"ESG funds funnel millions into deforestation-risk company", 4 August 2024

Funds marketed as environmentally friendly are being used by major asset managers to funnel millions of dollars to the world’s largest meatpacker, JBS, a company notorious for its links to deforestation and human rights abuses via its supply chain. 

Research by Global Witness found that US asset managers BlackRock and Vanguard are among six firms holding over $11 million in active bonds issued by JBS and its subsidiaries via funds with "environmental, social and governance" (ESG) in their name. 

While most of the funds’ documentation analysed explicitly cite exclusions relating to fossil fuels and controversial weapons, none outright exclude companies linked to deforestation in their screening process...

More than half of financial institutions with the largest exposure to deforestation, including BlackRock, Vanguard and State Street, are yet to publish a single policy on deforestation, according to Forest 500’s 2024 annual report. This suggests overall levels of engagement from the financial sector with forest-risk companies are minimal. 

"Simply incorporating the 'ESG brand' in fund names is often far too vague, failing to exclude climate-destructive companies like JBS," said Global Witness’s US Senior Policy Advisor, Ashley Thomson. 

"One of the clear issues with relying on self-reporting, self-managed ESG funds is the lack of standardisation on what exactly ESG means."...

“The fact that a company like JBS is included in an ESG-focused fund should speak volumes about the limitations of regulations governing these funds, and the dangers of allowing companies to grade their own homework," Thomson added. 

Similar concerns have also been raised by Tariq Fancy, BlackRock’s former sustainable investment chief, who criticised the firm for “misleading investors” by using the ESG label, calling it a “dangerous placebo”. He argued that BlackRock’s CEO Larry Fink made hollow promises about ESG, which were quickly abandoned when it was becoming politically controversial...

Earlier this year, Global Witness published a report linking JBS, along with other meatpackers Marfrig and Minerva, to more than 80,000 football fields of deforestation in Brazil.  

In addition to well-documented environmental and social concerns, JBS has faced governance issues in the past, with the executive of its parent exposed for their involvement in a widespread corruption scandal in Brazil in 2017. The executives also pleaded guilty to US foreign bribery charges in 2020 as part of a plea deal...

Investor appetite for ESG investing has exploded in recent years, with total assets under management reaching $30 trillion in 2022, or a quarter of the global investible assets, according to Bloomberg Intelligence (BI)...

Asset managers including BlackRock’s own CEO Larry Fink have routinely made the case that engaging with companies to influence their practices is more effective than divestment, which merely shifts ownership to potentially less responsible investors. 

Several investors, however, including UK and Netherlands-based firm Cardano Group – which only offers Article 8 or 9 funds – opted to divest from JBS in 2020 following failed engagement efforts...

The findings that so many ESG funds are investing in JBS highlight a critical need for new regulation in key financial centres like the EU, UK and US, so that institutional investors screen out businesses driving biodiversity loss through deforestation from their portfolios and ESG funds specifically, says Global Witness’s Ashley Thomson.  

We need a regulatory system that prioritises the sustainability of our planet, not just short-term earnings. We have this order flipped right now, and that’s a very scary reality to be living in.

Global Witness contacted all the financial institutions mentioned."