INTERNATIONAL - A Brazilian asset manager who’s been around for more than two decades is arguing the raging fires across the Amazon rain forest have something to teach the nation’s investors.
FAMA Investimentos Ltda., a Sao Paulo-based equity fund manager with around 2.1 billion reais ($505 million) under management, said dire economic consequences could arise from the Amazon issue, according to a letter sent to clients.
“The country needed to be on the edge of a fiscal abyss for the pension reform to be approved,” Fabio Alperowitch and Mauricio Levi’s FAMA wrote. “Now, we have to watch the Amazon burn for the theme to gain the relevance it deserves.”
Brazil and President Jair Bolsonaro’s environmental policies have come under pressure as more than 75,000 fires have swept across the country this year, an 84% increase compared to last year, according to the country’s National Institute for Space Research. The dramatic rise has prompted international calls for immediate action and a fierce response from the government, which has traded barbs with foreign leaders -- especially French President Emmanuel Macron.
FAMA says the environmental issue, usually seen by Brazilian firms and investors as a minor concern, may bring “dire economic consequences to the nation” which could include economic sanctions aimed at exports, especially to Europe.
“We can’t rule out a setback in the historical agreement between the European Union and Mercosur,” according to the letter.
Macron last week threatened to block a trade deal between the European Union and the Mercosur bloc of South American countries, saying Bolsonaro had lied to him about his commitment to fight climate change. On Tuesday, Norway’s government warned companies present in Brazil against any involvement in deforestation, while the Swedish government is reportedly examining whether the AP pension funds’ investments in the country and the rest of South America live up to sustainability targets.
Brazilian firms have the lowest level of board oversight on climate issues, FAMA says citing a report by CDP, a British nonprofit research group that solicits and scores corporate environmental disclosures. About 50% of the country’s companies say their directors address those issues, compared 60% in the U.S. and 87% in Europe, according to the report, which compiled data from 6,937 firms.
The asset manager says it uses environmental, social and governance criteria to filter the pool of firms it invests in. Car-rental firm Localiza Rent a Car SA, pulp maker Klabin SA and travel agency CVC Brasil Operadora e Agencia de Viagens SA are among the fund’s main holdings, Alperowitch said in an emailed message. FAMA FIC FIA, the firm’s flagship, had a total return of 16.6% year to date, compared to a 11.1% return of the Ibovespa index, the fund’s benchmark.