(Zürich/London/New York) – The UN-backed Principles for Responsible Investment, the UN Global Compact, and the Swiss Federal Department of Foreign Affairs today released the final report aimed at helping institutional investors navigate the environmental, social and governance challenges of commodities-related investments.
The role of investors in commodities markets has increased considerably over the past years. Over US$400 billion of institutional and retail money is currently invested in commodities, compared to only US$6 billion a decade ago. This has led to increased scrutiny by policy makers fuelled by concerns that growing investment volumes could lead to higher price volatility with negative consequences on the real economy and low-income populations.
Donald MacDonald, Trustee of the British Telecom Pension Scheme and founding Chairman of the Principles for Responsible Investment, said: “Global competition over scarce natural resources will be one of the defining aspects of the 21th century. Policy makers will accept much needed private sector investment in this area as long as it is seen as positively contributing to the development and stability of our economies and societies. Investors must recognize social sensitivities and concerns, even if they are sometimes perceived as being unfair and not based on absolute certainty”.
“Given rising concerns about volatility in commodities markets, and how this may be negatively impacting economies and communities, we believe this report is extremely timely and important”, said Gavin Power, Deputy Director of the UN Global Compact. “As we attempt to embed markets with longer-range considerations and time horizons, it is critical that all asset classes be included – and this means commodities”.
Investors gain exposure to commodities in various ways: derivatives, physical commodities, real assets such as forests and farmland, and debt and equity of companies active in the sector. The report launched today offers specific best-practice recommendations for each of those asset classes and also comments on the strategic allocation between commodities-related assets from the perspective of a responsible investor.
Donald MacDonald added: “Investors should proactively implement measures aimed at managing environmental and social risks related to commodities investments and consider the recommendations provided by the guide. It is crucial that investors maintain their “license to invest” in these markets”.
Swiss consultancy onValues authored the report which is the result of an almost two-year long engagement process with leading investors and stakeholders in the field.