onValues | 13 January 2011
In collaboration with the Swiss Federal Department of Foreign Affairs, the UN PRI and the UN Global Compact, onValues has today published a report focusing on the environmental, social and governance (ESG) issues involved in different types of commodities investments. The report shows that the issues at stake and available management options for institutional investors vary greatly between investments in commodity derivatives, in physical commodities, in real productive assets or in the equity of public companies.
To successfully navigate this complex landscape, long-term investors should consider the ‹systemic› effects of rapidly growing institutional investment in commodities. The report includes a series of practical recommendations aimed at reducing the risk that derivatives investors impact commodity price levels and volatility. The report is critical of investments in physical commodities: they lead to investors competing with industry in already tight markets, hoarding commodities with no productive use and directly influencing prices. Holdings in productive assets such as farmland, on the other hand, can be managed to a high degree of ESG performance, but require a commensurately high degree of investor expertise, while public equity stakes can be used as the basis for shareholder engagement.
Besides listing a series of possible actions for responsible investors, the report also highlights areas for further research and engagement.
>> Download the report: «Responsible investment in commodities» (pdf, 1.3 mB)