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Norway's sovereign wealth fund tells companies to end tropical deforestation

The largest sovereign wealth fund in the world, Norway’s Government Pension Fund Global (GPFG), strengthens its policy to avoid investing in companies responsible for the destruction of the world’s rainforests. “An example for others to follow”, says Rainforest Foundation Norway.

DESTRUCTION: Norway invests NOK 137 billion, approximately USD 16.5 billion, in business sectors that drive the destruction of rainforests.

2015-04-22

The new climate change policy establishes the Fund’s expectations of companies regarding their management of climate risk. The document shows that the GPFG, worth more than USD 850 billion, expects all the companies in its portfolio to take the necessary steps to reduce their contribution to climate change and rainforest destruction.

Crucially, the expectations document states that companies engaged in activities with a direct or indirect impact on tropical forests should have a strategy for reducing deforestation that results from their own activities or from their supply chains.

“A huge step forward”

Rainforest Foundation Norway has challenged the GPFG to reduce the deforestation impact of its investments, and has given detailed input to the GPFG in the drafting of the climate change policy.

“Investors putting their money into companies that are cutting down rainforests are complicit in environmental destruction and violation of the rights of forest-dependent communities. It is a huge step forward that one of the world’s biggest investors demands that companies must stop contributing to deforestation”, says Lars Løvold, Director of Rainforest Foundation Norway.

The GPFG sent shock waves through the palm oil industry in 2013 when it announced that it had pulled out of 23 palm oil companies

According to the GPFG, the purpose of the strategy document is to express how the fund “expects companies to approach the challenges and opportunities associated with climate change”. The document sets out a number of expectations with regard to how companies integrate considerations of climate change in their investment planning, risk management and reporting to shareholders.

Companies with a direct or indirect impact on tropical forests are expected to:

  • have a strategy for reducing deforestation as a result of their own activities or from their supply chain
  • have a strategy responding to stricter protection of tropical forests in the future
  • adhere to industry standards and best practices in the sustainable management of forests
  • monitor their supply chains and engage with suppliers to make sure that they take the necessary steps to avoid deforestation
  • disclose information about the climate impact of their operations and their tropical forest footprints, and how they monitor their impact on tropical forests over time

“We are very happy that NBIM clearly states that its expectations are not only addressed to companies with a direct impact on tropical forests, but also to companies that may cause deforestation indirectly, through their supply chains or their clients. Retailers, producers of consumer goods, traders, banks and transportation services all contribute indirectly to tropical deforestation, and the GPFG sends a strong signal by stating that it expects them to identify their forest footprint, reduce it and report on it to their shareholders”, says Lars Løvold.

Sent shock waves through the palm oil industry

Rainforest Foundation Norway hopes other institutional investors will follow suit and introduce similar requirements.

“The GPFG is in a position to take the lead in a broad alliance of responsible investors that understand that deforestation is not only a threat to the global climate, but also to their long-term financial returns”, says Løvold.

The GPFG sent shock waves through the palm oil industry in 2013 when it announced that it had pulled out of 23 palm oil companies on account of their unsustainable business model.

The year after, the Fund pulled out of several coal mining companies responsible for destruction of rainforests in Indonesia. Despite these efforts, the rainforest footprint of the GPFG is still huge, according to Rainforest Foundation Norway.

Five percent increase

The organization has analyzed the Fund’s annual report for 2014, and found that the Fund invests NOK 137 billion - approximately USD 16,5 billion - in business sectors that drive the destruction of rainforests. This represents a five per cent increase compared to last year. The companies that Norway invests in are engaged in the oil and gas, mining, timber and pulp, palm oil, soy, beef and energy sectors.

“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.