Stock indices let Brazil meatpackers shed ties to deforestation, draw investors

  • The prominent placement of Brazil’s three biggest meatpackers — JBS, Marfrig and Minerva — on the country’s stock exchange indices has seen them net $121 million in investments.
  • These investments are made through funds that track the various stock exchange indices, whose makeup is ostensibly determined by a company’s performance and management.
  • These meatpackers, whose operations are closely associated with deforestation and land grabbing in the Amazon, receive investments even through funds geared toward environmentally and socially responsible companies.

A hundred and twenty-one million dollars. That’s one-third of the 2019 net profit of the world’s largest meat producer, JBS. It’s also the amount that JBS, together with competitors Marfrig and Minerva, raised on Brazil’s capital market thanks to the stamp of approval from the Brazilian stock exchange. But as with many things in the world of finance, there’s a lack of transparency about how this works — and even a likelihood that it doesn’t live up to the spirit of encouraging investments in companies with good environmental, social and governance (ESG) practices.

For Brazil’s Big Three meatpackers, which are closely associated with deforestation in the Amazon, the stock exchange’s stamp of approval comes in the form of inclusion in the representative indices of the B3, as the São Paulo-based exchange is known. The indices are populated by companies selected for their good stock market performance and level of management. JBS, Marfrig and Minerva are listed on at least 14 of the 34 indices on the stock exchange, including the reference indices for sustainability and governance — despite the fact that their businesses depend on a supply chain that’s entwined with deforestation and land grabbing in the Amazon. In spite of their stated commitments, they haven’t managed to ensure that their products are free of these problems.

The B3 representative indices serve as investor guides, indicating the best stock picks. Investors wishing to buy into the companies that comprise each of these indices can do so through exchange-traded funds (ETFs), which have the same stock makeup as the indices they emulate.

It’s through 10 such ETFs that investors have poured 680 million reais ($120.5 million) into shares in JBS, Marfrig and Minerva, according to an unreleased ((o))eco study. The largest slice of this money — 348.7 million reais, or about $62 million — comes through the iShares Ibovespa Index Fund, a BlackRock fund administered by BNP Paribas in Brazil. The fund holds 278 million reais ($49 million) in JBS shares, 43 million reais ($7.6 million) in Marfrig, and 27 million ($4.8 million) in Minerva. As its name suggests, this fund tracks the Ibovespa index, the main B3 index.

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Another 1.6 million reais ($283,500) in JBS, Marfrig and Minerva shares are held through sustainability and governance funds, a class of instruments created by the Brazilian Financial and Capital Market Association (ANBIMA). Known as ESG funds, they are geared toward investors looking for companies with responsible social, environmental and governance bona fides. But their portfolios often distort these concepts to include meatpackers.

The popularity of both the ETF and ESG funds buoys the share price of JBS, Marfrig and Minerva; all three are up since March. “For the owners of these companies, this means that their money is protected and it is worthwhile to stay in the business,” says Antonio José Alves Junior, a professor of economics at Federal Rural University of Rio de Janeiro (UFRRJ).

A strong-performing stock also means a company will have an easier time getting financing. “If a company wants to make an investment of 1 billion reais, it can ask for a loan from a bank, but it can also release new market shares to gain capital,” says Alves, who adds that the investment funds are also responsible for the conduct of the companies in which they invest.

Norberto Montani Martins, from the Federal University of Rio de Janeiro’s (UFRJ) Economics Institute, says positive stock performance also benefits a company’s executives and board members. “Many executives’ salaries are linked to the company’s stock performance, or they receive their bonus in shares,” he says. 

ESG funds that don’t follow ESG criteria

Two of the B3 indices are specifically linked to the environment. The best known is the Corporate Sustainability Index, or ISE, created in 2005. The Carbon Efficiency Index (ICO2) followed in 2010. For inclusion in the ISE, a company must have a good reputation for “economic efficiency, environmental equilibrium, social justice and corporate governance”. But unlike the London Stock Exchange’s sustainability index, which excludes entire sectors such as weapons and tobacco, the Brazilian index bars no company or segment as a rule. The idea is that even a company whose activity poses a high environmental risk may be part of the index if it can show on a questionnaire that it is managing that risk.

No Brazilian meatpackers are listed in the ISE, but this hasn’t stopped fund managers from including JBS, Marfrig and Minerva shares in portfolios that they advertise as being environmentally responsible and inspired by the ISE.

The main way this is done is through indirect investment, as in the case of Bradesco Prime FIC FIA Indice de Sustentabilidade Empresarial, administered by the asset management arm of Bradesco, one of Brazil’s biggest banks. It carries the ISE title in its name and promises investors better returns than the B3 index of that name. But it doesn’t invest the funds directly into the companies; instead, it invests in a second Bradesco fund that, in turn, invests more than 322,000 reais ($57,050) in JBS shares, according to its portfolio in May.

Of the total 1.6 million reais invested by the ESG funds in shares of the three meatpackers, nearly 78% comes through a single fund: Itaú Governança Corporativa, administered by Banco Itaú Unibanco, Brazil’s biggest bank. Four of the six biggest investors in the fund are other sustainability funds managed by the bank.

Even equity investment funds that buy individual company shares directly appear to associate themselves with the ISE name. Western Asset Sustentabilidade Empresarial FIA, for instance, holds 45,000 reais ($8,000) equity in JBS, and in its regulations makes clear that “the adoption of the ISE will only guide the formation of the portfolio, not implying an obligation to maintain the same composition of the ISE in the portfolio.” In practice, 40% of investments through this fund are directed into shares in companies not included in the sustainability index, including JBS. (This was valid in February, the last time that the fund’s entire composition was disclosed).

Another fund, Bradesco FIA Zinco, whose most recent portfolio strictly follows the ISE list, also states in its regulations that it’s not actually tied to the index. Its commitment, in fact, is to the companies that are “eligible for the ISE”, which is the second tier of the index. In its most recent release, this tier listed 181 companies, including JBS, Marfrig and Minerva, as well as miner Vale, oil major Petrobras, and SLC Agrícola, the grain juggernaut that buys and sells large swaths of land in the Cerrado biome and in the expanding stretches of farmland eating into the Amazon.

At present, 11 of the 22 ESG funds in Brazil invest, either directly or indirectly, in the Big Three meatpackers that buy the most cattle raised in the Amazon. None of them present clear criteria for the choice of companies that they include in their portfolios. Neither do ANBIMA’s regulations for these products, summed up in seven lines of text, clarify these contradictions. When asked for comment, the association said that “periodical monitoring is carried out to verify the adherence of the fund’s portfolio to its type”, but gave no response as to where the results of this monitoring can be found.

No accounting for deforestation

Sustainability and governance indices are meant to list the companies that stand out in these areas, attracting investors wishing to align good returns with a good conscience, knowing they are not financing irresponsible companies. But this doesn’t always happen.

JBS is the meatpacker most likely to buy and slaughter cattle originating from deforested areas of the Amazon, according to the conservation NGO Imazon. Yet the company continues to be listed on the B3 Carbon Efficiency Index (ICO2), which ostensibly promotes companies demonstrating a commitment to control their greenhouse gas emissions. A recent study by Instituto Escolhas, a sustainable development think tank, shows the carbon footprint of the beef industry inside Brazil’s Amazonian states, where JBS runs 31 meatpacking plants according to Imazon’s newest and as yet unpublished data, is six times greater on average than in other states across Brazil. In 2018, cattle ranching was responsible for 19% of all CO2 emissions from Brazil. If the deforestation associated with the industry is added to the equation, this share would be as high as 45%.

But the ICO2 methodology considers only companies’ direct emissions, and overlooks the full chain of suppliers on which they rely. When listed on this index, a meatpacker that contributes to global warming and climate change attracts investors who are concerned about ending those very problems.

JBS is also listed on the three B3 corporate governance indices, which showcase companies that commit to compliance codes guided by principles such as transparency and anti-corruption measures. Yet JBS was at the heart of a 10% single-day crash in the stock market in 2017. That occurred after the disclosure of secret conversations between Joesley Batista, JBS’s billionaire co-owner, and then-President Michel Temer, discussing hush payments in a corruption scandal. That crash prompted the last circuit breaker on the Brazilian exchange before the current pandemic.

In this sense, the problem of shady governance can be worse for the environment, since the line that separates governance and sustainability is much more tenuous than it appears, says Gabriel Thoumi, financial market director at Planet Tracker, an organization that helps companies reduce their environmental impacts. “Deforestation doesn’t happen in a vacuum. The institutions that are frequently and deliberately involved in deforestation are also frequently involved in other problems like money laundering and financial fraud,” he says.

Meatpacker in the state of Tocantins, eastern Amazon. Cattle ranching is responsible for two-thirds of the deforestation in the rainforest. Image by Marcio Isensee and Sá.

JBS and Marfrig on climate resilience index

JBS and Marfrig are also listed on the Carbon Disclosure Project’s (CDP) Climatic Resiliency Index . The CDP is renowned for having created the world’s most complete database of self-declared environmental data. The Brazilian index is the first that the CDP created outside Europe. Even though the index isn’t listed on the B3, it serves as a reference for investors looking to finance companies that stand out in the fight against global warming.

The CDP has been the target of criticism due to its controversial portfolio. One of the main complaints is that the index works as a tool for greenwashing — when a product that is harmful to the environment is sold as being “green”. “Investors that copy the CDP index will tell their clients that they are respecting the environment and climate while at the same time they are buying Vale, JBS and Petrobras. The CDP foments this,” says Fábio Alperowitch, a financial analyst and administrator at Fundo Fama, which has its own criteria for selecting responsible companies and which is not part of ANBIMA’s ESG list.

The consulting firm that developed the methodology for the CDP fund says the intention is to “integrate sectors, not exclude them.” “We do not consider what a company does, but rather how it does,” says Maria Eugênia Buosi, founding partner of the consulting firm Resultante. “JBS, for example, despite belonging to a controversial sector and having its own internal controversies, meets the criteria for showing that it is minimally conscious of its exposure to climatic risks.”

Buosi says market issues also weighed on the choice for this more “inclusive” portfolio. “As this was the CDP’s first index in Brazil, we wanted it to be easier to replicate. More ample and more diversified portfolios are easier to turn into financial products,” she says.

Lauro Marins, CEO of CDP for Latin America, says the index does well in measuring companies’ performance in reducing emissions. “It’s an issue of resilience and climatic ambition. A long-term vision,” he says. Asked about the relationship between the beef industry and deforestation in the Amazon, Marins says there’s another CDP questionnaire specific to the topic of rainforests, which wasn’t considered for this index. “Despite the fact that they are connected, the CDP treats them separately for the time being,” he says.

Sustainable investment is profitable investment

A BlackRock study that analyzed 32 globally representative sustainability indices showed that 94% of them performed better than other market indices during the first quarter of this year. This is a trend seen in Brazil as well. The indices linked to sustainability are outperforming those on Ibovespa, boosting the ETFs that track them. On the B3, ETF funds linked to environmental, social and governance issues have been attracting plenty of investors. Itaú Unibanco’s It Now ISE Index Fund, for instance, tracks the ISE and has total assets of 28.5 million reais ($5 million). BlackRock’s iShares Carbono Eficiente ICO2 Brasil Index Fund, which tracks the ICO2 index that includes JBS, has 47.8 million reais ($8.5 million) in assets.

According to ANBIMA, the volume of investments flowing through ETFs is also growing. In 2006, ETFs in Brazil held 2.7 billion reais ($478 million); by May this year, they had total assets of 28.4 billion reais ($5 billion). “Over the last 20 years, investors have headed toward passive investment and this trend will only accelerate,” says Cole Martin, senior agribusiness analyst at Fitch Solutions. “People will increasingly put their money in ETFs.”

With their ability to influence how these funds invest their money, the indices presented by the Brazilian exchange play an important role in the transition to environmentally responsible investment. Martin says it’s possible that in coming years, more stringent social and environmental criteria will be implemented for all indices, not just for the sustainability-focused ones. “In this scenario, a company would have to demonstrate some level of credentials, so as not to be excluded from these indices. Being excluded could reduce investor interest in these companies and cause the price of shares to drop,” he says.

B3 is already working on a proposal to review the ISE, including the creation of specific questionnaires for each sector of the economy (at present the questions are standardized), and the use of big data and artificial intelligence to capture information and listen to investors and companies. It notes that the ISE was only the fourth sustainability index created in the world, and that the review aims to meet investor demands, “considering the continuous process of improving our products with a focus on the customer”.

Alperowitch, the analyst at Fundo Fama, says these moves are missing an important change. He says smaller companies should be able to compete for positions in the indices, which are today open only to the top 200 companies most sought after by investors.

“If the ISE were inclusive and all companies could compete, an average business could improve its sustainability practices and reduce emissions in order to try and participate, to gain some visibility,” Alperowitch says. “This would have a huge impact on the market. B3 doesn’t do that, so it doesn’t fulfill its role as developer of sustainability in the market.”

Companies’ responses

B3, Brazilian stock exchange (read the complete response here):

B3 affirms that both the ISE and the ICO2 serve to induce good practices for companies that are in a constant process of improvement and adaptation to investor, client and societal demands. As an organization at the center of the financial and capital markets, B3 holds the role of inducing good practices and offering ESG products and services that support its clients as they evolve.

Bradesco, asset manager (read the complete response here):

Bradesco Asset Management (BRAM) — the company responsible for management of Bradesco’s funds and investment portfolios — affirms that “the decision to invest in each company within our funds is evaluated and ranked on diverse topics, always taking ESG criteria into consideration.” At least once each year, the company also formally questions the companies in order to “verify the evolution of processes related to sustainability” and, in some situations, assist them in the search for more sustainable solutions.


It’s important to note that over 90% of BlackRock’s equity assets under management are in funds that track third-party indices to which our clients themselves choose to allocate their assets. Investment stewardship is an essential component of our fiduciary responsibility. This is particularly important for our index holdings on behalf of clients, in which we are essentially permanent shareholders. We have a responsibility to engage with companies to understand if they are adequately disclosing and managing sustainability-related risks, and to hold them to account through proxy voting if they are not. You can see BlackRock’s most recent proxy voting record for these companies here. It’s important to note that the ownership structure of many of the companies in the sector, which have a single or small group of affiliated shareholders that control a majority of the shares, also limits the impact of proxy voting by a minority shareholder like BlackRock. While we do not discuss the details of our conversations with companies, we would draw your attention to the fact that, at the JBS Annual Shareholder Meeting on 28 April 2020, we voted against the election of three members of the Fiscal Council, Adrian Lima da Hora, Demetrius Nichele Macei and Jose Paulo da Silva Filho. This voting record can be accessed here. Furthermore, it is relevant to note that BlackRock is a minority shareholder in JBS. BlackRock’s shareholding in the company on behalf of its clients is ~2.5%, which is dwarfed by the ~65% holdings of JBS’ majority shareholders, including the Batista family with ~38% ownership. The strategic decision-making of the business is controlled by these shareholders.”

BNP Paribas, bank:

Banco BNP Paribas affirms that it constantly reinforces its policies with regard to deforestation. Among its environmental responsibility initiatives is the establishment of dialogue with its clients in order to guarantee their adoption of responsible practices.

Itaú Unibanco, bank (read the complete response here):

Itaú Unibanco affirms that the fund entitled Itaú Governança Corporativa Ações Fundo De Investimento follows the B3 Corporate Governance Trade Index (IGCT) and that the fund entitled Itaú Excelência Social aims to follow the B3 Corporate Sustainability Index (ISE). Therefore, the companies in which these funds invest meet the B3 criteria for these indices. In its evaluation of responsible investment, Itaú “analyzes the evolution of solutions proposed for possible controversies that companies may face”. The bank participates in CDP Florestas, an initiative coordinated by the Carbon Disclosure Project, and also in the Business Integrity Policy Work Group, a collaborative engagement project of investors that have signed the PRI, or Principles for Responsible Investment.

Our reporters reached out to Western Asset, administrator of the WA Sustentabilidade Empresarial FIA, but did not receive a response.

This report is fourth in a series investigating the relationship between the financial market and the Brazilian beef industry. If you would like to contact our reporters to offer a suggestion, please write to [email protected].

This story was originally published in Portuguese by ((o))eco. 

Banner image: Márcio Isensee e Sá.