Worlds largest sovereign wealth fund drops companies over deforestation

2016-03-09

The world’s largest sovereign wealth fund, Norway’s Government Pension Fund Global, released its annual report for 2015 today. In 2015, the GPFG dropped 6 palm oil companies from its portfolio, as well as 4 pulp and paper companies and one coal company, all on account of their involvement in forest destruction.

Four companies were formally excluded by the Fund’s Council on Ethics, after thorough investigations showed their palm oil plantations had caused serious environmental damage. This was the case of Daewoo International Corp, POSCO, Genting Bhd and IJM Corp Bhd. Two further palm oil companies, First Pacific and Kulim Malaysia, were divested by the fund managers directly, as they according to the fund were found to “produce palm oil unsustainably”.

The decision to divest First Pacific came after NGO watchdogs Rainforest Foundation Norway and Rainforest Action Network uncovered First Pacific’s involvement in large scale deforestation through its subsidiary Indofood Agri.

“One of the world’s largest investors sends a clear signal to the palm oil industry that the industry must stop rainforest destruction. The divestment from First Pacific shows that international investors are moving away from unsustainable practices, and should give First Pacific a reason to reform its business model,” says Løvold.

Divestment of deforestation companies

Since 2012, the GPFG has divested 50 companies because of their deforestation practices, in addition to formally excluding 8 companies because of severe environmental damage in rainforest areas. Due to its sheer size of $828bn, the Fund’s actions are closely monitored by investors all over the world.

“There is an urgent need for increased attention from investors on the sustainability of the companies they invest in. GPFG is an international pioneer in this work, and divestment decisions of the fund are routinely followed by responsible investors from around the world. Companies that continue to base their business models on rainforest destruction may soon find it hard to attract international investment”, Lars Løvold predicts.

Still extensive investments in high-risk sectors

Despite the recent divestments, the Fund still invests heavily in business sectors that drive the destruction of rainforests. Rainforest Foundation Norway has analyzed the Fund’s list of holdings, and found that the Fund invests NOK 110 billion - just under USD 13 billion – in these sectors. This represents a 20 per cent decrease compared to last year. The sectors with high deforestation risk that Norway invests in are oil and gas, mining, timber and pulp, palm oil, soy, beef and hydropower.

“The GPFG still invests huge sums in sectors where forest destruction is widespread. This gives the Fund a significant liability, but also a great opportunity to influence companies to stop destroying rainforests”, says Lars Løvold.

New policies on deforestation and human rights

Despite the extensive investments in sectors where deforestation is widespread, Rainforest Foundation Norway commends the GPFG for its recent efforts to cut ties to rainforest destruction. Last year, the Fund adopted a new policy on climate change, which included a series of expectations to companies that they avoid any connection to tropical deforestation. A month ago, the Fund adopted a similarly ambitious human rights policy.

“The GPFG is showing leadership by adopting strong policies on climate change, deforestation and human rights. The next step the Fund needs to take is to engage actively with leading companies to make them clean their operations and supply chains of tropical deforestation”, says Lars Løvold.