Global deforestation is at a very high level, losing five million hectares a year or the equivalent of 15 football pitches of forest every minute. The election of the new Brazilian President Jair Bolsonaro in January led to a rapid reacceleration in Brazil; the Brazilian Space Agency found that deforestation had increased by 88% in June this year relative to last. In the past forty years, the Amazon rainforest has lost about 18% of its territory.

More than 40% of forest loss is directly related to agricultural commodity production, particularly palm oil, soy, cattle and rubber. Deforestation is hugely damaging for the climate, biodiversity, as well as for indigenous people. This is even more relevant at a time when the UN organization IPCC (Intergovernmental Panel on Climate Change) recently launched an alarming report on land use. The problem, according to the IPCC, is that humans exploit soil resources too intensively with heavy agriculture practices that cause important land degradation, releasing significant CO2 into the atmosphere from soil that had historically absorbed it.

Source: Bloomberg

Companies that are the largest purchasers of commodities causing deforestation are responding to the growing attention to these issues, but there remain challenges to gaining full transparency to the source of these products. Many companies and governments have pledged to remove deforestation from agricultural supply chains but a high proportion still struggle to achieve this according to a recent CDP report.

For this reason there is much enthusiasm for the proposed new framework from the European Commission on deforestation. It looks to install and investigate ways to regulate supply chains of companies, laying out five priorities for fighting the degradation and destruction caused by commodities imported by the EU. An important suggestion from the proposal is to establish standards and certification schemes that help to identify and promote deforestation-free commodities. These certifications should help guide conscious consumers in their shopping decisions, and help to avoid general boycotts such as those called for of all palm oil products in the UK, Norway and France.

Evidence from addressing other major issues such as war diamonds, illegal logging, modern slavery, have showed that governmental regulations have been essential to tackling urgent problems that companies struggle to face alone. Thus, implemented in an efficient way, the measures proposed by the European Commission could support and accelerate action from companies leading the way on responsible sourcing and increase pressure on the laggards.


Important Information

The information contained herein is provided for discussion purposes only, is not complete and is not, and may not be relied on in any manner as, legal, tax or investment advice or as an offer to sell or a solicitation of an offer to purchase an interest in securities. QUAERO CAPITAL believes the information contained herein to be reliable and has been obtained from sources believed to be reliable, but no representation or warranty is made, expressed or implied, with respect to the fairness, correctness, accuracy, reasonableness or completeness of the information and opinions.

The estimates, investment strategies, and views expressed herein are based upon current market conditions and/or data and information provided by third parties and are subject to change without notice. There is no obligation to update, modify or amend these materials or to otherwise notify a reader in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

These materials include certain opinions, statements and projections provided by Quaero capital with respect to the anticipated future performance of certain asset classes.  Such opinions, statements and projections reflect significant assumptions and subjective judgments by QUAERO CAPITAL’s management concerning anticipated future events.  these forward-looking statements are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond QUAERO CAPITAL’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The data as presented has not been reviewed or approved by any party other than QUAERO CAPITAL.

Nothing contained herein shall constitute any representation or warranty as to future performance of any financial instrument, currency rate or other market or economic measure. Opinions expressed herein may not be shared by all employees of QUAERO CAPITAL and are subject to change without notice.