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No sugarcoating the facts for Bunge

04-02-2016 | Insight | Peter van der Werf

Following allegations of human rights and environmental breaches against the Brazilian subsidiary of Bunge, we started an enhanced engagement with this global agribusiness company in addition to our dialogue on challenges in the soy and palm oil supply chain. The company has taken decisive action, showing good progress on our engagement objectives.

Speed read:
  • Decisive response to land-grabbing allegations
  • No-deforestation policy published for palm oil business
  • Engagement continues on risk management and transparency

Bunge’s operations in Brazil (Bunge Brazil) had been accused of sourcing sugar from farms on land that is claimed by indigenous peoples. This meant there was a risk that the company did not comply with UN Global Compact Principle 2: ’Companies should make sure that they are not complicit in human rights abuses’.

Land conflicts: a lingering problem in Brazil
Land conflicts have long been a problem in Brazil, caused by the lack of state presence in many areas, uncertainty over land ownership and historical entitlements, the power of agribusinesses, and poor management of clashes between indigenous communities and farmers.

Bunge’s involvement is related to indigenous lands in Jatayvary, in the Matto Grosso do Sul state. Five farms, totaling around 800 hectares, are on land on which prior claims have been lodged by the Guarani-Kaiowá tribe. The claim of this tribe is alleged to have been first made 30 years ago. The land was first formally recognized as indigenous land by the Brazilian National Indigenous Foundation (FUNAI), part of the Ministry of Justice, as far back as 2004.

Bunge Brazil acquired the Monteverde sugar refinery in 2008. This refinery sources sugar from the farms located on the disputed land. It is one of five sugar refineries owned by Bunge Brazil and the only one supplying sugar for ethanol production. The land rights issue associated with the refinery was escalated by the involvement of the public prosecutor in 2009. The Brazilian Minister of Justice published the declaration of Jatayvary in 2011, which set the boundaries and recognized the Guarani-Kaiowá tribe’s rights to these lands. However, the final determination of land rights remains an ongoing process between the Brazilian government and indigenous peoples. The broader issues related to the classification of indigenous peoples’ lands are ongoing and can only be resolved by the local government and on its timetable.

In our first conference call in January 2014 Bunge took the stance that until there is a final ruling, the land in question remains the lawful possession of the current owners, who have farmed it for decades. The company also stressed that all the contracts in force had been signed before the acquisition of the Monteverde plant. The company made a public commitment to terminate its supply contracts with the relevant farms in the event of a final determination in favor of the Guarani-Kaiowá, or at the end of the term of each contract.

Bunge takes effective action to remove the possible breach   
When we started our active dialogue with the company, our main objective was for them to show that it was no longer in breach of UN Global Compact Principle 2. This meant that we expected them to withdraw from farms located on land on which indigenous peoples had made claims. We required them, among other things, to take measures to remedy and prevent breaches in the supply chain of the Monteverde sugar refinery and establish an adequate grievance mechanism.

During a conference call in January 2015, Bunge indicated that they had ceased to source sugar from the contested lands at the Monteverde refinery. The last harvest had been brought in at the end of 2014 and the machinery had been removed. This statement was subsequently confirmed in writing by the Head of Corporate Affairs. With this development Bunge has been able to lift the breach of UN Global Compact Principle 2.

‘Bunge now checks every new investment in Brazil for indigenous land claims’

 In addition, the company has developed a set of measures with, among other things, a grievance mechanism in Brazil. In 2014 no complaints were filed. Bunge also responded to an Oxfam report, stating that they check every investment in new sugar production in Brazil for Indian claims to the land with the National Indian Foundation (FUNAI). With all these publications and the cessation of the contracts Bunge now fulfills our main engagement objective.

We continued our dialogue with Bunge on our other engagement objectives, which are related to risk management and transparency in Brazil, both in sugar production and in other commodities such as soy and palm oil.

On the right track
Bunge is taking positive steps in other areas as well. During several conference calls and a visit to the company’s headquarters in White Plains, New York, we asked questions about the company’s new palm oil policy. This policy was initially introduced in October 2014, and excludes trade in palm oil that has been produced in High Conservation Value tropical forests or peat. In September 2015, Bunge published an update to the policy, addressing human rights issues similarly to the UN Guiding Principles on Business and Human Rights. Bunge is working on a system to secure full transparency of the palm oil chain and we suggested that answering the CDP Forest questionnaire would be a good way to inform a large group of investors on deforestation issues. Bunge will consider this for next year.
 
Bunge Brazil is a signatory to the ’Pact for Eradicating Slave Labor’ in Brazil. Three out of eight sugarcane mills of Bunge in Brazil are certified by BonSucro, a not-for-profit initiative dedicated to reducing the environmental and social impact of sugar cane production. Bunge Brazil is active in the governance of the Bonsucro organization. They explained that all the Bunge mills are operationally managed with the same standards as BonSucro would require, but due to the fact that fees paid for certification are based on volume processed they now only applied for three mills. As of October 2015 the demand for certified sugar was not sufficient and Bunge depends on an increase in demand from customers before the number of certified mills can be increased.

We effectively closed the dialogue with Bunge regarding the breach of the UN Global Compact in their sugar production. We continue to engage with the company on risk management in other commodities. Here we see positive progress.

Peter van der Werf

Engagement Specialist
"We add value to our investment portfolios by assessing how companies deal with ESG risks and create more awareness at the companies of the materiality of these risks. Social issues are challenging to assess but have the ability to significantly hurt a company’s license to operate, reputation and brand value."
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