Case study by ACTIAM

In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2021.

Give a brief overview of your initiative, its objectives, and why you decided to undertake it.

In 2020, ACTIAM launched the satellite-based engagement towards no-deforestation. The initiative has been set up jointly with Satelligence, a satellite imaging company using the latest radar satellite imagery, advanced machine learning and data analytics to detect forest cover changes. Currently, the initiative is supported by a coalition of nine financial institutions representing €1.8trn in assets under management: Achmea Investment Management, Aegon Nederland, a.s.r. Asset Management, Aviva Investors, Fidelity International, Nomura Asset Management, Robeco and Zwitserleven, as well as as ACTIAM.

Through this stewardship initiative, the parties are urging companies to take action to end deforestation in their supply chains and enhance supply chain traceability. What is unique about the initiative is that it tackles the challenge the financial sector faces when it comes to detecting and quantifying cases of deforestation within their investments.

To date, the lack of supply chain transparency has been a major barrier to understanding whether and to what extent investees are involved in deforestation. With the help of Satelligence, this engagement initiative is able to use satellite imagery and artificial intelligence to link deforestation directly to the individual companies that source commodities from specific areas.

This goes beyond the current data and tools available that merely track deforestation to certain areas and commodities, without making links to specific companies, or that merely look at policies rather than actual company behaviour. Plus, it allows for an independent assessment of a company’s performance in mitigating deforestation. The initiative therefore generates more accurate data, enables investors to monitor whether companies are meeting their no-deforestation promises, and helps to develop methods to improve transparency in company supply chains.

The first phase of the initiative covers palm oil producers in Malaysia and palm oil consumers at the end of the supply chain. This will be extended step by step to beef and soy in Brazil and Indonesia. Starting small, the initiative aims to develop methods that can be scaled up to better monitor deforestation, link deforestation cases to individual companies, and show supply chain involvement. This not only helps the financial institutions involved in the initiative, but also data providers to improve their deforestation assessments and soft commodity producers and users to provide evidence of their efforts to prevent deforestation.

Describe how your initiative is aligned to Active Ownership 2.0, including:

  • The significance of the systemic, real-world outcomes it seeks.
  • How the initiative uses a variety or combination of stewardship tools/activities to achieve outcomes.
  • The theory of change for the initiative (making clear how the initiative intends to drive real world outcomes through use of the selected tools/activities).
  • The ambition, ingenuity and/or effort of the initiative.
  • How collaboration was used to drive outcomes.
  • Any challenges associated with the initiative and how these were overcome.

The initiative provides investors with greater transparency in the supply chains of companies they invest in and helps reduce deforestation risks in their portfolios. More importantly, it aims to drive change among soft commodity producers and consumers. Specifically, it aims to tackle systemic barriers that hamper change by facilitating: better data and methods to trace deforestation back to the soft commodity producer; better disclosure and mitigation efforts by soft commodity producers; better disclosure and monitoring methods by soft commodity users; and better information for investors to reduce deforestation-related risks and improve supply chain transparency.

As indicated, the initiative currently focuses on soft commodity producers and users. The soft commodity users, in sectors such as food processing, nutrition, fast food or retail, are requested to publicly disclose supplier lists for soft commodities. Disclosure of supplier lists enables investors to better monitor no-deforestation promises and policies by these companies. This information is used by the stewardship partners to discuss with companies their possible involvement in deforestation incidents. This evidence gives these companies the tools and data to better monitor their soft commodity supply chains and meet their no-deforestation policies .

Soft commodity producers, meanwhile, are asked to respond to satellite-based evidence of deforestation in their production areas. They are also requested to set out possible steps to address their contributions to this deforestation. The engagement gives producers the tools and data to improve their deforestation monitoring and disclosure. In addition, and in collaboration with producers, the satellite imagery methods used by the stewardship partners can be improved so that deforestation incidents can be better linked to individual companies based on publicly available data.

The main philosophy of the stewardship initiative is that prevention of deforestation is hampered by a multitude of systemic barriers. The problem is not that companies are unwilling to stop deforestation, but that it can be difficult for individual companies to change the system. Cooperation can help to lift these barriers by learning how monitoring methods can be improved, which mitigation actions are most effective, and what information is most relevant for different parties in the supply chain.

Another innovation of this engagement initiative is that it enables the financial sector to understand the effectiveness and impact of engagement with companies. Thus far, few engagement initiatives have set clear impact objectives and tracked and monitored progress on impact over time. The impact aimed for by this engagement is clear: zero deforestation by 2030, measured in hectares of deforested land. The initiative is able to track progress toward that target with the deforestation data provided by Satelligence.

Similarly, it is also believed to be the first to measure progress on a significant driver of biodiversity loss and climate change at the most detailed level currently possible. Again, the initiative goes beyond measuring progress on typical ESG engagement objectives that track policy or management improvements, but instead reveals whether companies are really effecting change on the ground.

Ultimately, the engagement initiative will help to close an ESG data gap the financial sector is struggling with, namely to quantitatively measure the impact of climate change and biodiversity loss. As more companies publish supplier lists, it becomes easier to link locations to independent satellite data on deforestation. By doing so, both companies and the financial sector will be better able to mitigate risks from deforestation. In addition, as better data becomes available, companies can more effectively demonstrate the efforts they are taking to tackle the deforestation problem.

The results achieved in the initiative to date, including evaluation of its success against the objectives; any adjustments to plans going forward; any insights learned from this project that can be applied more broadly?

The initiative has been successful at engaging companies sourcing from or producing palm oil in Malaysia. The soft commodity producers have been cooperative. In contrast with some other stewardship initiatives, they will not be stigmatised for a lack of action, but will instead be encouraged to find ways to improve monitoring and mitigate against possible incidents.

However, it has proved difficult to encourage palm oil users to disclose their supplier lists. This can be a complex process for those that are at the end of the supply chain, with large numbers of suppliers.

One success of the initiative is that companies that were linked to deforestation cases detected through satellite imagery were open to checking with their partners on the ground and providing information about the actions they had taken to mitigate incidents. These companies will be followed for the next few years, and the stewardship partners will report on changes in deforestation by the companies engaged.

More investors are joining the engagement initiative, driven by the urgent need to address climate change and biodiversity loss, as well as by commitments such as the Finance for Biodiversity Pledge. This allows the initiative to extend its scope to deforestation linked to palm oil in Indonesia and other soft commodities such as soy in Brazil. Beyond that, the initiative has also started to look into the role of companies and other stakeholders in restoring and conserving forests.