Deforestation and climate: pension funds are withdrawing from the meat industry

Climate change is making investing in the meat industry increasingly controversial. Several Dutch pension funds are leaving large Brazilian meat companies, according to a FD report. Are pension funds turning vegetarian?

Dutch pension funds are leaving large Brazilian meat companies because they no longer meet their sustainability requirements. For example, Pensioenfonds Zorg en Welzijn (PFZW) recently sold shares in meat giant Marfrig. ABP, the pension fund for civil servants, did the same and also sold the shares in Minerva, another Brazilian meat company. Research by FD shows that other pension funds are also looking critically at their interests in the meat industry.

That’s not a coincidence. After the criticism of investments in fossil fuels such as oil and gas, the pressure is now growing on pension funds and other financial institutions to stop their interests in the meat industry. The message: large-scale meat consumption is bad for the climate and should receive as little funding as possible. Globally, land is being cleared for grazing livestock, and there is another problem.

“Livestock farming causes large amounts of methane and CO₂ emissions and is therefore a factor in climate change. After fossil fuels, it is one of the sectors that we are looking closely at,” says a spokesman for PME, the pension fund for the metal and technology sectors. This fund manages, among other things, the pension of the employees of ASML which manufactures machines to produce computer chips. PME sold its positions in Marfrig and Minerva in 2020.

No major shifts yet

For fossil fuels, the pressure ultimately led to major shifts in the pension funds’ investment portfolios. Most striking is the example of ABP. The civil servants’ fund, which is also a major player from an international perspective with more than €460 billion under management, sold billions worth of investments in ‘fossil’ after organisations such as Fossielvrij NL had campaigned for this for years.

It’s not that far with meat yet. None of the fourteen pension funds approached by the FD completely excludes investing in the meat sector. The actions of the meat companies in the portfolio are critically examined and in some cases an interest is sold. The health care pension fund PFZW cites the involvement in deforestation of the Brazilian Marfrig as the reason for selling the shares at the beginning of this year.

The Philips pension fund foresees that JBS, also a large meat group from Brazil, will soon disappear from the portfolio. The criteria used by the pension fund for investments in emerging markets will be adjusted in the coming months and JBS is unlikely to pass the new requirements.

Under fire from NGOs

The three large listed Brazilian meat companies JBS, Marfrig and Minerva have been under fire from NGOs for some time. They would not do enough to trace the origin of the meat they sell. In Brazil, a lot of forest is cut down or burned to make way for agriculture or livestock. This is at the expense of the Amazon rainforest and the Cerrado, a savannah-like area in central Brazil and, like the Amazon, one of the most important ecosystems in the world.

In a response to the FD, JBS, Marfrig and Minerva argue that the companies are doing everything they can to make meat production as sustainable as possible. JBS states that it has a “zero tolerance” policy for illegal deforestation. Marfrig calls the allegations of NGOs “untrue” and points to its own program to monitor the supply chain. JBS also has a policy to check the origin of the meat. There is no illegal deforestation in Minerva’s supply chain, the company says.

Differences between Rabo and its pension fund

The investment policy of the pension fund of Rabobank employees is remarkable. The cooperative bank from Utrecht has been doing business in Brazil since 1989 and finances the agricultural sector there. But the Rabo pension fund does not invest in the three Brazilian meat companies mentioned above, because it does not fit in with its responsible investment policy. However, according to NGOs, Rabobank itself does business with JBS, Marfig and Minerva. Rabobank would have lent money to JBS and helped the other two companies issue bonds.

A spokesman for the bank emphasises that the pension fund and the bank are two separate organisations, each with its own policy. The bank makes no statements about individual customers or customer relationships, but does state that it calls customers to account for behaviour that does not fit within its own sustainability policy.

Pension fund ABP exits two companies

NGO Global Witness attacked pension fund ABP on Thursday over an equity interest in Minerva. The organisation states that the Brazilian meat company is partly responsible for the large-scale deforestation in neighbouring Paraguay.

Minerva is said to have bought meat there from farmers with a questionable reputation — something that has been known since 2020, according to the NGO. Deforestation also violates the rights of the original inhabitants. Minerva did not respond to questions from Global Witness, but contradicts the accusations to the FD. Minerva says it never purchased livestock from any of the farmers mentioned and that the other supplier’s two farms are not established on Native American or conservation land grounds.

It now appears that ABP sold its interest in Minerva at the end of last year, according to the fund after questions from the FD. The Brazilian meat company no longer met ABP’s sustainability criteria. ABP therefore also sold its Marfrig shares. The money for the civil servants’ pension is still invested in JBS. At the end of last year, ABP had €27 million in shares and €89 million in JBS bonds on its books. ABP does say that the fund has entered into discussions with JBS, including about deforestation.

Talk or sell?

Large investors such as pension funds often opt for ‘engagement’ first when it comes to investing in controversial companies. In doing so, the shareholder calls the company to account for its behaviour in hope of improvement. The argument is that you achieve more as an investor than by selling shares. But which strategy is the most effective remains to be seen, says Rob Bauer, professor of finance at Maastricht University.

“One school of thought says: the impact of sales can only be significant if 80% of the shareholders want to get rid of the company,” says Bauer. “Before then, it’s just moving shares. At the same time, you can also criticise engagement: how effective is talking? Well, usually that’s not very effective at all.”

Moreover, pension funds cannot exclude all sectors, says Bauer. “The funds also simply have to make a return. A diversified investment portfolio is important in this respect. A pension fund that opts for a portfolio with fewer names must be able to explain the considerations and substantiation for that choice to the participants. It is a pension fund and not a ‘we want to improve the world’ fund.”

EU forestry regulation

The legislator may still catch up with the pension funds. The European Union wants to combat deforestation with new rules and thus also reduce greenhouse gas emissions. From now on, companies must demonstrate that products such as wood, paper and soy have not contributed to tree felling or other damage to forests.

The regulations are not yet completely official: the European Parliament and the European Council still have to approve them definitively. Environmental organisations such as Milieudefensie want the ‘forest law’ to go one step further, because it does not apply to the financing provided by banks, insurers and pension funds. In two years’ time, the EU will consider whether to extend the law to financial institutions.

This article was originally published by Dutch business newspaper FD on 30 March 2023.