Land & biodiversity

Satellite-based engagement towards no-deforestation

Deforestation and overexploitation of land and biodiversity resources can lead to declining ecosystems services such as pollination and soil productivity, which exposes investments in several sectors to growing risks. In addition to the direct impact of environmental losses on operations of companies in their upstream activities, disruptions in the supply chain also pose significant risks to companies in downstream activities, such as manufacturers, traders and food retailers. Legal and reputational risks are equally significant, as governments and consumers demand more responsible production and consumption practices from companies. For investors, the risks are increasingly made clear by recent governmental and regulatory discussions. The Dutch Central Bank (DNB) has highlighted that Dutch financial institutions face significant potential losses, with €510 billion in financing to companies highly dependent on ecosystem services.

Supply chain oversight and transparency remain great barriers to ending deforestation. Furthermore, while some companies have mapped and disclosed their suppliers for some soft commodities, investors still lack evidence to monitor investees. That is why ACTIAM has started an ambitious engagement program, employing innovative technologies and data to develop monitoring capacity, holding investees accountable and encouraging them to advance no-deforestation efforts.

In the ‘Satellite-based engagement towards no-deforestation’, ACTIAM is joined by seven investors, representing more than 1,8 trillion euros in assets under management, highlighting our common message to companies: deforestation-free supply chains is the way to go.

Identifying deforestation risk across portfolios

To achieve our goal of No-Deforestation by 2030 across our portfolios, we needed to find means of detecting and measuring deforestation happening in connection with our investees, as well as engage with companies upon such on-the-ground evidence.

That is why ACTIAM partnered with Satelligence, using latest radar satellite imagery, advanced machine learning and data analytics to detect forest cover changes. Data has shown that production of soft commodities soy, palm oil, timber and beef is responsible for around two-thirds of tropical deforestation worldwide. Southeast Asia and South America are the hotspots of deforestation from commodity production. Between 2001 and 2015, 61% of forest loss in Southeast Asia and 64% in South America occurred due to soft commodity production, with cattle grazing and soy as main drivers in South America, and palm oil being the main driver in countries such as Indonesia and Malaysia (the two countries are responsible for 85% of global supply), The picture below exemplifies the forest loss occurring due to soft commodities, presenting the change in biomass over time due to deforestation for the purpose of palm oil production in Indonesia.

Aboveground biomass loss

While direct investments in the production of these soft commodities are clearly exposed to deforestation risks, so are the investments through manufacturers and retailers across the globe, who heavily depend on these raw materials for their products. However, they often lack transparency on this, due to the complexity of such supply chains. ACTIAM ’s engagement therefore focus not only on companies for which deforestation has been found in their supply chain, but also on those that do not yet provide transparency on their sourcing operations.

Data-driven engagement program

ACTIAM has developed the Satellite-based engagement towards no-deforestation program to address the barriers to reaching zero deforestation. In a collaborative format, together with other investors we enter into dialogues with companies based on evidence of deforestation detected through satellite monitoring technology.

Initially two groups of companies are targeted. The first group consists of companies that have not yet performed traceability efforts and/or do not disclose supplier lists for soft commodities sourced. For this group, the goal is to achieve full traceability and public disclosure on the risks and supplier lists of relevant soft commodities.

The second group is formed by companies that publicly disclose their supplier lists, and which are connected to cases of deforestation in the recent year, based on satellite information. In this phase, the engagement program focuses on palm oil-linked deforestation. For these companies, the goal is to reduce and mitigate deforestation cases connected with their supply chain.

Measuring engagement progress

Companies are expected to achieve the established targets in two to three years. ACTIAM plans to evaluate progress of companies in addressing deforestation in their supply chain, through regular monitoring. With satellite imagery and data analysis, Satelligence develops quarterly reports with updates on any new or recurring deforestation events in the region monitored, linked to the engaged investees. This enables ACTIAM to assess if companies’ efforts are indeed being implemented and leading to reduction of deforestation. Additionally, it supports ACTIAM in pushing companies towards mitigation of deforestation in their supply chain, as well as measurement of the extent of forest loss connected to the companies across.

ACTIAM may consider exclusion of companies that do not demonstrate progress towards these goals.

Expanding our reach

Deforestation is driven by several soft commodities, worldwide. That is why ACTIAM continues its partnership with Satelligence on data development in the pursuit of widening this project. We currently explore the expansion towards other regions and soft commodities. The expansion is also in line with ACTIAM’s activities related to the preservation of natural resources globally, such as our partnership with FSC, focused on sustainable timber, and membership of the SoS Cerrado group, focused on soy and cattle production in the most biodiverse savannah of the world.

Participating investors:

 

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