, recently asked FAIRR to help drive investor sign-on for the statement. “They wanted a larger investor voice because it’s such an important initiative,” says Aarti Ramachandran, the group’s head of research and corporate engagement. Will their involvement make a serious difference?

The Cerrado is certainly worth saving. The region, which covers an area equal to Germany, France, the UK, Italy and Spain combined, is home to 5 percent of the world’s biodiversity, dictates local rainfall patterns and acts as a massive carbon storage. Between 2013 and 2015, about 19,000 square kilometers – an area roughly the size of Greater London – of the region’s forest disappeared, largely because of rapid agricultural expansion. The savannah has already lost half its original area, according to the Cerrado Manifesto.

Protecting it matters to agriculture as well. Disturbing rainfall patterns will surely have an impact on the region’s farming productivity and the related supply chain. Solutions exist: more than 38 million hectares of land where soy production can expand without causing further loss of forest has already been identified. And the private sector has a big role to play. Under Brazil’s forest code, 85 percent of current conversion from native vegetation to soy cultivation is legal, showing the limits of regulation.

Signing large corporates and their investors to the initiative is not just about publicizing the issue. It can be effective as an agent of change, by showing those involved locally that “there is a market for zero-deforestation commodities from the Cerrado,” a spokesman for FAIRR told us yesterday. The group also has a broad benchmark for success: investor support is meant to encourage “all companies operating in the Cerrado to commit and implement a credible and effective zero-deforestation policy,” he added.

Whether that will be enough to catalyze action is the key question. The time frame for achieving success is vague. And the benchmark, in itself, is not enough without further clarification: what counts as “credible and effective”? How to ensure implementation? What deadline should be set? This points to what, eventually, is likely to ensure lasting change: investors’ discretion to allocate their capital to those who do the right thing – and credibly justify the reasoning behind their decisions.

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