CDC’s recent ESG toolkit for fund managers is a helpful guide for agri investors as the sector scales and sensitivities abound.
Recently CDC Group, the UK development finance institution, launched its environment, social and governance tool for fund managers. The new practical guide, complete with checklists and example policies, caused great excitement in the investing world and held relevance for agri investors with the inclusion of a specific profile on agriculture and aquaculture investing.
“It is a comprehensive resource for any firm which wishes to refresh its approach to ESG risks in its portfolio – and not just for those who invest in emerging markets,” wrote partners from law firm King Wood & Mallesons in a recent note.
The toolkit was announced at Private Equity International’s Responsible Investment Forum where LPs offered delegates some nuggets of advice on employing ESG standards. Here are just a few:
- GPs: don’t delegate all ESG duties to a dedicated ESG officer. ESG should be fundamental for the whole deal team, Dushy Sivanithy, principal at Pantheon Ventures told delegates.
- ESG should just part of a well-managed company. AlpInvest Partners’ Rob de Jong said that he looks for companies that are already engaging with the issues and creating credible improvement plans.
- And global director of operations at ESG consultancy firm ERM Keryn James said that ESG should be looked at as a value creation tool, not just a risk management mechanism.
The toolkit was particularly timely for the agri investment market considering the comments made by institutional investors at Agri Investor’s Australia Forum last month on the importance of ESG. It was also Agri Investor’s most read story of the week and Mark Eckstein, director, environmental & social responsibility at CDC, this week spoke further to Agri Investor about the role of ESG in an agri investor’s portfolio.
How important is ESG for agri investing?
Eckstein: Managing ESG risks and opportunities agri investing is absolutely critical. The extractives sector gets more ESG “heat” while agri arguably has a far bigger footprint and impact at all levels – labour, natural resources, climate, land conflicts and so on. Equally from a developmental perspective agri offers some of the biggest and highest impact ESG upside through better land management, employment practices, and programmes to improve rural livelihoods and economic empowerment.
Does agri stand out as a sector with particular ESG concerns and needs?
Eckstein: Yes, absolutely, and our recent agri investing report frames many of the key issues, but it is clear that agri is now moving centre stage in terms of ESG sensitivities. In part this is a function of the aggregate scales of agri activity and the sector’s impact on land and water, food security, livelihood, and employment practices. All of the above are complicated by the reliance on supply chains which are often opaque (in as much as suppliers and origination are unclear, and environment and social risks are therefore also uncertain). It is clear that many corporates are now recognising and trying to respond to these challenges. For example see the Oxfam Behind the Brands campaign.
What kind of take up are you expecting from agri investors with the toolkit?
Eckstein: We expect to see significant take up and use because the toolkit makes it easy for agri investors to map potential risks and develop action plans to address potential problems. The toolkit takes a PE investor perspective and is specifically designed to provide both risk and opportunity guidance from this investor perspective.
What do you think is the most revealing finding in terms of ESG needs in agri?
Eckstein: We face an emerging global challenge of how to feed nine billion people in a world where dietary needs and expectations are changing rapidly; millions of people are trying to escape rural poverty; and climate change will affect what, where and how can be grown, cultivated and reared. Agribusiness has a major part to play in addressing these challenges, but good ESG practices must underpin the solutions if they are to be sustainable in the long term.