Brazil: Missing the forest for the trees?
By dismissing environmental concerns, Bolsonaro is endangering Brazil’s economic recovery
When Jair Bolsonaro was sworn in as Brazil’s president in January 2019, he pledged to jump-start an economy which has been in the doldrums since 2014. While he has made headway with policies to encourage foreign investment, his efforts are undermined by a failure to acknowledge outside investors’ environment, social and governance (ESG) concerns. Bolsonaro’s intransigence in the face of international outrage over fires and deforestation in the Amazon is damaging Brazil’s reputation and, by extension, its investment outlook.
In recent months, Bolsonaro has advanced much-needed legislative changes to facilitate outside investment. In August 2019, a long-awaited pension reform bill finally passed through the lower house of Congress and moved forward for debate in the Senate. The legislation introduces a minimum retirement age in the country for the first time and is projected to save the government USD 226 billion over ten years. Though further reforms, such as privatisations and an overhaul of Brazil’s notoriously bureaucratic tax system, are also needed, a new pension system would be a step forward in making Brazil a more attractive investment destination.
Bolsonaro’s approach to the Amazon is consistent with his pro-business stance. Having long criticised the demarcation of indigenous lands and blamed environmental regulations for holding back Brazil’s growth, he sees clearing of rainforest as a way of unlocking the Amazon’s commercial possibilities. To do this, he has drafted measures to erase indigenous land rights and weaken the country’s environmental protections, while paying lip service to longstanding efforts to combat illegal logging, ranching and mining. To his supporters, the message is clear: the Amazon is open for business.
Yet the reputational damage from Amazon deforestation to Brazil’s brand underlines the importance of ESG concerns among investors today. Brazilian companies fear a boycott of their products, after reports of the burning of the Amazon lit a social media firestorm. Agribusiness owners in particular worry that increased illegal activity in the Amazon reflects badly on the industry as a whole. In Brazil’s second largest export market, the EU, stakeholders are already re-examining their relationship with the country out of concern for the environment. Finland has reportedly called for the EU to consider banning Brazilian beef. Meanwhile, the leaders of France and Ireland, Emmanuel Macron and Leo Varadkar, have threatened to veto an upcoming trade deal between the EU and Mercosur, the South American trading bloc that includes Brazil.
Days after Macron and Varadkar’s announcement, foreign companies and investors in Brazil followed suit. Two of Norway’s biggest asset managers, Storebrand ASA and the pension fund KLP, have contacted investees to ensure they are not investing in firms contributing to deforestation, threatening to withdraw funds if they are. Meanwhile, the US clothing company owning the Timberland and North Face brands has suspended Brazilian leather purchases. Their actions show that investors mean business when it comes to sustainability.
On 30 August, the head of the UN’s Convention on Biological Diversity called for a “transformation” in how we consume and produce. Consumers in the West are already pushing towards a lower carbon, more ethical lifestyle. But changes to how we produce will only come about through structural changes in finance and trade. Whether motivated by reputation or the bottom line, recent actions by major firms on both sides of the Atlantic show that international investors are ready to stand by their environmental convictions. Ironically, attempting to sacrifice the Amazon at the altar of profits will only sabotage Bolsonaro’s stated efforts to get the Brazilian economy back on track. It should serve as a cautionary tale to leaders, whether business or political, who refuse to take ESG seriously.