Environmental Investments

EBG Capital

August 2015

Responsible Agricultural Investments

CFS-RAI Principles – Relevance for the financial industry –

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Presentation Outline

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Background on CFS-RAI / Difference to other Guidelines 3

Why is CFS-RAI relevant for the financial industry? 7

Specific guidelines to help implementation 16

Positive examples 20

Summary 25

6 Annex 27

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Responsible investments in Land is a headline topic for governments

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At the 2015 G7 Summit, leaders announced their explicit support for private investments in sustainable agriculture. In the summit declaration the leaders support the CFS-RAI guidelines as method to promote:

• Responsible governance of land tenure.• Management of increased pressure on natural resources.• Mitigation of climate changes and risks concerning food security.

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1 Background on CFS-RAI / Difference to other Guidelines

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• Legitimacy: First-ever international Agreement on Responsible Investment in

Agriculture and Food Systems

• 10 Principles to guide investments in agriculture and food systems

• Principles are covering human rights, enhancing livelihoods, fostering gender equality,

respect land tenure and cultural heritage, sustainable management of natural resources,

transparent governance and promotion of accountability

• To be used by a broad range of stakeholders: Governments,

inter-governmental organisations, private sector enterprises,

civil society organisations, consumers

• Voluntary and non-binding – “soft law”

Short profile of the CFS-RAI Principles

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Key Elements of CFS-RAI

• What are the Principles and what not?

A framework to guide the actions of stakeholders.

Address all types of agri investment.

Neither detailed guidelines nor legal norms.

• Nature and Scope:

Voluntary and non-binding.

Not limiting or undermining any legal obligations to which a State may be subject under international law.

Worded as continuous actions to encourage uptake.

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CFS-RAI – Yet another set of principles on agricultural investments?

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There are roughly 70 non-binding and 6 binding international initiatives that provide guidance on responsible investments… but also create confusion…

How do they differentiate?

• Initiator• Process• Target audience• Focus• Value chain

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2 Why is CFS-RAI relevant for the financial services industry?

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Risks of ignoring sustainability issues along the „financial“ food chain

Ignoring Responsible Investment Practice can become expensive for all

players in the financial industry:

• Financial risk

• Litigation risk: CFS-RAI voluntary… but soft law is hardening / case law developing

• Reputation risk

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Reputation Risk – the hidden danger

While big brands are most exposed to reputation risks this can even hit smaller companies!

Challenges:

It can literally erupt out of nowhere.

In an increasingly globalized environment, reputational risk can arise even in a

peripheral region.

Today information can be spread around the globe in seconds and a no costs.

Information flow and correctness can not be controlled.

The cure: put in place and apply company CSR policies across the globe for all relevant areas – CFS-RAI can be used for setting up / fine-tuning policies

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Bunge linked to land grab related indigenous scandal

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• Bunge sugar plantation developed on

indigenous land in Brazil.

• Plantation has resulted in displacement

of indigenous Guarani Indians and

environmental pollution.

• Sugar is supplied to companies such as

Coca-Cola who has a zero tolerance

pledge to land grabbing.

• Initial response from Bunge on the matter indicated that the responsibility

was in the hands of the Brazilian government to property identify land rights.

http://www.survivalinternational.org/news/8812http://www.beveragedaily.com/Ingredients/Coke-supplier-Bunge-cops-flak-from-Guarani-Indianshttp://farmlandgrab.org/post/view/21314-us-food-giant-bunge-accused-over-biofuel-tainted-with-indian-blood

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Commonwealth Bank of Australia (CBA)supports controversial Bunge sugar operations in Brazil

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• Oxfam reported in 2014 that CBA owns a

$14.21 million worth of shares in Bunge.

• Bunge owns 8,800 Ha of land in Brazil

related to indigenous land grabbing.

• Amidst an ongoing indigenous land

recovery process with the Brazilian

government, Bunge has yet to compile

with requests by the government to halt

operation.

https://www.oxfam.org.au/wp-content/uploads/site-media/pdf/2014-47%20australia%27s%20big%204%20banks%20and%20land%20grabs_fa_web.pdf

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Deutsche Bank provides financial assets supporting controversial Vietnamese land grabs

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• DB provides financial assets for Huang Anh Gia Lai (HAGL) and Vietnam Rubber Group

(VRG)

• HAGL and VRG have acquired over 200,000 Ha of land including protected forest.

• Land is often acquired without consent and or by force.

http://english.vietnamnet.vn/fms/business/91162/deutsche-bank-maintains-ownership-in-hoang-anh-gia-lai.htmlhttp://www.theguardian.com/world/2013/may/13/deutsche-bank-ifc-bankroll-vietnam-cambodia-laos

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HSBC largest financer for controversial Wilmar International

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• HSBC has provided €298 million in

loans to Wilmar International

• Wilmar is linked to extensive land

development and deforestation for

palm oil plantation development

projects.

• Wilmar has been accused of

continual deforestation despite

declaring a zero tolerance policy in

2013.

http://www.euractiv.com/sections/sustainable-dev/your-bank-financing-deforestation-302452http://www.thejakartapost.com/news/2014/04/13/wilmar-accused-breaking-deforestation-agreement.html

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Nestle supply chain connected to child labor

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• Nestle sources 1/3 of its cocoa from the Ivory Coast, of which about 20% is

traceable, the rest comes from untraceable sources.

• 89% of Ivory Coast Children involved in cocoa industry according to 2008

study.

• Nestle identifies solution is completely dependent on development of places

of study for children to combat child labour situation.

http://www.bloomberg.com/news/2012-06-29/nestle-must-address-child-labor-in-cocoa-supply-fla-says.html

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Campaign on Palmoil (KitKat)

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https://www.youtube.com/watch?v=ToGK3-2tZz8

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3 Specific guidelines to help implementation

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Specific guidelines to address sustainability risks along the agriculturevalue chain

Level of exposure to sustainability risks depends on type of fincanical services offered

Banks: loans, other forms of providing capital (bonds, IPOs)

Asset owners / managers: indirect exposure by investing in bonds or stocks of

controversial companies or projects

CFS-RAI (and other guidelines) can be used accross the financial services sector to:

Develop and adjust internal policies and practices (e.g. credit policy)

Help in negotiations with investees («how should I do this?»)

Develop checklists to monitor compliance with company policies, investment guidelines

etc

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Specific Guidelines: Example “IFC Performance Standards”

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IFC Performance Standards:- Set of guidelines that guide

responsible investment processes- There is a IFC PS on investing in

agriculture

Benfits:- Agreed and well accepted global

standard- Basis for «Equator Principles»

Challanges:- Only for large scale projects- Comes with significant costs (for

EIA, SIA,,,,)

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Specific Guidelines: Example “Food Security Assessment”

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Roundtable on SustainableBiomaterials (RSB):- Youngest of all Commodity

Roundtables- Very good technical guidelines on a

number of topics

Benfits:- Guidelines are agreed in a

consultatvie process- Can be used for a whole range of

commodities not just biomaterials- Focus on practical use of the

guidelines

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4 Positive examples

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Coca-Cola and PepsiCo Support FAO VGGT Guidelines

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http://www.fao.org/news/story/en/item/224619/icode/

• Coca-Cola and PepsiCo have committed to help protect land rights in regions where their ingredients are sourced.

• Lead companies in committing to the volunteer guidelines.

• Committed to supporting environmental and social causes in addition to land tenure.

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Fairtrade as a growing market and investment theme

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• Fairtrade standards tackle poverty and empower producers in the poorest countries in the world.

• Fairtrade market is largely unsaturated, offers large opportunity for growth in both more sustainable production and investment.

• Fair Trade can also be an investment theme offering investors financial and social returns.

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Mirova Study on investment opportunities to enhance food production and quality

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• Mirova is the SRI Asset Manager of Natixis

• Study focused on investment opportunities in the ag supply chain

• Identified companies enhance access to food or contribute to increasing yields and overall efficiency

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The rewards for doing business well…

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5 Summary

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Conclusion / Wrap-up

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• Agricultural investment needs to be responsible to ensure its broader objective

• The CFS-RAI Principles provide a useful non-binding guidance to achieve such responsible agricultural investment

• Ignoring CFS-RAI can become expensive

• Good practices are available

Follow them!

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6 Annex

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What is different from other Principles, particularly the PRAI and the VGGT?

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PRAI VGGT CFS -RAI

Initiator FAO, IFAD, UNCTAD, WB in January 2010FAO CFS plenary approval in May 2012

CFS plenary approval in October 2014

Process Non consultative Multistakeholder consultation process with broad ownership

Description

Address risk of large scale investmentsSet of broad principles that provide guidance to improve governance of land, fisheries and forests Promote investments that

contribute to food security and nutrition and do no harmPrinciples cover: land & resource rights; food

security; consultation, participation,governance; environmental, social andfinancial sustainability

Relevant for large scale land acquisitions

Target audienceExisting rights to land & resources are ill-defined

Focus on government agencies and private investors

Strengths Top down focus

Consistent with existing multinational efforts on responsible Ag

Voluntary guidance and less controversial to private sector actors (endorsed by Coca Cola, Pepsi, Nestlé, Cargill)

Includes labor standards, food security, land tenure, income and development

Emphasize role of local approval and accountability

Weakness

Clear guidance for implementation is missing

Lack of detailed guidance for implementation

Lack of detailed guidance for implementation

No extra-territorial obligations, limits toregulatory oversight

PRAI rejected by key parties due to lack ofconsultation

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Differences between responsible investment standards

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UN Global Compact FAB OECD GuidelinesCommodity Standards (RSPO

used as a proxy)

InitiatorLaunched in September 2014 by UN Global Compact

OECD Advisory Group set up in 2013 by OECD and FAO

Initiated 2001 by WWF, formally established April 2004 under Swiss Civil Code

Process Consultative process

DesctriptionSet of six voluntary business principles to serve as an umbrella over existing voluntary standards

"Tool kit" on responsible business conduct by governments

Standard for sustainably produced palm oil - blueprint for other soft commodity standards

Target audienceUNGC signatories operating along the agricultural value chain

Business and investment community, but also NCPs, state actors and civil society

Representatives of each stage of the commodity value chain and civil society

Strengths

Development driven by UNGC with strong buy in from private sector

Leverage of the OECD’s reputation, in-country expertise to enable governments and multinationals to adopt responsible business conduct

Roundtable at which members have equal rights

Food and Agri companies (that sigend the UNGC) are required to report their progess on an anual basis

Practical guidance will be of direct use to MNEs investing in the agricultural supply chain Certification system for

transparencyFABs cover all relevant sustainability-related aspects for the whole food and agriculture sector

Risk-based due diligence benefits both the investor and the wider community

Weakness

Runs concurrently with the CFS-RAI process and less legitimacy

Consultations with multinationals may yield restrictions on RBC that do not satisfy certain sections of the NGOs

Roundtables are dominated by growers and any standards agreed are "bare minimum"

Challenge to ensure uptake by non-members

The practical guide are not finished yet

Almost no UNGC signatories from the private equity industry or investors directly involved in operating farms

Potentially limited scope outside of the OECD sphere

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Specific guidelines (1/2)

Principle Guideline Weblink

1: Contribute to food security and nutrition

• Universal Declaration of Human Rights • FAO Voluntary Guidelines to support the

progressive realization of the right to adequate food in the context of national food security

• FAO International Guidelines for Securing Sustainable Small-scale Fisheries

http://www.ohchr.org/EN/UDHR/Documents/UDHR_Translations/eng.pdf; http://www.fao.org/3/a-y7937e.pdf; ftp://ftp.fao.org/Fi/DOCUMENT/ssf/SSF_guidelines/ZeroDraftSSFGuidelines_MAY2012.pdf

2: Contribute to sustainable and inclusive economic development

• The International Labour Organisation• Convention's Fundamental Conventions • Guiding Principles on Business and Human

Rights

http://www.ilo.org/wcmsp5/groups/public/---ed_norm/---declaration/documents/publication/wcms_095895.pdf; http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf

3: Foster gender equality and women’s empowerment

• The International Labour OrganisationConvention's Fundamental Conventions

http://www.ilo.org/public/english/bureau/leg/download/constitution.pdf

4: Engage and empower youth • The International Labour Organisation

Convention's Fundamental Conventionshttp://www.ilo.org/public/english/bureau/leg/download/constitution.pdf

5: Respect tenure of land, fisheries, forests and water

• FAO VGGT • FAO International Guidelines for Securing

Sustainable Small-scale Fisheries

http://www.fao.org/docrep/016/i2801e/i2801e.pdf; ftp://ftp.fao.org/Fi/DOCUMENT/ssf/SSF_guidelines/ZeroDraftSSFGuidelines_MAY2012.pdf

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Specific guidelines (2/2)

Principle Guideline Weblink

6: Conserve natural resources and contribute to climate change adaptation and mitigation

• UN Framework Convention on Climate Change

• UN Convention to Combat Desertification • UN Convention on Biological Biodiversity • TEEB for Business

http://unfccc.int/resource/docs/convkp/conveng.pdf; http://www.unccd.int/Lists/SiteDocumentLibrary/conventionText/conv-eng.pdf; ; https://www.cbd.int/doc/legal/cbd-en.pdf; http://www.teebweb.org/media/2012/01/TEEB-For-Business.pdf

7: Respect for cultural heritage and traditional knowledge

• United Nations Declaration on the Rights of Indigenous People

http://www.un.org/esa/socdev/unpfii/documents/DRIPS_en.pdf

8: Promote safe and healthy productive systems

• Guiding principles on business and human rights

• The International Standards of the OIE

http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf; http://www.fao.org/fileadmin/user_upload/livestockgov/documents/A_standardisation_activities.pdf

9: Incorporate inclusive, and accessible governance structures, processes, and grievance mechanisms

• Anticorruption instruments and guidelines for MNEs

• Practical guidance on FPIC

http://www.oecd.org/corruption/anti-bribery/2638728.pdf; http://www.fao.org/3/a-i3496e.pdf;

10: Review impacts and ensure accountability and transparency

• Guidelines on good practices in corporate governance disclosure

http://unctad.org/en/docs/iteteb20063_en.pdf

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Dr. Bernd SchanzenbächerFounder and Managing Partner

EBG Capital AGwww.ebg-capital.com

Telephone : +41 43 344 59 06Facsimile : +41 44 205 99 44

E-mail: bernd.schanzenbaecher@ebg-capital.com

Lavaterstr. 40CH-8002 Zurich

Switzerland

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