The trends and challenges of the commodities markets are gaining increasing attention from institutional investors and public society. Investors are exposed to commodities in a number of ways. Some of the ESG issues associated with investments in commodities are outlined in the table below.
|Type of investment||ESG issues to consider|
|Real productive assets such as forests or agricultural land||Direct exposure to issues such as environmental sustainability, labour and human rights, existing land and resource rights.|
|Debt or equity investments in companies that own commodity producing assets or related businesses in the commodity value chain||Direct exposure to ESG issues such as tailings waste produced by mines, labour standards in the supply chain, water scarcity, pollution levels.|
|Physical commodities||Indirect exposure to the potential impacts of investment in physical commodities. Additionally, significant ESG issues can be associated with the production of physical commodities, including externalised costs.|
|Commodity derivatives which can be traded on exchanges or over-the-counter||Certain investments in commodity derivatives have been accused of impacting price volatility and greater stability of financial markets.|
About the work stream
The importance to investors of addressing the issues around commodities is highlighted by the fact that several of the priority engagements of the PRI Investor Engagement team are related to commodities (see more information below). The main focus of the commodities work stream is currently on farmland investments. The Farmland Working Group, formed in September 2011, aims to address the concerns around marketplace transparency and investor accountability as well as supporting signatories to integrate ESG issues into their investment decisions through the development of tools and guidance.
Signatories can be kept informed on developments in this area and other work stream activities by signing up for the PRI commodities newsletter.
Resources listed may require PRI signatory extranet access.
- Responsible investment in farmland: a compendium of case studies (October 2012)
- Responsible investment in commodities: The issues at stake and a potential role for institutional investors (January 2012)
- Agri-investing for the long term, a report summarizing the 17 June 2011 conference in Geneva
- The responsible investor’s guide to commodities: An overview of best practices across commodity-exposed asset classes (September 2011)
Previous PRI in Person sessions
- Feeding the world: What role for investors in agricultural commodities and farmland? (2011)
- Commodity investments: what role for responsible investors? (2010)
Investor Engagements on commodities
The PRI Clearinghouse is a unique global platform for collaborative engagement initiatives. It provides PRI signatories with a private forum to pool resources, share information, enhance influence and engage with companies, stakeholders, policymakers and other actors in the investment value chain on environmental, social and corporate governance (ESG) issues across different sectors and regions. PRI is currently coordinating several engagements through the clearinghouse with a focus on commodities such as:
- Engagement with palm oil buyers to encourage the use of sustainable palm oil
- Water risks engagement group
- Engagement on labour standards in the supply chain
- Engagement on fracking