Many companies are failing to adequately address the issue of sustainable sourcing of raw materials, a report from the UN Environment Programme Finance Initiative, onservation charity Fauna & Flora International and Brazilian business school, Fundação Getulio Vargas.
The report evaluates 31 multinational and Brazilian companies in the food, beverage and tobacco industries against a new tool – the Ecosystem Services Benchmark. The benchmark is designed to enable investors to assess the level of risk of investing in companies that rely heavily on certain ecosystem services. Until now, this aspect of investment risk has been latent; however the Ecosystem Services Benchmark exposes these potential risks. It does this by highlighting companies’ dependence on the ecosystem and allows investment analysts to rank companies in accordance with the level of sophistication of supply chain management of biodiversity and ecosystem services.
It is the first comprehensive analysis of how companies within the food, beverage and tobacco sectors are addressing business challenges relating to their impacts and dependence on ecosystem services. Such services (which include healthy soils, pollination and water) are vital for companies with agricultural supply chains. These sectors are amongst those that are most dependent on ecosystem services, while having the potential to have a significant impact on biodiversity.
The Ecosystem Services Benchmark tool was designed in conjunction with investors from Europe, Brazil, the USA and Australia: three UK-based asset managers (Aviva Investors, F&C Investments and Insight Investment); US-based asset manager (Pax World); Brazilian based bank (Grupo Santander Brasil) and a leading Australian pension fund, VicSuper. Collectively, these represent €455 billion (USD633 billion) of assets under management.
Commenting on the new report, Karina Litvack, Head of Governance and Sustainable Investment, F&C Investments, said “Companies and their investors have long taken ecosystem services for granted, as if they came for free. Yet recent pressures on natural resources suggest that in future such services will start to command a premium, or, worse, become unavailable. This could have a profound impact on the strategies and valuations of companies in high-risk sectors.”
The survey reveals a picture of early stage response. Companies have pilot projects in place, but no plans disclosed to roll them out. They have management systems that tackle the issue in part, but are incomplete – perhaps applied to a single commodity or region. They have a wealth of activity but no clear rationale/ risk assessment process underlying it. This suggests a reactive rather than proactive approach.
