(Top 20 institutional investors in 37 AgriFunds. Credit: Planet Tracker)There is a distinct lack of disclosure of ecological risks by big-name equity funds investing in the food and agriculture sector (AgriFunds) – including institutions such as Bank of America, Goldman Sachs, Morgan Stanley, UBS, State Street, Royal Bank of Canada, and Credit Suisse. This, despite the increasingly material impact that ecological risks are having on the performance of food- and agriculture-listed equity investments. This is according to a recent report by financial think tank Planet Tracker.
Growing natural capital risks (that is, risks to the world’s stocks of natural resources) are increasingly causing local economic disruption, which can lead to significant economic risks, including budget shortfalls, revenue losses, and potential credit downgrades, and expose major investors in the food and agriculture sector to material risk. Yet in a review of a sample of 37 AgriFunds with an aggregated market value of $21 billion at the end of 2019, Planet Tracker discovered that only 8% reference one or more of the natural capital risks that have a direct material impact on food and agriculture production, such as climate change, land degradation, and biodiversity loss. What’s more, only a single fund communicates a commitment to one or more sustainability initiatives and industry guidelines for sustainable investing in the sector in its 2018/19 annual report and related securities’ filings.
This, says Planet Tracker, leaves the top 20 AgriFund investors — who account for approximately 30% of the total assets under management invested by the 37 AgriFunds — materially exposed to natural capital-related financial risks that are not being sufficiently disclosed, thus representing both a transparency risk and reporting failure.
Furthermore, Planet Tracker found that not only have the 37 AgriFunds tended on aggregate to underperform the S&P Global 1200, but also that the more closely exposed they are to upstream food and agriculture production companies, the greater the underperformance. In fact, from 2010 to 2019, the 37 AgriFunds have on aggregate underperformed the S&P Global 1200 by 17%.
The report calls for Agrifund managers, analysts and investors to measure, manage and monitor the natural capital risks of Agrifunds by aligning their management with industry guidelines for sustainable investing in the sector in order to mitigate environmental supply side production risks.
The report calls for public reporting and the adoption on the following recommendations by 2022:
