Private equity and EM agribusiness: building value through sustainability

A group of financial institutions and the World Wide Fund for Nature (WWF) have released a report on sustainability in emerging market agriculture to help private equity fund managers navigate the sector and perform due diligence on potential investments.

Credit Suisse has teamed up with CDC, EMPEA (formerly the Emerging Markets Private Equity Association) and the International Finance Corporation (IFC), as well as the nature charity, to produce the detailed report.

The report provides data about private equity investment and fundraising in emerging agribusiness provided by EMPEA. It also highlights the risks and opportunities provided by key environmental and social issues in agribusiness that have been identified by CDC and IFC. It also makes recommendations to fund managers on implementing an effective environmental, social and governance (ESG) system for themselves and their portfolio companies.

The report should also be of help to LPs and other investors in emerging market agribusiness, writes Ken Mehlman, head of global public affairs at KKR and contributor to the report.

“At KKR, we believe that businesses and private equity investors that adopt a sound policy and management approach to environmental and social matters are better positioned to anticipate and avoid adverse risks and impacts, and can achieve greater financial and social returns,” he wrote in the report’s foreward.

The report, which aims to provide practical guidance on pursuing sustainable investment practices in emerging market agribusiness, was initiated by Credit Suisse which had been working alongside WWF on a series of ideas about sustainability in agri for a number of years, according to Mark Eckstein of CDC.

This aligned with ongoing work at CDC and IFC around the same topic and through a series of conversations, the group recognised the urgent need to produce some guidance and focus areas for private equity investors, Eckstein told Agri Investor.

“The issues were self-evident by now, so the group quickly aligned and the report came together very smoothly and easily,” he said. “You would think that a lot of strong views would create a rather complex process but that wasn’t the case because the common issues were obvious.”

CDC will incorporate the report into its new ESG toolkit which it is launching in June at PEI’s Responsible Investment Forum in London.

Other data in the report includes stakeholder perceptions of the positive or negative impact on large-scale agri investments from the World Bank.

It also highlights the risks and opportunities provided by key environmental and social issues in agribusiness that have been identified by CDC and IFC. These include labour practices and working conditions, community health and safety, land rights and tenure, pollution and resource use, biodiversity and ecosystem services and climate change.

Eckstein recognised the increasing volume of responsible investment guidance in the market surrounding agriculture but pointed to a lack of very practical guidelines that fund managers can build into their due diligence process. “Or into their broader management system for understanding environmental and social issues across a portfolio,” he added. “We are trying to get some practical guidance and examples of how to incorporate some new issues into the due diligence and ownership process.”

The Organisation of Economic Co-operation and Development (OECD) and the Food and Agriculture Organisation (FAO) are also working on a set of practical guidance for investors which they hope to release later this year. The FAO-OECD Guidance for Responsible Agricultural Supply Chains is currently open for consultation and the main target audience is institutional investors, Coralie David, an OECD agriculture investment policy analyst, told Agri Investor last month.

Read: Private equity and EM agribusiness: building value through sustainability