Abigail Herron of Aviva Investors explains how asset managers can drive the decline in bee populations up corporate agendas
In 2009, the UK government’s then chief scientist, John Beddington, warned that in 2030 the world will demand 50% more energy, 50% more food and 30% more water, against a background of far greater climate variability. And this does not even take into account the potential for pollinator loss to compound this looming “perfect storm”.
A number of sectors stand to be affected adversely by the decline of pollinators, not least agricultural commodities, food producers and the pharmaceutical sector.
The global nature of many investors’ assets under management means that such systemic issues have the potential to impact heavily on the valuation models of companies and, ultimately, the value of the asset base.
The topic has been embraced with gusto in the media and civil society arena. A 2014 survey by market research firm YouGov found the decline of bees was seen as more serious than climate change. Compared with more mature responsible investment topics, such as biofuels or gender and diversity, the fate of pollinators remains a fledgling topic. However, several scene-setting pieces have recently been published including:
The Business of Bees, edited by Jill and Barry Atkins
The Bee and the Stockmarket, by Schroders.
Put the Bee Back in Beta, by Aidan Ward and Raj Thamotheram — beta being a measure of the volatility, or systematic risk, of a company or portfolio in comparison to the market as a whole.
The loss of pollinators presents a dual opportunity for the investment community to mitigate impacts to investors’ long-term holdings, not least in the food producers and agrochemical sectors, and to establish themselves at the forefront of this urgent yet emergent responsible investment topic in the eyes of clients, peers, policymakers and the media.
By raising the topic at board level, asset managers may escalate the topic on the agenda, especially if done in collaboration with other investors with significant combined assets under management and hierarchy on the share register. The divestment approach is enjoying record levels of consideration at the moment, buoyed in the UK by The Guardian’s “Keep it in the Ground” campaign, which focuses on fossil fuels.
Divestment is one half of what can be couched as the “voice and exit” approach.However, due to the rights and influence afforded to investors, the “voice” option is an arguably more influential position to adopt, at least in the first instance.
While the topic is systemic in nature, the line of enquiry one could adopt is fairly straightforward. Within a few questions it should be possible to determine the sophistication of an investee company’s awareness and action on the topic. Such questions could include:
How does your supply chain, both upstream and downstream, stand to be affected by a loss of pollinators?
Have any studies been commissioned to quantify this impact?
What contingency measures and scenarios have been discussed around this issue?
What initiatives and incentives have been put in place to mitigate the impact?
How do you keep abreast of the latest science around pollinator decline?
Given the emergent but pertinent nature of this issue, the investee company’s response can be an excellent proxy for its overall ESG (environmental, social and corporate governance) risk and opportunity-management.
Challenges: a lack of research
Sell-side brokers are typically part of an investment bank. Such brokers provide investment analysis and recommendations to fund managers. Research on pollinators is notable by its absence.
It is not clear how the challenge interlinks with other ESG topics; eg, will reduced crop yields intensify demand for agricultural land and how does this fit with the controversy associated with emerging market land grabs and the use of agricultural land for biofuels?
The reliance on sponsored research, which may be conflicted, is a concern in identifying causality. However, this is a concern not just for the investment community. Macro impacts could see decreased crop reliability, increased food insecurity and commodity price fluctuation, to the detriment of pharmaceutical research and development; all of which are difficult to capture using conventional valuation models.
Risks to investee companies
The OECD’s Guidelines for Multinational Enterprises cover several themes, including the environment.
These guidelines are supported by a unique implementation mechanism known as national contact points (NCPs). NCPs are agencies established by adhering governments to promote and implement the guidelines as well as assist companies and their stakeholders to take appropriate measures to further the observance of the guidelines.
Recent studies have highlighted a relationship between a decline in insect pollinators and neonicotinoids, albeit not sole responsibility. Given the number of NGOs becoming active on the topic of pollinator loss there is a distinct possibility that a company associated with neonicotinoids may be referred by an NGO to an NCP.
In my chapter in The Business of Bees, I show how investors can use their influence over companies to motivate change in corporate behaviour, and provide suggestions for investors in how to take action on this topic. Three important issues are highlighted:
The growth in the number of investors who have published policy statements claiming to be “responsible owners”. The pertinence, urgency and impact of this challenge is clear, as is the link with responsible ownership and systemic implications.
The benefits of working in association with informed people cannot be understated, especially as responsible investment practitioners are unlikely to have first-hand scientific expertise. However, the investment community must be mindful not to neglect other sources of bee decline in the search for a single smoking gun.
New means of highlighting responsible investment issues have increased the exposure of investee companies to brand risk. The media and NGOs are increasingly making the connection between corporate behaviour and the owners of those companies. This puts greater onus on investors to demonstrate stewardship.
Abigail Herron is head of engagement at Aviva Investors.This is an extract from her chapter in the recently published The Business of Bees, Greenleaf Press, edited by Jill and Barry Atkins.Environment UK Government agriculture climate policy fossil fuels supply chain pollinators NCPs NGOs