Several major investors are understood to be considering exiting consumer goods companies ahead of the implementation of new European zero-tolerance deforestation legislation.
The European Union regulation, passed late last year, will prevent companies from selling into its market coffee, beef, soy, rubber, palm oil, and other commodities linked to deforestation.
Companies are required to prove that their supply chains are not contributing to the destruction of forests or else face fines of up to 4% of their turnover.
According to Reuters, Germany’s Union Investment wrote to 56 consumer goods companies to find out more about deforestation in their supply chains. An internal Union Investment document seen by the newswire revealed that just 30 responses were received as part of the effort with only 14 companies declaring zero-deforestation goals.
Eight institutional shareholders including Schroders, Janus Henderson, Aviva, NBIM, and Union Investment told Reuters they were talking to consumer goods makers about this issue, three of whom said they will identify stocks they may exit.
“The companies have to be cleaner than clean, given the fact that there’s such a high penalty,” Jonathan Toub, a portfolio manager at Aviva, told Reuters. Aviva has stakes in Unilever, Nestlé, and Reckitt.
The new law is expected to be enforced by the end of 2024 for larger operators.