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Cargill Subsidiary Cut Off From Grieg Seafood’s Green Bond Proceeds Over Deforestation

Jul. 02, 2020 2:19 AM ETGrieg Seafood ASA (GRGSF)
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Commodities, Natural Resources

Seeking Alpha Analyst Since 2017

Chain Reaction Research is a coalition of Aidenvironment, Climate Advisers, and Profundo funded by the public-sector to describe the material financial risks facing institutional investors from deforestation associated with agriculture commodities such as palm oil, soy, cattle, cacao, coffee, and pulp and paper. Chain Reaction Research's financial analysis is distributed globally free-of-charge to analysts and institutional investors to inform them of the material financial risks they face associated with deforestation.


  • Grieg Seafood engages Cargill over soy-driven deforestation in Brazil.
  • Grieg Seafood's exclusion of Cargill Aqua Nutrition from Green Bond proceeds comes after Nestlé stopped purchasing Brazilian soy from Cargill.
  • Other soy traders in the Cerrado could see similar backlash, business access risks over deforestation.

Norwegian Grieg Seafood (OTCPK:GRGSF) will not allow any funds from its Green Bond to be used to purchase feed supply from Cargill Aqua Nutrition, which is wholly owned by Cargill Inc. Grieg Seafood has excluded Cargill purchases from the eligible project types because of Cargill Inc.’s connections to deforestation in the Cerrado soy market.

Grieg Seafood sees an opportunity from its Green Bond (issued in June and worth USD 103 million) to influence the Brazilian soy supply chain, a major driver of deforestation, including legal land clearing. Grieg Seafood is opening a dialogue with Cargill about its operations in Brazil, hoping to push the company to reduce its deforestation risks. The dialogue is occurring although Grieg Seafood does not source from Cargill’s operations in Brazil. Grieg Seafood, in taking a corporate ownership perspective rather than one that is focused on its direct value chain, is looking to use its market power to sway companies to take action to curb deforestation.

The Green Bond proceeds exclude “feed from Cargill Aqua Nutrition until the mother company Cargill have significantly reduced their soy-related deforestation risk in Brazil.” Grieg Seafood told CRR: “Our goal is an end to soy related deforestation of the Cerrado, and Cargill say that they share this goal so what we now need from them is action.”

Grieg Seafood's exposure to the Brazilian soy market has led the company to increase action and engagement on deforestation. Soy protein accounts for 23 percent of Grieg Seafood’s feed in Norway and the UK. In general, Grieg Seafood says that Brazilian soy it purchases is Proterra/Round Table on Responsible Soy (RTRS) certified. Before its engagement with Cargill, Grieg Seafood had already been active in efforts to reduce soy-driven deforestation in Brazil. Along with Tesco and Nutreco, Grieg Seafood founded the Cerrado Funding Coalition, which raises money for the Cerrado Conservation Mechanism, an initiative to cut deforestation in the Cerrado. Grieg Seafood plans to soon publish a policy on deforestation soon after its Green Bond framework is launched.

Prior to Grieg Seafood’s action, Cargill had already seen backlash from buyers over deforestation in the Cerrado. Nestlé stopped sourcing all of its purchases of Brazilian soy from Cargill in 2019 amid the trader not being able to trace soy from its suppliers and changes in policy regarding deforestation in Brazil. Nestlé, however, still purchases U.S. soy from Cargill.

Cargill and other traders could come under more pressure from buyers. The signal from Grieg Seafood with this action is likely more impactful than any direct effect on Cargill’s revenues. Not only does it signal movement within the aquaculture sector on the issue of deforestation, but it also may set a precedent for further exclusion from green financing instruments. If more companies issue green bonds, it could create market access risks for Brazilian soy traders.

Cargill is one of the most vulnerable soy traders to fires in their supply chains, according to CRR’s recently published report. Early last year, Cargill updated its policies on soy and forests, but they may not mitigate all deforestation risks in its supply chain in Brazil. As CRR pointed out last year in a report on Cargill, the company may be exposed to Cerrado deforestation risks beyond the 25 Soft Commodity Forum (SCF) priority municipalities, and financial incentives may not discourage legal deforestation. Cargill has yet to sign the Cerrado Manifesto, and non-compliance with the Soy Moratorium remains a risk in the Amazon biome. CRR concluded that deforestation risk exposure could lead to revenue-at-risk, financing, and reputation risk, and Cargill could face higher cost of capital as its lenders may tighten deforestation policies.

Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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