Agri Investor Forum 2016: ESG makes financial sense

At the Agri Investor forum in Chicago last week, delegates discussed the convergence of financial, environmental and social governance considerations in agricultural investments worldwide.

Environmental and social governance (ESG) considerations are increasingly central to the financial success of investments in agriculture, according to delevates at the Agri Investor Forum in Chicago last week.

ESG refers to an approach that prioritises considerations such as environmental stewardship, fair employment and labour practices and positive relations with surrounding communities in which a firm does business.

Joelle Faulkner, president of Area One Farms, an investment group that invests in local farms, found using strong ESG helps achieve the returns investors demand. By applying sustainable practices to Canadian farmland that has fallen into disuse, her firm has been able to deliver 6 to 8 percent in additional returns at the fund level, she said. Faulkner also stressed the value of aligning interests with local farmers through profit-sharing agreements.

“When you have local management, you also have the normal local pressures that push for greater sustainability,” she said.

It was a combination of mission and profit motive that lead Craig Wichner of Farmland LP to focus on ESG in his agricultural investments, but he said that investors do not need to choose between the two.

He touted the environmental benefits of such practices as integrating livestock and farmland operations and stressed the importance of complex crop rotation for sustainable agriculture as opposed to relying on chemicals.

Farms using sustainable methods can easily access a 50 to 200 percent price premium for crops with organic certification, delivering substantial returns while simultaneously working to ensure the health of soil.

“Sustainable agriculture is actually more profitable than chemical-dependent agriculture,” Wichner said. “You don’t have to be a torch-bearer on the ESG side to make these investments, and that is actually the wall that we are trying to break down.”

Mark Eckstein, director of the CDC Group, a development finance institution whollyowned by the UK government which invests in more than 130 private equity funds, added a governmental perspective on ESG.

Drawing on his more than 30 years of experience with agricultural-focused DFIs, he stressed that political ineptitude, vested interests and lack of security often are the biggest impediments to the flow of capital needed to entrench sustainable practices in developing markets.

In the developing world, Eckstein highlighted forced and child labour regulations as the most important ESG factors to consider.