San Francisco – In response to the financial, social, and environmental risks of commodities that drive tropical deforestation and climate change, Dimensional Fund Advisors, a major US investment firm with $445 billion of assets under management, has divested two of its portfolios of all palm oil plantation companies, Bloomberg reports today.
Palm oil production is the fastest growing cause of rainforest destruction and rainforest destruction is the second biggest driver of climate change after the burning of fossil fuels.
A report released by Friends of the Earth earlier this year examines the role of US investment firms in fueling tropical deforestation and land grabbing. That report, as well as data available through Deforestation Free Funds, a web portal hosted by Friends of the Earth and the shareholder advocacy organization As You Sow, show that Dimensional is among the top ten US financiers of the palm oil sector.
Dimensional worked with Macroclimate® – the world’s first automated personal divestment platform – along with other consultants and wealth managers not affiliated with Dimensional, to eliminate major climate stressors like palm oil producers1 from the firm’s sustainability funds.
The move by Dimensional to remove all palm oil companies from two of its sustainability portfolios – US Sustainability Core 1 Portfolio (DFSIX) and International Sustainability Core 1 Portfolio (DFSPX) – makes these the first broadly diversified US and international funds from a top-ten U.S. fund manager to explicitly exclude palm oil. These funds are also divested from many of the largest owners of coal, oil and gas reserves as well as coal-fired power plants – the #1 climate problem, according to experts.
“Dimensional is always looking for ways to improve the sustainability considerations for those two funds,” Dimensional spokesman Alex Stockham told Bloomberg.
“We are extremely pleased that Dimensional has taken this step towards deforestation free investing by ridding a few of its portfolios of problematic palm oil companies,” said Jeff Conant, Senior International Forest Campaigner with Friends of the Earth-US. “There’s a lot more to be done by Dimensional and every other US investment firm – but this signals an important first step in moving away from funding destructive palm oil practices.”
The companies that had been in Dimensional’s sustainability portfolios prior to this divestment move include Wilmar International (WIL:SI), Olam International (OLAM:SI), Sipef SA (SIP:BR), and Indofood Agri Resources LTD (IFAR:SI). Three of the companies have been the focus of recent reports of serious environmental and social abuses: Wilmar and Indofood for child labor, forced labor, and other labor problems and Olam for massive habitat destruction in Gabon. It is unclear whether these reports bore a direct influence on Dimensional’s divestment decision, however.
Dimensional continues to hold shares in these and other companies involved in tropical deforestation through many other funds. According to data available on DeforestationFreeFunds.org, the firm still has 27 mutual funds with more than $700 million in assets invested across more than 44 palm oil plantation companies.
Dimensional’s investment approach focuses on “dimensions” (or “factors”) with higher expected returns, while continuing to limit risk through diversification – and now divestment.2 Today’s Bloomberg article, “Dimensional Dumps Palm Oil From Sustainable Funds,” includes a chart showing that the four palm oil producers that Dimensional has dropped have underperformed the MSCI World Index, which tracks global equity.
Macroclimate and Friends of the Earth will continue urging Dimensional to address its considerable holdings in forest-risk commodities and to expand sustainability criteria to other portfolios.
“If investors on a global scale divert their capital from companies causing deforestation to those with more climate-resilient alternatives, the risks of abrupt and irreversible climate change will be materially reduced,” says Mark R. Kriss, Managing Partner of Macroclimate®. “By accelerating the divestment and deforestation-free investment movements, not only can we measurably improve climate outcomes, but we can also reduce risk and improve financial outcomes for everyday investors.”
“It’s encouraging to see Dimensional responding to investors who want to keep their savings out of unsustainable palm oil production,” said Andrew Montes, Director of Digital Strategies at As You Sow. “Addressing the role our 401ks and other personal investments play in contributing to rainforest destruction is critical, and we hope to see other major asset managers taking similar steps.”
1 Companies engaged in irresponsible and unethical deforestation practices per Friends of the Earth and other leading environmental NGOs with observers in the field.
2 For methodology details, see The Evolution of Sustainability Investing
For more information contact:
Friends of the Earth U.S., Jeff Conant, [email protected], 575 770 2829
Macroclimate, Mark Kriss, [email protected], 415.723.9695
As You Sow, Andrew Montes, [email protected], 510 735 8144