A new analysis of three major agricultural firms implicated in illegal deforestation reveals how it affected profitability, led to multi-billion dollar decline in market capitalisation and huge losses for investors.
The analysis, by the non-profits Climate Advisers and Ceres, examined three high-profile case studies: the oil palm firm IOI Corporation, cocoa firm United Cacao, and the Brazilian beef giant JBS. The analysis shows that all three faced serious market risks and losses after they were found to have cleared rainforests illegally.
- IOI Corporation was suspended from the Roundtable on Sustainable Palm Oil (RSPO) because of 11,750 hectares of land cleared illegally by its Indonesian subsidiaries. With the suspension, RSPO prohibited IOI from selling crude sustainable palm oil. This prompted 27 of IOI’s largest corporate buyers to suspend procurement contracts with the company, leading to a drop in its net income.
- United Cacao’s illegal deforestation was a leading indicator of broader corporate governance issues, culminating in its winding-up in July 2017. Its expansion plans conflicted directly with government regulations against deforestation – a risk the company itself identified in its bond issuance. On January 4, 2017, United Cacao’s nominated adviser resigned its role, leading to the suspension of trading of its equity on AIM and its bond on the NEX Exchange, and the delisting of United Cacao from the AIM on February 6, 2017.
- The case of JBS demonstrates the cascading effect of uncovering actions that generate reputational risk. Investigations by Brazilian authorities into JBS have produced accusations of bribery, financial and accounting violations, labor standards and illegal deforestation. The accusations of deforestation provided additional reasons for investors and trading partners to be suspicious of JBS’ reputation. The cascade of scandals forced JBS to delay its initial public offering (IPO) for its foreign operations through JBS Foods International.