Amazon Under Attack

November 25, 2019

What happened?

The Amazon rainforest is under attack. And though public attention is on the fires burning in the Brazilian Amazon – up 84% in one year according to the Brazilian National Institute for Space Research (INPE) – deforestation is also increasing in Peru, Bolivia and Colombia.

Brazil’s north-western states of Mato Grosso and Pará are the worst hit by deforestation and saw rates rise 13.7% over the last year. Mato Grosso is the grain capital of Brazil and so it’s no surprise that forest is being cleared here to make space for more agriculture. While the sudden rise in deforestation is linked to an emboldened agricultural lobby under new Brazilian president Jair Bolsonaro and a general disregard for conservation, informal miners and farmers have been chipping away at it for years.

Why does it matter?

The Amazon is the largest rainforest in the world and reduces the level of carbon dioxide in the atmosphere, which slows down global warming. Less trees means that the effects of burning fossil fuels would become more pronounced, accelerating global warming and cause potentially devastating rises in global temperatures.

But the Amazon is more than just a carbon dioxide-reduction tool. It holds at least 10% of the world’s known biodiversity, according to World Wildlife Fund, including endangered flora and fauna. The Amazon River is the world’s largest and accounts for 15% of the world’s total river discharge into the oceans. The forest also houses most of the world’s untouched, pre-modern societies and many of South America’s indigenous communities whose way of life is protected by national governments.

Why is it being attacked?

The Amazon is being attacked for two main reasons: first is to access the resources themselves, such as the trees, which can be sold as logs. Second is to clear the ground for more productive economic activities, such as mining, cattle raising, or farming. Burning quickly clears the land of trees. Given that Brazil’s Amazon-facing states specialise in agriculture and cattle-raising, there is a huge economic opportunity of having more land to use.

While Brazil is at the centre of the Amazon debate thanks to its outspoken president and strong international position, 40% of the Amazon is found in its South American neighbours…

The Amazon has always faced illegal logging and clearing, but recently the problem became more acute. The increase in deforestation is linked to when Michel Temer became president in 2016 and began a period of government cutbacks after more than a decade of higher spending under the left-wing Workers’ Party. Temer downgraded a ministry focused on supporting sustainable family farms and slashed funds for environmental protections and science. The federal science and environmental agency (IBAMA) budgets were reduced by almost 50% in 2016. Jair Bolsonaro continued these cuts when elected, taking another 25% away from IBAMA. The problem is exacerbated by the fact that the Brazilian central government has a weak presence in the remote frontier regions that border the Amazon, so forest protection is weak. Bolsonaro also merged the agriculture and environment ministries, which weakened the conservation effort, while in public he has encouraged loggers and farmers to clear the land.

Bolsonaro’s rhetoric is also encouraging attacks on the Amazon. After INPE released its deforestation findings, Bolsonaro fired its chief, Ricardo Magnus Osório Galvão, on grounds that he was damaging the country’s reputation abroad. The president has also said that indigenous territories should be opened up to mining and other industries. Essentially his attitude – which many Brazilians share – is that Brazilians have the right to do what they like to the parts of the Amazon that lay within their borders.

Is Brazil the worst offender?

Despite recent events, Brazil actually has a strong record of protecting its share of the Amazon. In successive years from 2004, under first President Lula da Silva, then his successor Dilma Rousseff, deforestation of Brazil’s Amazon slowed. This coincided with a period of strong GDP growth, disabusing the notion that Brazil needs to deforest for economic reasons. But this trend reversed in 2015 as deforestation levels crept up again. As of 2018, 80.7% of the Amazon was left of its 1970 total.

While Brazil is at the centre of the Amazon debate thanks to its outspoken president and strong international position, 40% of the Amazon is found in its South American neighbours, who tend to be poorer and less-equipped to cope with the problem than Brazil.

For example, there has been a rapid increase in deforestation in Colombia’s Amazon since the demobilisation of the FARC guerrilla in 2016. In 2018, around 2,000 square kilometres were lost. When the FARC were at large, they controlled many parts of the Amazon, and strictly enforced protection of the forest in order to better hide their camps. But when the group disbanded, fires and land grabs became more common in order to clear land for legal and illegal crop cultivation. As such, the deforestation rate in Colombia was 59% higher in 2018 than it was in 2015.

The Peruvian Amazon, which accounts for around 60% of its national territory, is also under threat from informal mining. The spread of small-scale mines in Peru has destroyed about 700 square kilometres in the last five years, according to researchers from Wake Forest University. In some cases, well-meaning infrastructure plans, such as building new roads to connect remote villages, have had unfortunate consequences, opening the path for illegal miners.

Bolivia is facing deforestation levels on an even greater scale than Brazil. According to the Forest and Land Audit and Social Control Authority (ABT), around 9,500 square kilometres have been burnt in 2019, which means that deforestation will be more than double the previous record in 2016, when around 4,710 square kilometres were lost. Recent weather conditions haven’t helped but Bolivia’s former president, Evo Morales, was criticised for quadrupling the amount of land farmers can burn to make room for crops in 2016. He also signed a decree allowing controlled burns in Bolivia’s frontier state of Chiquitano this year. Those ‘controlled burns’ have now spun out of control as drought and strong winds spread fires through vast swathes of tropical dry forest in east Bolivia.

How can we save the Amazon?

South American governments must lead the way to save the Amazon as it falls within their national territory. This means policies such as limiting further deforestation and carrying out reforestation programmes, which would require extra funding for environmental ministries. The problem is that low tax takes and weak states across the region mean that most South American countries are struggling with more immediate problems, such as water sanitation, education and public health, which makes it difficult to divert funds for environmental causes where the potential impact is long term.

French President Emanuel Macron has threatened to derail the planned EU-Mercosur trade deal because of Brazil’s mishandling of the Amazon…

Another solution is for other governments to apply pressure on South America to protect their resources. In August 2019, Norway followed Germany and suspended donations to the Brazilian government’s Amazon Fund as a result of the forest fires. Norway had been the fund’s biggest donor, responsible for around $1.2billion in the last decade. It remains to be seen if measures likes these will be successful, but Bolsonaro so far has not reacted to international pressure. Meanwhile French President Emanuel Macron has threatened to derail the planned EU-Mercosur trade deal, which would have led to tariff-free commerce with the EU for Argentina, Brazil, Paraguay and Uruguay, because of Brazil’s mishandling of the Amazon.

Can investors help?

Investors can put companies they work with under pressure to adhere to high environmental, social and governance (ESG) standards. This means making sure that supply chains are not linked to illegal logging, farming or mining in the Amazon. ESG reporting by companies is becoming more and more mainstream, which is increasing transparency around risk areas and making it easier for businesses to better understand the impact that they have.

Some portfolio managers of investment funds are going further and negatively screening companies that have low ESG scores and refusing to invest in them. In fact, some Nordic investors are actually refusing to lend money to governments that show poor ESG practices. For example, Norway’s Nordea Asset Management’s emerging market debt team put Brazilian government bonds in quarantine in response to the Amazon fires crisis.

Consumers also play a role. The growing demand for environmentally and socially sustainable agricultural goods is creating financial incentives for more responsible growing practices. For example, London Stock Exchange-listed fast-moving consumer products giant, Unilever, now sources 100% of its European palm oil from traceable and certified producers. While certificates such as the Rainforest Alliance ensure that farmers are protecting biodiversity.