Agroinvestors must consider sustainability

Environmantal Finance
13 March 2012
Investors scrambling for farmland need to assess soil resilience, human rights and access to water in their land and commodity portfolios or risk undermining the value of their investments, says the Earth Security Initiative (ESI).

In a report release on Monday, London-based think-tank ESI notes a continuing surge in farmland investments, which has seen foreign investors lease around 227 million hectares of land in developing countries over the past decade for agricultural development.

The “scramble [has been] greatly accelerated by the worldwide spike in food prices of 2007–2008”, says the report.

They have also piled into developed countries, says the ESI. For example, overseas buyers, mostly farmland investment funds, pension funds and hedge funds, own 45 million hectares of Australia’s arable land – more than 10% of its farmland and 9% of water entitlements in its agriculture sector.

Investors urged to assess soil erosion in their land portfolios (Photocredit)

“Fund managers, asset owners and risk managers [need to] turn to their land and commodities portfolios, as well as the investments currently under due diligence, and begin to ask how soil resilience, the prosperity of local people and freshwater limits are being considered,” it says.

“We’ve always thought of these risks as rather long-term issues. Today we are beginning to realise that some of these risks may possibly play out in shorter time frames. We must develop ways to integrate these analyses into financial risk management,” the report quotes Federico de Vita, London-based risk manager at Credit Suisse.

“Managing these risks … will require an innovative approach to risk management: embedding basic human rights, ecological limits and soil protection as proactive elements of investment decisions,” says ESI, and makes three recommendations for investors:

Firstly, land security parameters need to be incorporating social, water and soil metrics, and these should inform investment decisions.

Also, it calls for better country risk profiles that take into account a country’s exposure to environmental and social issues.

“If the population of a given country is dependent on agriculture for livelihoods, shouldn’t issues like soil erosion, water availability and lack of recognition for people’s land rights increase that country’s sovereign risk?” says the report.

In addition, ESI wants global tools to be developed to better monitor soil erosion, water availability and the vulnerability of agriculture to climate change.

ESI also urges governments to “become aware that these risks undermine their country’s wealth, their stability and economic competitiveness”.

Governments should use the ranking of country risks to encourage high-level political discussion on the investment regulations that are needed to address soil and water management, land rights and food security, it says.

Elza Holmstedt Pell

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