Investors Talk Deforestation: Q&A with Julie Gorte, Impax AM



Julie Gorte is the Senior Vice President for Sustainable Investing at Impax Asset Management LLC and Pax World Funds. She oversees environmental, social and governance-related research on prospective and current investments as well as the firm’s shareholder engagement and public policy advocacy. Julie recently spoke with Ceres about how she engages with companies on deforestation and climate change. What follows is a lightly edited Q&A. 

The Q&A is part of Investors Talk Deforestation, a series of interviews with influential investors and partner organizations who supported the development of the Ceres Investor Guide to Deforestation and Climate Change. The Guide aims to engage investors on deforestation emissions and other related risks across their portfolios and drive more corporate action on the issue.
Q: How does Impax approach the topic of deforestation and why should more investors be keen to address deforestation today?
A: At Impax, deforestation is included in the environmental criteria we use to evaluate  inclusion in our portfolio. Over the last three years, we have also increased direct engagements on deforestation due in part to the PRI and Ceres-led engagement on deforestation with global companies.

Deforestation is critical for us to address because avoiding the catastrophe of climate change is like a global game of whac-a-mole. Everything that contributes to climate change is a mole we need to whack, and deforestation and other land-use change are becoming bigger moles over time. 
Deforestation is critical to address for three main reasons. First, greenhouse gas emissions from other sectors have decreased while emissions related to deforestation have largely remained stable. The number one contributor to greenhouse gas emissions in the United States used to be electricity production, but that changed in 2019 due to efforts by the electricity sector to decarbonize. In the wake of those changes, deforestation in the supply chain has taken on increasing importance as a driver of global GHG emissions. Second, the loss of forests means that we are also losing an important global carbon sink. Third, science has indicated a strong possibility that forests may become carbon emitters if we keep cutting them down. This would have incredible impact on global climate flux and would be devastating for the climate.
Deforestation is not only important because of climate change, though. Deforestation also contributes to the global crisis of biodiversity, endangering both ecosystems and people. Losing a million species this century is a crisis. 
The electricity sector demonstrated that if companies proactively act on regulatory pressure to reduce greenhouse gas emissions, they will be better equipped to avoid future physical climate risks. Increasingly, mainstream investors are sounding the alarm that deforestation is a huge concern. The more power that we investors bring to the table, the more companies will respond.
Q: How are companies addressing–or not addressing–deforestation, and what strategies do you employ to engage with those companies? 
A: I categorize companies’ responses to engagement on deforestation in three buckets. 
The first is “a tiny portion of our supply chain comes from tropical forests.” This response is very common, especially for multinational companies that have many different products and supply chains. We try to help these companies understand that even though commodities from tropical forests may represent a relatively small portion of their supply chain or overall revenue, the volume they source could still have a large impact on a particular forest biome. We tell these companies that while this may not be a major issue for them, it is still an important issue they have influence over that needs to be solved.  
The second response is “we address many of the causes of deforestation in our supply chains.” We let these companies know we approve of what they are doing, but that we’d like them to exert a similar amount of energy to tackle causes of deforestation they are not already addressing. 
The third response – and this really is a problem for everybody – is that there is lack of traceability for the commodities that companies source from tropical forests. Traceability takes money and, even then, it is not easy to do, even for a global multinational company. 
Q: The Investor Guide differentiates between no-deforestation commitments (which do not allow for any deforestation in supply chains, whether legal or illegal) and net-zero deforestation commitments (which do allow for deforestation as long as the same area of forest lost is reforested elsewhere). The former are preferred by NGOs and investors, but the latter are more common. How do you as an investor engage with companies on these topics?
A: No-deforestation is the goal. Net-zero deforestation is complicated since there is a lot we don’t know about how human activity affects the forest’s abilities to absorb or emit carbon. For example, if a company relies on reforestation to meet its net-zero deforestation commitment that means that the company is disturbing soil or converting forests elsewhere. The company may have calculated the amount of reforestation using dated (and now inaccurate) carbon sequestration estimates or they may have failed to address related issues, like biodiversity. As investors, we encourage companies with net-zero deforestation commitments to keep up with the science. 
Q: We use similar terms when we speak about greenhouse gas emissions. How do you explain these terms to investors?

A: Net-zero emissions is where we absolutely need to get to by 2050. Net-zero emissions means that we are not emitting anything to the atmosphere that we are not also sequestering. One way to do this is to have zero emissions. At this stage, zero emissions is extremely tough to do, so net-zero emissions is the common 2050 goal. 
To get to net-zero emissions, we must cut as many emissions as possible and then we need to make up for remaining emissions. One way for companies to address remaining emissions is through purchasing carbon offsets, which are emissions reductions or carbon sequestration accomplished by someone else. When companies want to purchase carbon offsets, we ask that the carbon offsets be certified and verified, which increases certainty in the permanence and viability of the emissions reductions or carbon that is being sequestered. 
Another way that companies aim to get to net-zero emissions is through carbon capture and storage technologies, which prevent greenhouse gas emissions from entering the atmosphere. Besides reforestation, no economically viable carbon capture and storage technologies exist, though a lot of research and development is underway. As investors, we support R&D, but we remind companies that they need another plan to achieve net-zero emissions in case these efforts don’t work out. 
Q: Is sufficient progress being made towards eliminating supply chain deforestation and reducing climate change risks associated with deforestation? 
No, our progress is not even close to where it needs to be. We have no realistic chance of staying below 1.5 degrees C and most climate scientists would say we won’t stay below 2 degrees C. In fact, supply chain risks will continue to increase until deforestation is halted and we trend toward reforestation. To make meaningful progress, we must develop a path that will get us to net-zero emissions by 2050.

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KEYWORDS: Deforestation, CERES, Julie Gorte

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