State of the Rainforest 2014

has been movement towards greater sustainability in the sector, with several large companies adopting no-deforestation policies. 47

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 46 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

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.

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STATE OF THE RAINFOREST 2014