Have European banks cashed in on deforestation and slavery?

Environmental campaigners have dragged controversial investments into the spotlight, claiming that major European banks are linked to businesses that harm threatened species, engage in deforestation and other questionable environmental practices.

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European banks, including Switzerland’s UBS, the UK’s HSBC and Spain’s Santander, have been thrown into the spotlight after two recent reports linked them to significant environmental damage.

The revelations come as these “green” investments, so called because they were made to fund environmentally friendly activities, are increasingly falling under scrutiny: The UK Financial Conduct Authority is investigating the sustainability-linked loans market, while a new European Green Bond Regulation is coming into effect next year – a gold standard that aims to eliminate any greenwashing from the bond market.

How Brazilian ‘green bonds’ link European banks to allegations of deforestation and slave labour

At the centre of the allegations is the green bond market in Brazil, which environmental campaigner Greenpeace says UBS and Santander, among other non-European banks, have acted as intermediaries in.

The banks helped investors to purchase green investment assets, according to a report by Greenpeace’s investigative journalism project Unearthed, which generated funds that were ultimately used to finance controversial companies including deforesters, land grabbers and ranchers accused of slave labour in Brazil.

The banks orchestrating these bond transactions define the price of the bonds and sell them to investors in exchange for a fee, which is usually 3% to 5% of the total offer.

The allegations focus on so-called Agribusiness Receivables Certificates (CRA) – an asset backed security which represents investment in agribusiness, financing those on the ground in the hope of a hefty return on investment.

These are referred to as green bonds and they were initially created to support small-scale, sustainable farmers’ practices in Brazil.

But in reality, the market has swollen by around €8 billion and the bonds often finance large companies and their suppliers.

It’s these bonds that have linked European banks to claims of deforestation and even slave-like working conditions.

According to Unearthed, UBS helped Brazilian grain trader Caramaru to raise funds worth of €66.5 million in CRAs in October 2021.

Part of the money ended up in the hands of Caramuru’s soy suppliers, Unearthed said, some of whom have a history of illegal deforestation and land grabbing. Another has even been sued for alleged slave-like labour.

Caramuru denies wrongdoing, claiming that it monitors the environmental compliance of all its suppliers and that the company hasn’t done business with all of the suppliers. As such, “it is possible to state that soy was not acquired from places with issues of illegal deforestation or land grabbing, nor from farms with work similar to slavery,” the company said.

For its part, UBS said it does not “knowingly provide financial or advisory services to clients” associated with damages to high conservation value forests, child labour and forced labour, among other practices.

UBS isn’t the only European bank caught in the crosshairs. Spain’s Santander was involved in raising funds to the tune of €280 million in CRAs for JBS, the largest meat processing enterprise in the world, in August 2023, according to Unearthed.

JBS admitted in 2022 to buying cattle from a farmer that prosecutors dubbed “one of the biggest deforesters in Brazil”, despite saying it has strict, self-imposed rules on who it does business with.

Santander also helped Uisa, one of the largest ethanol and sugar producers in the world, to issue a R$150 million green CRA, for a fee of roughly €710,000.

Uisa has received a dozen environmental fines for illegal deforestation, and was also responsible for leaking toxic material into a river that is vital to the Umatina Indigenous people in the Brazilian state of Mato Grosso.

Like UBS, Santander claims to have a strict rulebook to eliminate environmental and social risks in its business, the latter stating that CRAs are regulated by the Brazilian Securities and Exchange Commission.

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“Santander has strong governance processes in place to ensure that required market standards are adhered to,” the bank said in a statement.

How European banks may be further harming threatened species

Aside from the Unearthed report, a new study from the Environmental Investigation Agency (EIA) has linked 62 banks and financial institutions, including some in Europe, to harming threatened animal species.

The report states that the banks have invested in three companies that produce traditional Chinese medicine, using leopard and pangolin parts. Both animals are classified as highly threatened species – a stone’s throw from being considered endangered.

UBS is once again named as having invested in the companies, but so are UK lender HSBC and Germany’s Deutsche Bank. All three are members of The Royal Foundation’s United for Wildlife (UfW) Financial Taskforce, which was launched in 2018 to stop the trafficking of wildlife, according to the report.

While HSBC and Deutsche Bank are not direct investors in the Chinese companies according to the report, they are linked to them via asset management companies. They claim that these investments came about through passive funds – a type of automatic investment, that is channelling money in shares based on a linked index, the BBC reports.

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UBS has not responded to a request for comment.

Both the EIA and Unearthed reports are just two of many which claim to shed light on the impact that major banks’ business practices have on the environment.

The worsening dangers of climate change have prompted investors and companies across the globe to increasingly turn towards green financial products, including green bonds, and present themselves as sustainable businesses that care about the environment.

Yet the concept of greenwashing – which refers to when a company makes misleading claims about the positive effect it has on the environment – is looming large too.

The number of instances of greenwashing by banks and financial service companies around the world has risen by 70% in the past 12 months, according to RepRisk, a Swiss environmental, social and corporate governance data provider.

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EU to put a stop to greenwashing

The European Union is hoping to stem the flow of greenwashing with its new European Green Bond Regulation, which is due to come online in 2024.

It will introduce legal sanctions for any misleading business practices related to sustainability and the environment.

The newly-approved rules against greenwashing in the bond market include a registration system and supervisory framework.

Under the new regulations, companies issuing green bonds will have to disclose more information about their practices with special regards to show how these investments feed into the companies’ plans to transition to a net zero carbon emissions economy.

The new law also specifies that at least 85% of funds raised would have to be allocated to activities that are sustainable according to EU law.

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At the same time, the European Banking Authority will require banks to publish their so-called green asset ratio, a percentage of environmentally sustainable assets, in their books. 

A common classification system – the EU’s taxonomy – will define what makes a ‘green’ asset.

Swiss banks campaign for self-regulation

The EU isn’t alone in wanting to regulate greenwashing: Reuters reports that the Swiss government will consider the matter as part of a plan to introduce overall state regulation on sustainable finance in the country.

Switzerland, a huge centre for asset and wealth management, accounted for sustainable investments totalling around 1.6 trillion Swiss francs (€1.69 trillion) in 2022, according to industry association Swiss Sustainable Finance.

The Swiss Bankers Association, which represents lenders like UBS and Julius Baer as well as Switzerland’s smaller banks, wants to continue with self-regulation rather than be subject to tighter government rules, according to Reuters.

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UBS, the country’s biggest bank with $5.5 trillion in invested assets, also supports self-regulation, saying it sets a “minimum standard”.

“There is a wave of regulation coming to Swiss banks…it will really hit (them),” said Daniel Schmid Perez of banking consultancy ZEB.

He estimates the total cost for lenders to adjust their processes would be around 100 million to 200 million francs. Yet many consider the cost worth it to boost sustainability in the effort to avoid climate disaster.

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EU Deforestation Regulation must address Africa’s needs, too

The opinions expressed in this article are those of the author and do not represent in any way the editorial position of Euronews.

For too long, the West has fallen short — regulation has been seen by many here in Africa as instruction rather than collaboration, and there are reasonable concerns that the EU Deforestation Regulation will follow suit, Abraham Baffoe writes.

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In early September, African heads of state and leading organisations met in Nairobi to discuss the challenges and opportunities for the continent and to raise their all too familiar concerns about top-down approaches from the West.

Shortly after, 17 countries from the Global South expressed their dissatisfaction with EU regulators as they look to implement the European Deforestation Regulation (EUDR). 

These nations criticised the lack of consideration for people on the ground and highlighted the absence of support for businesses in producer countries.

They are not alone. My colleagues across the African continent have for decades raised their concerns that environmental policy has been directed by those who are the biggest contributors to climate change while also the least affected by it.

Regulation as instruction, not collaboration

In a shift away from focusing on loss and damage and the risks facing the continent, Kenyan President William Ruto stated at Africa Climate Week that “we’re not here to catalogue grievances”. 

But we do need to acknowledge that the burden of the sustainable food transition is all too often placed solely on producer countries, which are often developing nations, despite demand being driven by wealthy consumer blocs such as the EU.

And I must agree with the president: arguing won’t solve the problem, and both “sides” of the so-called Global North and Global South must understand that we are all aiming for the same environmental transformation.

For too long, the West has fallen short — regulation has been seen by many here in Africa as instruction rather than collaboration, and there are reasonable concerns that the EU Deforestation Regulation (EUDR) will follow suit.

The regulation aims to ensure that the Union no longer imports commodities directly linked to deforestation but falls short of supporting the commodity producers in this transition.

The producers on the ground have raised concerns about legal challenges, insufficient resources and lack of administrative coordination, and have appealed to the EU for there to be an agreed common goal.

Mind the trap of failing to understand realities on the ground

Africa is home to 60% of the world’s renewable energy assets, 18% of the world’s tropical forests and an abundance of minerals and agricultural commodities — including over 60% of the world’s cocoa.

However, it has historically failed to benefit from its unique position, due in large part to exploitation from wealthier powers. The EU must listen to these nations if they are to implement legislation effectively.

The EU is responsible for 10% of global forest loss, and this regulation is a welcome step forward that has the potential to transform the fight against commodity-driven deforestation. 

But the EU needs to ensure it doesn’t fall into the trap of implementing a top-down approach that fails to reflect realities on the ground.

Agriculture and forest commodities are the lifeblood of many African economies, providing livelihoods for millions of people across the continent. 

Regulations that risk excluding these people risk causing widespread damage to communities and economies. 

The needs of both sides should be met

Alongside the burden of regulation, Africa is also facing some of the worst impacts of climate change, despite contributing the least to its effects. 

The EU needs to work with African nations and engage in dialogue to ensure that they have the support they need to meet the new regulatory and due diligence requirements through robust partnerships between EU consumer countries and African producers and national and regional initiatives.

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These partnerships would have benefits on both sides, from supporting and training smallholders to meet EUDR standards, enhancing technical capabilities and improving land-use planning, to ensuring that producer countries’ food needs, as well as consumer country needs and company targets, are met.

Given the complexities within supply chains, partnerships should involve all food system actors, including corporates, policymakers and financial institutions, but particularly smallholder farmers who are at the centre of Africa’s cocoa, timber, and coffee industries and the core of Africa’s agricultural commodity production.

A common goal and a collective approach

EU governments need to acknowledge and build upon the efforts already undertaken by farmers across Africa. 

Many African countries have firmly established themselves as allies in the fight against agriculture-driven deforestation, through partnerships like the African Sustainable Commodities Initiative, which brings together ten countries in West and Central Africa to define principles for the sustainable production of key commodities like cocoa, palm oil, rubber and coffee.

The “Roadmap to Deforestation-free Cocoa”, a multi-stakeholder partnership, is another great example of an African-owned and led initiative. It aims to end cocoa-related deforestation in Cameroon, the world’s fourth-largest cocoa-producing country.

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We need a common goal and a collective approach. No single stakeholder has the solution for addressing deforestation in commodity supply chains. 

EU policymakers need to connect with initiatives like these to ensure that the regulations are effective and to address the root causes of deforestation and complex challenges that producer countries are facing.

Abraham Baffoe serves as Africa and Global Director at Proforest, a non-profit group supporting companies, governments, civil society and others in responsible production and sourcing of agricultural and forest commodities.

At Euronews, we believe all views matter. Contact us at [email protected] to send pitches or submissions and be part of the conversation.

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Despite the EU deforestation law, companies are backing palm oil. Why?

There are several possible explanations for the apparent contradiction between regulatory pressure to narrow on the lowest compliance risks and companies’ willingness to invest in some higher-risk landscapes, Matthew Spencer writes.

Something strange is happening in the palm oil sector. 

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Despite the impending enforcement of the EU Deforestation Regulation (EUDR), numerous companies are intensifying their investment in landscape initiatives. 

This phenomenon is surprising as many of us feared that the EUDR would push companies away from sourcing from higher forest-risk jurisdictions.

Some companies are segregating mills and refineries for Europe and focussing on sourcing from plantations distant from remaining forest, and away from smallholder supply. 

But others are making new investments in landscape initiatives in Indonesia and Malaysia which include many thousands of small farmers. 

A report released recently by the Tropical Forest Alliance (TFA), CDP and Proforest identified a total of 37 landscape and jurisdictional approaches supported by companies and focused on palm production, surpassing any other commodity sector. 

It reflects IDH’s experience in Aceh, where stalwart partners like Unilever, Pepsico and Musim Mas are now being joined by a growing roster of buyers and traders including Mars, Apical, GAR and Mondelēz.

What explains this apparent contradiction between regulatory pressure to narrow on the lowest compliance risks and companies’ willingness to invest in some higher-risk landscapes?

There are several possible explanations.

Deforestation risk can fall quickly in the best landscape initiatives

The evidence for how landscape approaches can reduce deforestation is growing. 

In Mato Grosso in Brazil, which has had a state-wide jurisdictional approach for eight years, Amazon deforestation barely increased under the Bolsonaro government, in contrast to many other states in the Legal Amazon which saw a big jump.

In Aceh Tamiang, Indonesia, deforestation fell to just 30 hectares in 2021 from over 400 hectares in previous years as a coordinated deforestation alert and action plan took effect.

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The success of the landscape coalition in Aceh Tamiang is now inspiring new partnerships in other forest-risk districts in the Aceh buffer zone around the Leuser Ecosystem.

Also, smallholders are the best hope for growing palm oil supply. Palm is currently described by traders as a “sellers’ market” with surging demand in Asia and many mills operating under capacity. 

There is limited room to grow supply from plantations in Malaysia or Indonesia, given their forest protection policies. 

This creates a business case for companies to invest in the growth of independent small farmer productivity, and landscape initiatives allow them to do this in coordination with other business and farmer groups.

Jurisdictional approaches to EUDR traceability are likely to be more cost-effective in smallholder-dominated sourcing areas

The costs of tracing forest risk commodity supply can be very high and can repeat every year as smallholders switch buyers. 

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One service provider estimates that costs are in the range of €6-14 per farm to compile and map geolocation and land title data. 

This data is often already held by the government, so with backing from local authorities who are part of landscape agreements, these costs can be shared.

There is also the tantalising prospect of jurisdictional traceability being recognised by the EU if a verified deforestation-free area can compile geolocation data at the district level rather than physically trace commodities from the farm level through many layers of the local supply chain. 

The Vietnamese government is backing an IDH pilot with ten coffee companies in the central highlands which will compare the costs of different approaches to traceability.

Social risks are impossible to manage without engaging in sourcing areas

Despite its name, the EUDR creates duties beyond deforestation. Imports must also “have been produced in accordance with the relevant legislation of the country of production”. 

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 What is more, it is only the first act of a blockbuster package of new European regulation which means risks will begin to converge in corporate reporting and legal requirements on business. 

Forced labour is notoriously difficult to spot but is a real possibility in palm plantations reliant on migrant labour. 

Child labour is common and impossible to manage without community consent. 

Given that the burden of proof is on the importing business, there is increasing interest from big brands to see if landscape initiatives can address human rights and social risks.

Different responses to business risk?

It’s possible that we are seeing two distinct responses to corporate risk. The “let’s get this risk off the table” approach tries to remove deforestation risk in the quickest and cheapest way but doesn’t join the dots to other social or environmental risks that exist in “forest safe” sourcing areas. 

The second “let’s tackle risks at the source” response manages down interlinked risk by engaging key stakeholders in sourcing areas, often via landscape initiatives.

Landscape initiatives don’t pretend to get rid of all social and environmental risks, but they do reduce them at source. 

That’s why they form part of the risk management strategy of an increasing number of palm buyers and traders. It’s a good bet that existing landscape collaborations are where the best models of forest and farmer-positive palm sourcing and traceability will emerge.

Matthew Spencer is the Global Director of Landscapes at IDH — Sustainable Trade Initiative, established by the Dutch government in 2009 to help improve the sustainability of international supply chains.

At Euronews, we believe all views matter. Contact us at [email protected] to send pitches or submissions and be part of the conversation.

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Brazil’s Lula seeks to reverse Amazon deforestation

Shaking a traditional rattle, Brazil’s incoming head of Indigenous affairs recently walked through every corner of the agency’s headquarters — even its coffee room — as she invoked help from ancestors during a ritual cleansing.

The ritual carried extra meaning for Joenia Wapichana, Brazil’s first Indigenous woman to command the agency charged with protecting the Amazon rainforest and its people.

Once she is sworn in next month under newly inaugurated President Luiz Inácio Lula da Silva, Wapichana promises to clean house at an agency that critics say has allowed the Amazon’s resources to be exploited at the expense of the environment.

As Wapichana performed the ritual, Indigenous people and government officials enthusiastically chanted “Yoohoo! Funai is ours!’’ — a reference to the agency she will lead.

Environmentalists, Indigenous people and voters sympathetic to their causes were important to Lula’s narrow victory over former President Jair Bolsonaro.

Now Lula is seeking to fulfill campaign pledges he made to them on a wide range of issues, from expanding Indigenous territories to halting a surge in illegal deforestation.

To carry out these goals, Lula is appointing well-known environmentalists and Indigenous people to key positions at Funai and other agencies that Bolsonaro had filled with allies of agribusiness and military officers.

In Lula’s previous two terms as president, he had a mixed record on environmental and Indigenous issues. And he is certain to face obstacles from pro-Bolsonaro state governors who still control swaths of the Amazon. But experts say Lula is taking the right first steps.

The federal officials Lula has already named to key posts “have the national and international prestige to reverse all the environmental destruction that we have suffered over these four years of the Bolsonaro government,” said George Porto Ferreira, an analyst at Ibama, Brazil’s environmental law-enforcement agency.

Bolsonaro’s supporters, meanwhile, fear that Lula’s promise of stronger environmental protections will hurt the economy by reducing the amount of land open for development, and punish people for activities that had previously been allowed.

Some supporters with ties to agribusiness have been accused of providing financial and logistical assistance to rioters who earlier this month stormed Brazil’s presidential palace, Congress and Supreme Court.

When Bolsonaro was president, he defanged Funai and other agencies responsible for environmental oversight. This enabled deforestation to soar to its highest level since 2006, as developers and miners who took land from Indigenous people faced few consequences.

Between 2019 and 2022, the number of fines handed out for illegal activities in the Amazon declined by 38% compared with the previous four years, according to an analysis of Brazilian government data by the Climate Observatory, a network of environmental nonprofit groups. 

One of the strongest signs yet of Lula’s intentions to reverse these trends was his decision to return Marina Silva to lead the country’s environmental ministry. Silva formerly held the job between 2003 and 2008, a period when deforestation declined by 53%. A former rubber-tapper from Acre state, Silva resigned after clashing with government and agribusiness leaders over environmental policies she deemed to be too lenient.

Silva strikes a strong contrast with Bolsonaro’s first environment minister, Ricardo Salles, who had never set foot in the Amazon when he took office in 2019 and resigned two years later following allegations that he had facilitated the export of illegally felled timber.

Other measures Lula has taken in support of the Amazon and its people include:

  • Signing a decree that would rejuvenate the most significant international effort to preserve the rainforest — the Amazon Fund. The fund, which Bolsonaro had gutted, has received more than $1.2 billion, mostly from Norway, to help pay for sustainable development of the Amazon.
  • Revoking a Bolsonaro decree that allowed mining in Indigenous and environmental protection areas.
  • Creating a Ministry of Indigenous Peoples, which will oversee everything from land boundaries to education. This ministry will be led by Sonia Guajajara, the country’s first Indigenous woman in such a high government post.

“It won’t be easy to overcome 504 years in only four years. But we are willing to use this moment to promote a take-back of Brazil’s spiritual force,” Guajajara said during her induction ceremony, which was delayed by the damage pro-Bolsonaro rioters caused to the presidential palace.

The Amazon rainforest, which covers an area twice the size of India, acts as a buffer against climate change by absorbing large amounts of carbon dioxide. But Bolsonaro viewed management of the Amazon as an internal affair, causing Brazil’s global reputation to take a hit. Lula is trying to undo that damage.

During the UN’s climate summit in Egypt in November, Lula pledged to end all deforestation by 2030 and announced his country’s intention to host the COP30 climate conference in 2025. Brazil had been scheduled to host the event in 2019, but Bolsonaro canceled it in 2018 right after he was elected.

While Lula has ambitious environmental goals, the fight to protect the Amazon faces complex hurdles. For example, getting cooperation from local officials won’t be easy.

Six out of nine Amazonian states are run by Bolsonaro allies. Those include Rondonia, where settlers of European descent control local power and have dismantled environmental legislation through the state assembly; and Acre, where a lack of economic opportunities is driving rubber-tappers who had long fought to preserve the rainforest to take up cattle grazing instead.

The Amazon has also been plagued for decades by illegal gold mining, which employs tens of thousands of people in Brazil and other countries, such as Peru and Venezuela. The illegal mining causes mercury contamination of rivers that Indigenous peoples rely upon for fishing and drinking.

“Its main cause is the state’s absence,” says Gustavo Geiser, a forensics expert with the Federal Police who has worked in the Amazon for over 15 years.

One area where Lula has more control is in designating Indigenous territories, which are the best preserved regions in the Amazon.

Lula is under pressure to create 13 new Indigenous territories — a process that had stalled under Bolsonaro, who kept his promise not to grant “one more inch” of land to Indigenous peoples.

A major step will be to expand the size of Uneiuxi, part of one of the most remote and culturally diverse regions of the world that is home to 23 peoples.

The process of expanding the boundaries of Uneiuxi started four decades ago, and the only remaining step is a presidential signature, which will increase its size by 37% to 551,000 hectares (2,100 square miles).

“Lula already indicated that he would not have any problem doing that,” said Kleber Karipuna, a close aide of Guajajara. 

(AP)

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