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Climate Advisers
Investing in companies that engage in deforestation-related activities poses material risks and produces poor returns for financial institutions, according to new ongoing research from Climate Advisers and S-Network Global Indexes. Companies in the palm oil sector that do not have sustainability policies have significantly underperformed compared to those that have followed no-deforestation programs, according to the research. Similarly, a rules-based analysis of Latin American companies shows that firms representing best practices in strategic and operation areas that support policies and activities that limit deforestation have scored higher than their competitors in a preliminary Environmental, Social and Governance (ESG) ranking while also encountering few incidences of public controversy.
Climate Advisers and S-Network will discuss the new findings at its GCAS Affiliate Event in San Francisco on Thursday, September 13, 2018. The event, “Forests for Our Future: Portfolio Opportunities & Material Financial Risks,” will be held at the Marines’ Memorial Club & Hotel from 3:30-6:30 PM PDT.
Unsustainable palm oil development is a leading cause of deforestation, which is the second biggest factor behind global climate change after the use of fossil fuels. The new research from Climate Advisers and S-Network provides details on why companies linked to deforestation face greater financial and reputational risks, as well as weaker returns, than their competitors.
“Businesses can take action to not only mitigate the dangers of climate change, but also bring about better returns for their investors,” said Gabriel Thoumi, CFA, FRM, Director Capital Markets at Climate Advisers. “Businesses’ sustainability policies will become increasingly important as more investors and asset managers include Environmental, Social and Governance (ESG) risk management into their portfolios.”
“The Latin America research can create a forum for greater corporate engagement on the themes they embody,” said Gregg Sgambati, Director, Head of ESG, S-Network Global Indexes, Inc. “It creates a platform for companies to further their corporate efforts to limit deforestation, produce crops legally and sustainably, and protect human capital and communities. It is great to have Climate Advisers’ leadership on board for this excellent GCAS story.”
Key findings
- The top performing stocks in the palm oil sector have adopted no-deforestation policies.
- Companies that are members of the Roundtable on Sustainable Palm Oil (RSPO) outperform similar companies that are not members.
- RSPO companies outperformed the FTSE Bursa Malaysia Asian Palm Oil Plantation Index (USD) by approximately 6 percent over the past five years.
- Companies high in the Latin America rankings have ESG scores that indicate supply chain best practices.
- Companies with high scores in the Latin America rankings have lower incidences of public controversies compared to other rated companies.
