S&P500 companies that finance deforestation

Qayyum Rajan
August 8, 2020


The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices. The companies in the index are worth over $33 Trillion dollars.

In a world in which investors are increasingly focused on investing in companies with strong ESG credentials, you’d be forgiven for believing that some of the most well known companies are no longer financing global deforestation. However, unfortunately, you’d be wrong. Despite the growing calls from the investment world for high ESG standards, financing deforestation is still big business for a number of companies.

There are 4 companies in the S&P 500 who are involved in deforestation financing, representing 3.1% of the index, with a collective market cap of $1.12 Trillion

Why deforestation is such a significant issue

As highlighted in a recent Zoological Society of London study, the world’s forests are disappearing at an alarming rate. Between 1990 and 2016, the world lost 1.3 million square kilometers of forest cover. And yet, despite the scale of this environmental challenge, over half of the world’s largest timber and pulp companies don’t commit to protecting biodiversity, and 44% are yet to commit to zero deforestation.

Why the deforestation financiers need to take responsibility

In the words of Amazon Watch program director Christian Poirier:

“Major financiers… are using their clients’ money to enable the wanton behavior of companies linked to indigenous rights violations and the devastation of the Amazon rainforest. This financial complicity in destruction contradicts the climate and human rights pledges touted by some of these firms, exposes their investors to significant risk and contributes dramatically to the world’s growing biodiversity and climate crises.”

Who is financing deforestation?

So who are the biggest culprits in the S&P 500? Surprisingly, they are all household names.

JP Morgan (JPM)

  • Sector: Financials
  • Market Cap: $480B
  • % of S&P500: 1.40%
  • Deforestation Contribution: $7B

At the top of the list of S&P 500 deforestation financiers is JP Morgan, largely due to its significant funding partnership with Brazil’s paper giant Suzano, which represents the vast majority of the company’s deforestation exposure (as shown below). Suzano manages a massive 1.3 million hectares of eucalyptus plantations, so it’s a major contributor to the environmental risks in this area at a global level. According to Forests and Finance, JP Morgan has over $7 billion of capital employed in this space.

RAN_Chase_top-10-deforestation-700x438.png

Source: www.forestsandfinance.org

According to Forests and Finance, JP Morgan has over $7 billion of capital employed in this space.

Morgan Stanley (MS)

  • Sector: Financials
  • Market Cap: $157B
  • % of S&P500: 0.37%
  • Deforestation Contribution: $1B

Morgan Stanley is a shareholder in two of the three largest beef producers in Brazil, Marfrig and Minerva, which represent the majority of the company’s deforestation exposure. Both Marfrig and Minerva have been linked to illegal deforestation in their supply chain, and recent analysis shows that both companies are making minimal progress in monitoring their indirect supply chains. According to Forests and Finance, Morgan Stanley has almost $1 billion of capital employed in this space.

Bank of America (BAC)

  • Sector: Financials
  • Market Cap: $336b
  • % of S&P500: 0.8%6
  • Deforestation Contribution: $3.6B

According to Forests and Finance, Bank or America has some $3.6 billion of capital employed in deforestation activities. Like JP Morgan, the majority of their exposure is through Brazil’s paper giant Suzano.

Citigroup (C)

  • Sector: Financials
  • Market Cap: $154B
  • % of S&P500: 0.46%
  • Deforestation Contribution: $3b

According to Forests and Finance, Bank or America has almost $3 billion of capital employed in deforestation activities. They are also exposed to Brazil’s paper giant Suzano, whilst they have a range of investments in palm oil, rubber and timber which also raise their ESG risk profile.

There are 4 companies in the S&P 500 who are involved in deforestation financing, representing 3.1% of the index, with a collective market cap of $1.12 Trillion

Do as I say, not as I do

In each of these four cases, the banks’ deforestation financing activities are contrary to their stated ESG policies and objectives, so this is a major ESG-focused risk which investors should be aware of. As we have highlighted in the past, ESG scores are increasingly becoming an indicator of likely future financial returns.

Conclusion

Deforestation financing is a significant issue for all ESG investors given the extent of the challenge and the number of companies involved. As ESG issues are increasingly correlating with financial performance, it’s likely to pay to be on top of these risks. ESG Analytics can provide a full list of companies involved in deforestation financing through its powerful screening tools which cover over 10,000 companies with 20+ positive, negative and speciality screens.

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