Sep 28, 2022
Global Witness revealed Wednesday that three leading central banks have poured millions of dollars into buying corporate bonds from agribusinesses tied to climate-wrecking deforestation.
"It betrays the mission that all three central banks have to act in the wider public good."
The advocacy group's report, Bankrolling Destruction, focuses on the U.S. Federal Reserve's Secondary Market Corporate Credit Facility, the European Central Bank's Corporate Sector Purchase Program, and the Bank of England's Corporate Bond Purchase Scheme, operated by its Asset Purchase Facility.
"Once considered radical, central banks' bond purchasing programs have become a staple part of central banks' toolkits after the 2008 financial crisis," the document explains. "Through this analysis, we lay out the banks' exposure to deforestation risks and how they must up their game to avoid contributing to climate catastrophe."
The group found that the banks "have purchased large volumes of debt issued by companies linked to deforestation and forest destruction," specifically calling out Archer-Daniels-Midland (ADM), Bunge, and Cargill.
While much of the global attention on deforestation is directed at the critically important Amazon rainforest, 60% of which is located in Brazil--and agribusinesses have come under fire for damaging the region--Global Witness spotlighted the companies' connections to another key Brazilian biodiversity hotspot.
"ADM, Bunge, and Cargill have repeatedly been linked to alleged deforestation and land-grabbing in ecosystems including the Brazilian Cerrado, a hugely biodiverse savannah and critical carbon sink," the report states. The Cerrado, which covers about a fifth of Brazil, is threatened by activities including cattle ranching and soy production.
While ADM did not respond to The Guardian's request for comment on the Global Witness report, Bunge said it is "committed to complying with all regulations either in local or global markets and to adhering to our own strict social-environmental policies" and Cargill said it is "committed to ending deforestation and conversion in our agricultural supply chains."
\u201cAgri-businesses are a plague on the planet and must be broken up before their appalling practices trash our world completely.\n\nhttps://t.co/xMeRQUGBFn\u201d— Bill McGuire (@Bill McGuire) 1664356965
The report, meanwhile, takes aim at the central banks, arguing that they "are saying one thing about climate change and doing another by holding the bonds identified by Global Witness," and detailing crucial context for some recent developments regarding their investments.
According to the report:
To combat rising inflation, central banks are now reducing their balance sheets, selling off the corporate bonds they bought to steady the global economy during the Covid-19 pandemic. The Federal Reserve and Bank of England have already begun or completed this process, while economists think that the European Central Bank will be slower to wind down its asset purchases, potentially delaying into 2023.
While this divestment from deforestation-risk companies from central banks is welcomed, it should be noted that these sales are predominantly driven by concerns about inflation, not a concerted effort to root out the financing of deforestation and associated human rights abuses from central bank portfolios.
Plus, selling off the deforestation-linked bonds mentioned in this report merely displaces, but does not eliminate, the climate risk these companies pose. As supervisors, central banks must also make it clear that private investors should avoid the significant risk that comes with buying high-risk agribusiness corporate bonds.
Global Witness is calling on central banks to divest from all deforestation-linked corporate bonds, adopt zero-deforestation policies, and assess private financial sector exposure to such risk.
However, the group also recognized that "central banks cannot solve our global deforestation crisis alone," and highlighted the need for coordination with the private sector and governments that "must effectively regulate financial institutions and companies."
Veronica Oakeshott, forest team leader at Global Witness, emphasized the need for action now.
"At a time when the climate crisis is ravaging countries across the world, it is unacceptable that the biggest central banks are investing in companies linked to the destruction of forests and its associated human rights abuses," she said. "If we are to have any hope of limiting climate change we need those forests standing. Whatever their corporate bond purchase schemes were set up for, it surely wasn't this."
Oakeshott asserted that "it also sets the worst possible example for other banks and investors in the U.S., Europe, and Britain, and it betrays the mission that all three central banks have to act in the wider public good, especially when they are spending the central reserves that they control on our behalf."
\u201cOur investigation finds that @federalreserve the @ecb and @bankofengland despite making public statements against the #ClimateCrisis, have invested in companies linked to #deforestation. \n\nWe need banks to take urgent action on deforestation. \n\nhttps://t.co/7LhacfXhXh\u201d— Global Witness (@Global Witness) 1664381080
"Whilst the U.K. and U.S. have either sold these bonds or are in the process of doing so they should now commit to avoiding such purchases in future and the European Central Bank needs to act to clean up its portfolio," she added. "These central banks have started to talk in recent years about the risks that climate change poses to stability and growth in the biggest economies, but all that talk will remain pure hypocrisy as long as their investments are directly contributing to those risks."
Nick Robins, a sustainable finance professor at the London School of Economics, told The Guardian that "I think this report is a very useful piece of analysis which highlights the need for central banks to look at their exposure to deforestation in their portfolios."
"2022 really is the year that central banks recognized nature risk as a threat to institutions," he added. "The focus up to now has been on the energy sector, but this is another signal that deforestation and land use needs to be put at the heart of climate scenarios."
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