Why investors will feel the sting from pollinators' decline
March 08, 2016
Given the enduring challenges in global markets, investors could be forgiven for overlooking the impact of pollinators on their portfolios. But the rapid decline of one particular pollinator population, the honey bee, particularly in North America and Europe, holds increasing investor risk. The US Department of Agriculture (USDA) estimates that bee-pollinated commodities are worth US$20 billion in annual US agricultural production and US$217 billion worldwide – a service all provided for free. Bees
Along with the risk to spikes in global commodity prices, declining bee numbers could hit a long list of pollination-dependent industries, from food retailers and manufacturers to luxury goods makers and global drinks groups. And that doesn’t include the risk to investors in agro-chemical groups making the pesticides accused of killing bees should they lose their multi-billion dollar markets – or the danger of agricultural yields falling without access to pesticides, as farmers fear they will.
The World Economic Forum has just placed the impact of lost biodiversity and ecosystems in a basket of ten top global risks alongside the likes of climate change and water scarcity. Asset owners and managers have a unique position when it comes to addressing the financial impact of these kinds of challenges.
The time has come to incorporate pollinators’ and particularly honey bees’ risk into investment strategies.
About 75% of the world’s food crops depend at least in part on pollination, of which bees do most of the heavy lifting: bee pollination is also known to improve the yields and quality of the fruit, veg and nuts pollinated.
Bees’ decline is already costing money. The USDA found nearly a third of the country’s commercial honey bees died last winter, up 42% from the previous year and coming on top of decade-long declines. California now requires honey bees to be transported across the country to pollinate its US$2.3 billion almond crop (a mainstay for global confectioners and cereal makers) requiring an estimated 1.5 million bee hives at a cost of about US$150 a hive. In southwestern China, declining pollination has forced farmers to resort to costly and time-consuming hand pollination to do the job bees no longer are.
Bees help pollinate fodder crops for the global meat and dairy industry and cotton for the textile industry. Economic growth in India, Brazil and China means diets will continue to improve, and demand for pollinator-dependent crops (rather than just the staples, which bees don’t pollinate) will increase. Hotspots of pollinator dependence across low-income countries could affect national economies where single crops are big contributors to GDP, as well as important sources of nutrition and health (resulting in increased risks of malnutrition).
Food retailers such as Tesco and Walmart carry risk across their supply chain from fresh fruit and vegetables to processed meals, fruit juices and confectionary. Food manufacturers Nestle and Unilever, purveyors of flower-dependent perfumes such as luxury goods groups LVMH and L’Oréal and soft drink makers manufacturing fruit-flavoured drinks, are all at risk from pollinators’ decline. As are pharmaceutical industries reliant on natural flora and fauna, and biofuel industries.
Pesticide manufacturers Dow AgroSciences, Syngenta and Bayer are exposed through their product lines, with Syngenta claiming “the neonic ban would reduce sales by US$75 million, approximately 6.5% of worldwide sales.” Pesticide sales at Dow AgroSciences were hit at the end of last year by regulatory uncertainty and manufacturers have recently found big US retailers, such as Lowe’s and Home Depot, taking their products off the shelves in response to consumer activists.
This makes protecting pollinators an important piece in the puzzle towards achieving the UN’s Sustainable Development Goals around eradicating hunger, improving nutrition, and protecting biodiversity.
ACCOUNTING FOR BEES
But the ability investors have to scrutinise companies is currently hindered by poor pollinator disclosure. This has led to a call for corporations to adopt a shared framework to report bee-related progress and highlight areas of improvement, providing an overview for investors. In the US, where SEC guidelines on annual reporting ask companies to declare the risks they’re exposed to, a 2014 study of S&P 100 stocks found that not one company disclosed honey bee risk in this context. US corporations are, however, more forthcoming in their sustainability reports, with index heavyweights including Fed Ex, Walmart and Monsanto disclosing various bee initiatives like community education and employee training. The hope is that government-led initiatives like the Pollinator Health Task Force, plus growing pressure from accountancy firms on their clients to disclose the importance of biodiversity to their businesses, will encourage more disclosure.
A similar story unfolds in other regions including Australia, Europe and South Africa. None of South Africa’s biggest food and drugs groups report honey bee exposure in their financials, although some refer to initiatives to encourage biodiversity in other corporate material. Similarly, in Sweden only a handful of companies disclose their pollinator exposure to shareholders and investors. But, encouragingly, a growing number of companies are publicising, in print and online, initiatives to boost bee populations, such as investments in roof hives and the setting up of education programmes.
As investors require robust ESG disclosure to make informed investment decisions, listed companies need to start reporting consistently and comparably across global markets.
Investors need robust academic and scientific research to guide strategy, which the recent IPBES (Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services) seeks to do. But the inconclusive science behind the honey bees decline isn’t a reason to stay on the fence.
At the moment, the absence of any conclusive research into the effect of pesticides on bees leaves politics, rather than science, driving the regulatory framework. The exposure to the state of flux in regulation as governments grapple to manage bee population decline is an investment risk in itself. (Scientists haven’t found a definitive reason for the decline in bee numbers. Research so far points the finger at a cocktail of habitat decline, climate change, the use of the pesticide neonicotinoids and parasitic diseases especially the varroa mite, present in most regions, apart from Australia.)
The US Environmental Protection Agency (EPA) is unlikely to expand the use of, or approve any new, neonicotinoids while it continues to evaluate the danger they may pose to honey bees. Meanwhile, campaigners are successfully overthrowing decisions the EPA has made regarding some pesticides. In Europe, the EU has banned most neonicotinoids since 2013 but licensed others without any coherent explanation. Amid the confusion, a handful of Canadian and US municipalities have taken the matter into their own hands and recently banned neonicotinoids. The UK decided to temporarily end its ban on neonicotinoids for 120 days, contrary to EU policy, following an application by the National Farmers Union.
One thing is for sure: insect pollination requires investment and stewardship to protect and sustain it and not only are global investors at risk, they are uniquely positioned through their influence and exposure to many of the actors involved, to tackle the problem by increasing awareness, dialogue and engagement.
It’s already started. PepsiCo shareholders are petitioning the company to assess the financial risks it faces due to the decline of pollinators across its supply chains, also pressing the drinks giant to report on its strategy to reduce high-risk pesticides. Other companies have begun putting in place pilot studies within their supply chains to assess the outcome of different production practices.
Investors can engage on the importance of sustainable agriculture and biodiversity with policy makers and companies. They should demand policies to encourage it, such as organic farming, setting aside strips of wildflowers at the edges of fields and preserving hedgerows.
Investors can also proactively protect pollinators and restore pollination services. In 2015, for example, Low Carbon Limited (a renewable energy investment company and signatory of the PRI’s Montreal Carbon Pledge) partnered with Plan Bee to install 25 beehives on five of its solar farms across southern England to help cultivate local crops and encourage biodiversity.
Research from asset manager Schroders found that only a third of the 25 companies it surveyed made explicit reference to their long-term success being dependant on the functioning of a healthy ecosystem and only 20% recognised their role in having to preserve and restore ecosystem services and biodiversity.