BlackRock, JP Morgan, Citi finance firms risking Amazon destruction

BlackRock, Vanguard, JP Morgan, Citigroup and Bank of America — which all have well publicised commitments to environmental and social good — are high on the list of institutions directing money to companies that risk damaging this fragile place.

They are not alone. The prominence of some of the companies whose activities threaten the Amazon is such that most large financial institutions are likely to be involved in some way.

“Climate scientists are sounding the alarm that further deforestation in the Amazon is almost guaranteed to cause a tipping point, where the Amazon flips to being a savanna, with exponential ripple effects because of its role in regulating rainfall and temperature,” said Moira Birss, climate and finance director at Amazon Watch in San Francisco.

This would release large quantities of stored carbon into the atmosphere, and involve the loss of a significant part of the world’s forests, which sequester carbon.

Deforestation in the Brazilian Amazon, especially on lands legally protected for indigenous people, has accelerated under president Jair Bolsonaro, who took office in January 2019. He has made no secret of his opposition to environmentalists and indigenous rights activists, and of his loyalty to the powerful ruralista agribusiness lobby, which is understood to have the support of around half the members of both houses of Brazil’s Congress.

The Brazilian Institute of the Environment and Renewable Natural Resources (Ibama), responsible for environmental monitoring, had its budget cut by 31% this year and has 55% fewer inspectors than a decade ago.

Indigenous people are particularly vulnerable, and are also particularly important defenders of the rainforest. Protected areas, including those inhabited by forest peoples, hold 56% of the remaining carbon in the Amazon, as so much of the rest has already been deforested.

Of the 1,298 indigenous lands in Brazil, 829 are still waiting for the government to complete the demarcation and registration process to give them the protected status of an Indigenous Territory (TI). Under the 1988 constitution, this was meant to have been finished by 1993.

Bolsonaro promised before being elected not to demarcate any territories and has kept his word. A case before the Supreme Court could restrict indigenous land rights still further.

Funai, the National Indian Foundation, a government agency intended to protect indigenous people’s rights, is now under a president, Marcelo Augusto Xavier da Silva, with links to the farming lobby.

The Chico Mendes Institute for Biodiversity Conservation has had the environmental experts who headed each of its five regional administrations replaced with soldiers.

These and many more measures by the Bolsonaro administration are allowing the industrialisation and deforestation of the Amazon to continue with fewer checks than before.

Some of the destruction is carried out by small, independent farmers, ranchers and loggers. But much of it is directly the work of big companies plugged into international capital markets.

And even independent farmers often feed their produce into international supply chains, so that it ends up in products bought by north American, European and Asian consumers and financed by banks and investors from those regions.

The Association of Brazil’s Indigenous Peoples (Apib) and Amazon Watch, a US NGO, this week produced the third edition of their report Complicity in Destruction.

Drawing on research by De Olho Nos Ruralistas (DONR), a Brazilian investigative journalists’ group, it explains the severe danger the Amazon region faces and lays out some of the abuses indigenous people face at the hands of industrialists and farmers — as well as the weakening of protections under Bolsonaro and outright government encouragement of land theft.

The report examines the role of international capital markets in financing this harm. To make the problem easier to grasp, and give themselves a chance of being able to lobby the perpetrators, the authors focus on just 11 companies whose activities they argue cause destruction in the Amazon, and six of the largest US funders of nine of those companies — the five mentioned at the start of this story and Dimensional Fund Advisors, the $527bn fund group founded by David Booth.

The information about the companies was chosen from DONR’s database of 797 judicial cases involving disputes over indigenous territory and environmental damage.

Profundo, a Dutch sustainability consultancy, helped with the analysis. Using a variety of sources, including Bloomberg and Refinitiv data and public company reports, the authors tallied the quantity of bond, equity and loan financing each of these six firms had provided or underwritten for the nine companies between January 2017 and June 2020. The six were chosen because all of them had financed at least half the companies during the period.

“The figures mentioned in the report refer to all of the institutions’ global investments and loans in the companies listed and are therefore not figures specific to the Brazil case studies,” the report said. “The amounts illustrate how their financing supports these companies as a whole, and how this is a flawed business model that has been unable to guarantee respect for socio-environmental and Indigenous peoples’ rights.”

Three sectors are examined in the report: mining, agribusiness and energy.

Some of the activities of the companies, as described in the report, are summarised below.

Vale is the world’s second biggest iron and nickel miner, listed in New York with a $55bn market cap. It operates the Carajás Complex in Pará state in the Amazon, the largest iron ore extraction site in the world, transporting ore by a 1,100km railway to the sea.

The company is accused of polluting the Cateté River, the primary source of water on the Xikrin Indigenous Land. The Xikrin took legal action in 2018, demonstrating the impact mining has had on their way of life. Vale has tried to deny these impacts.

Indigenous peoples in four lands affected by the Carajás railway have accused Vale of consistently failing to comply with agreements it signed to mitigate the impacts of its operations.

“Although the company denies it, Vale also has submitted [236] requests for mining exploration on Indigenous lands in the Amazon,” the report said.

A subsidiary of Vale, Biopalma, produces palm oil in Pará, using pesticides which are affecting the health of the Tembé people and polluting waterways.

“The river is being polluted by mining,” the report quoted Yan Xikrin, a leader of the Xikrin people, as saying. “Today we can no longer have cultural celebrations at the river because the river is contaminated. We can no longer eat the food we used to fish from the river. We can no longer swim there. Children have died. People have skin diseases caused by mining waste. Forested areas are being cleared without permission from the Indigenous community… Vale simply showed up, and it was all gone; they cleared it without any authorisation at all.”

BlackRock, Capital Research Global Investors and Vanguard are some of Vale’s largest shareholders, with $11bn of shares between them, the report said. Citibank is the depository for Vale’s shares. Banks financing it include Citigroup, Crédit Agricole, SMBC, Barclays, Bank of America, HSBC and JP Morgan.

Vale issued a detailed statement in response to the report, which it said "contains misleading information". It said it did not carry out any kind of mineral research or mining on indigenous lands in Brazil and complied strictly with legislation. It respects the principle of giving indigenous communities the right of free, prior and informed consent (FPIC), as required by the UN Convention on Human Rights. "The company is reevaluating its portfolio of mining processes, including research applications that interfere fully or partially with indigenous lands," Vale said.

Forensic specialists had demonstrated that there was no connection between Vale's activities and the alleged contamination of the Cateté River, Vale said. Metals naturally occurred in high concentrations in waters in the area, it added.

Regarding the Carajás railway, Vale said it had carried out activities to help indigenous people since it was built in the 1980s, including "healthcare initiatives and productive activities". It paid the Gavião people R$14m ($2.4m) a year to invest in "ethnodevelopment initiatives".

Vale said Biopalma did not use pesticides in planting areas near indigenous territory.

Anglo American is a diversified miner listed in London with a $24bn market cap. It has made nearly 300 requests to survey on Amazonian indigenous lands, including some territories which the government has delayed granting title to.

Anglo “submitted five of these requests between 2017 and 2019, demonstrating its efforts to operate in this territory despite being aware of the prohibition against mining on Indigenous lands”, the report said. “It would appear the company is counting on the legislative changes proposed by the Bolsonaro regime to allow mining on Indigenous Territories to validate its prospecting permits.”

The most recent target of Anglo American, the report said, is the disputed Sawré Muybu Indigenous Territory at the Middle Tapajós River, inhabited by the Munduruku people.

“We are going to continue to protest against the authorisation of mining on Indigenous land,” said the Pariri Indigenous Association, which represents the Munduruku. “We will not accept more destruction. Our rivers are polluted with mercury, and our fish are dying. We are going to take back control of our territory. We have our own government, and everyone has to respect it. We are not going to stop fighting until we have resolved our problems.”

Anglo’s international financiers include Citi, JP Morgan, BNP Paribas, Mizuho, Standard Chartered, Royal Bank of Canada, Barclays, Commerzbank, HSBC, Crédit Agricole, Morgan Stanley, ANZ and Goldman Sachs.

Asked about this by GlobalCapital, Anglo American said it had “withdrawn all its applications for mineral exploration in areas located within Indigenous lands, but some of these applications have not yet been removed from the database of the National Mining Agency (ANM). Some current applications for exploration may refer to areas adjacent to Indigenous lands, with some of the blocks infringing upon these territories. In these cases, it is the responsibility of the ANM to demarcate these blocks outside the Indigenous territories”.

Anglo American also said it had no plans at the moment to carry out any mining on lands of Brazil’s indigenous population, and as a matter of principle was committed to only exploring indigenous lands with these communities’ FPIC. Anglo also aims to have a net positive effect on biodiversity in all regions where it operates.

Birss said Anglo’s commitment to FPIC was “good and important” but pointed out that how this was interpreted left room for a wide range of behaviours.

“On the face of it, [Anglo American’s] statement sounds good, but it doesn’t acknowledge the existing realities,” meaning the Bolsonaro government’s hostility to indigenous rights, she said.

In the light of that, Birss said, companies ought to avoid “any forward movement” on projects where indigenous communities had asked the government to demarcate territory for them.

The largest private company in the US, Cargill earned $115bn of revenue last year from agricultural commodities trading, including $9bn in Brazil.

“Despite being a signatory to the Amazon Soy Moratorium and claiming that around 95% of its 2018-19 harvest was free of deforestation or the conversion of forestland to farmland, Cargill remains one of the soy traders most exposed to risks of involvement in deforestation, according to data from the Trase platform,” Apib and Amazon Watch wrote. “In 2018, it was the second largest exporter of soy products among soy traders in the 15 municipalities with the largest area of soy fields belonging to farms connected to illegal deforestation in the state of Mato Grosso.”

Cargill is building a port on the Tapajós River in Pará to allow the export of 5m tonnes of grain a year. This “has been identified as a decisive factor in the growth of soybean production in the area, which has incited local land disputes and increased socio-environmental pressure on Indigenous lands”.

Cargill gave a detailed statement in response to the report, saying that it is committed to respecting and defending the rights of workers, indigenous peoples and local communities, supports FPIC, and adheres to the Food and Agriculture Organisation’s voluntary guidelines on Responsible Governance of Land Tenure.

It supports the 2006 Soy Moratorium, under which firms pledged not to buy soybeans from lands deforested after 2008, and has committed to eliminating deforestation in its supply chains by 2030. Cargill has a Soy Action Plan in South America and publishes a progress report every six months on how it is advancing towards the deforestation target. It also has a grievance process.

The world’s largest meat producer and largest non-financial private sector company in Brazil, with a $9bn market cap, JBS “has been at the centre of a number of socio-environmental and human rights violations in the Amazon in recent years. Furthermore, increasing evidence is emerging indicating that this Brazilian giant has systematically proven to be incapable of exercising adequate control over its supply chain”, the report said.

A well known practice is “cattle laundering”, in which farmers raise cattle on deforested land, then sell it to intermediaries who claim it has been raised on a compliant ranch. They then sell the cows to meat processors. Reports indicate cattle have entered JBS’s supply chain from protected areas and indigenous lands.

A spokesperson for JBS said the company reiterated that it had already responded to all the points raised by Amazon Watch and APIB. Its intention was to be an increasingly sustainable producer, and it had "been working for more than a decade on the front line to promote "significant and responsible change in the Amazon region".

JBS said its monitoring system ensured that 100% of its direct suppliers complied with the strict socioenvironmental criteria of its Responsible Procurement Policy. In September, it introduced the JBS Green Platform, intended to extend the monitoring it already applies to suppliers to other links in the chain. It also set up the JBS Fund for the Amazon, to finance conservation and sustainable development. JBS is contributing R$250m ($43m) in the first five years and aims to put in R$1bn by 2030.

To reinforce the fight against deforestation, JBS is working with Imaflora, an NGO, and federal prosecutors on the Beef on Track programme to promote transparency in the supply chain.

Graphic: APIB/Amazon Watch

Invited to comment by GlobalCapital, most of the US financial firms discussed in the report declined to speak on the record, but pointed out policies and statements they had made on the issues.

A BlackRock spokesperson said: “Deforestation and indigenous rights are critical issues, which also carry risks to investment returns. We engage with companies on these and other ESG risks, and where they are not being appropriately managed or progress is not sufficient, we take voting action against management.”

BlackRock owns more than 90% of its equities in index tracking portfolios, and believes these funds cannot divest individual companies. The group therefore believes stewardship and engagement with companies is the best way to achieve environmental and social improvements that could benefit investors. It has conducted more than 1,200 engagements on environmental issues this year.

BlackRock has engaged with JBS, Vale and Anglo American this year. When it feels engagement is not working, it is prepared to go further. At JBS’s annual meeting in April, it voted against the re-election of three members of its fiscal council, similar to a supervisory board. The candidates were re-elected anyway.

BlackRock’s third quarter Investment Stewardship report does not mention forests or the Amazon. The firm said it had engaged with a Chinese cement company that had been criticised by NGOs because of the impact of one of its mines on indigenous people.

A Vanguard spokesperson said: “Vanguard is deeply concerned about the long term impacts of climate change and human rights transgressions. We understand the importance of addressing these complex issues while remaining committed to delivering long term value to our fund holders… If a company’s business practices or products cause harm to indigenous communities, or place people’s health, safety or dignity at risk, they present long term financial risks as well. Through our engagements, we seek assurance that boards oversee and own these risks and that they take appropriate measures to mitigate them and disclose them to the market.”

The group’s investment stewardship team is taking action to address climate change risk through engagements. The firm’s statement on societal risks says: “For us, every question about our engagement on environmental, social, or governance matters comes down to: ‘How does this affect the long term value for our fund investors?’”

Vanguard’s annual Investment Stewardship report for 2020 does not mention the Amazon or forests. It mentions indigenous people briefly in reference to Australia.

JP Morgan reviews transactions to assess environmental and social impacts, and conducts enhanced reviews if critical habitats or legally protected areas are involved. It adheres to the Equator Principles and the Extractive Industries Transparency Initiative. It will not provide lending, capital markets or advisory services to companies that engage in or collude with illegal logging or wildlife trafficking or that intentionally use uncontrolled fire to clear land. 

It expects clients to demonstrate alignment with the IFC Performance Standard 7 on Indigenous Peoples, including with respect to free, prior and informed consent.

Citigroup recognises the importance of protecting critical habitats. It is “guided by standards that require clients to avoid or mitigate threats to biodiversity arising from client operations”. 

Its Sustainable Forestry Standard applies to all clients directly involved in logging or processing timber. Any client that triggers an area of ‘high caution’ for biodiversity is subject to enhanced environmental and social due diligence.

Citi has chaired the biodiversity working group of the Equator Principles Association and joined the group working to establish a Task Force on Nature-Related Disclosures.

Bank of America has a 26 page Environmental and Social Risk Policy Framework. It says that it “recognises that Indigenous Peoples, Native, and First Nations Communities have cultural beliefs, values and lands that are often under threat. We conduct enhanced due diligence for transactions in which the majority use of proceeds is attributed to identified activities that may negatively impact an area used by or traditionally claimed by an indigenous community. For these transactions, we expect our clients to demonstrate alignment with the objectives and requirements of the International Finance Corporation Performance Standard 7, which addresses impacts to Indigenous Peoples including free, prior and informed consent”.

It also prohibits “transactions in which a client engages in illegal logging or uncontrolled use of fire for clearing forest lands” and is a signatory to the Equator Principles and UN Guiding Principles on Business and Human Rights.

Many of Bolsonaro’s moves against indigenous people have not yet come to fruition, such as a bill before Congress that would legalise the sale of stolen land in the Amazon.

Companies active in the region, and their financiers, argue that large, well organised companies such as those mentioned in this article are trying to avoid, and in some cases root out, abuses.

But indigenous people and rights activists believe the situation is too grave to give companies and investors the benefit of the doubt.

“A lot of companies are throwing up their hands and saying it’s nothing to do with them,” said Birss. “These are multinationals, especially those in Brazil, with deep ties to the government. These are actors with power. They could be actively pushing the government to enforce the existing law or provide new ones.”

Powerful voices will continue to argue that economic development remains necessary in the region.

“Places like the Amazon are so crucial for the climate, for biodiversity and for cultural diversity that they need to be no-go zones,” Birss countered. “It’s becoming more and more clear that the world is reaching a tipping point. If we keep pursuing a model of unbridled extraction and expansion of industrial activity, the planet can’t sustain itself. If you’re throwing away the possibility of human survival, it’s not progress.”