Investment principles for farmland
A group of eight institutional investors who are signatories to the UN Principals for Responsible Investment, representing US$1.3tn in assets have teamed up and developed a new 5-point charter, the Principles for Responsible Investment for Farmland. The move is aimed at addressing the increasing problem of 'land-grabbing' in Africa, Asia and Latin America.
The charter stresses that environmental, social and corporate governance (ESG) sustainability should be taken into account in any tenders and also specifically promotes labour and human rights, existing land and resource rights and the need for public reporting on how these Principles are being implemented.
The PRI for Farmland comes as European pension funds acknowledge that investing in farmland is a 'real challenge'. Pension funds and other institutional investors are coming under pressure from NGOs and academics who point out that land grabs are driving up food prices, destroying subsistence farming and creating disputes about land ownership amongst local communities. The MIFEE project in Papua is a prime example of this kind of project, where large-scale projects are pushing aside local indigenous communities in the name of food security and accelerating development (see also separate article: 'Big Plans for Papua').
Recently, the UK's BT Pension Fund and the Danish group of pension funds, PKK, both acknowledged that land-grabbing "without doubt" takes place in Africa and other “frontier” countries. However, both were quick to distance themselves from the practice, stating that they do not expose themselves to high risk areas, that they invest in existing commercial land and work with local communities to help them access markets.
Investing in farmland carries considerable financial risks for companies, such as political and legal volatility, issues of scale, maintaining investment value and crop failure in addition to concerns over land and resource rights, and ecological and social impacts raised by affected communities and civil society groups. However, as investment in farmland continues to produce annual returns better than many other asset classes, some sources have predicted that the multi-billion dollar global agricultural investment business will double or even triple in the near to long-term.
The PRI for Farmland offers an opportunity for communities and CSOs to assess the performance of investors in farmland against a set of voluntary standards, but these fall short of what’s needed to hold companies properly to account. The Principles make reference only to other voluntary principles, and none to the relevant international laws which might apply to their operations.
One key important omission is the right of Indigenous Peoples to Free Prior and Informed Consent (FPIC), now a key principle in international law and widely adopted in corporate social responsibility (CSR) policies of companies working in some of the sectors affecting indigenous peoples. Instead, the PRI for Farmland refer to ensuring the free, prior and informed consultation for affected communities – wording that, when used by the World Bank and others, was rejected by indigenous peoples organisations as too weak. It is interesting that the PRI on Farmland use the Performance Standards on Social & Environmental Sustainability adopted by the IFC (the World Bank’s private sector investment arm) as a reference on free, prior and informed consultation, when the IFC’s standards have now been revised to include full FPIC. Perhaps the PRI for Farmland can now be persuaded to catch up.
NB: The Farmland Principles were developed and are endorsed by AP2 (Sweden), ABP (Netherlands), APG (Netherlands), ATP (Denmark), BT Pension Scheme (UK), Hermes EOS (UK), PGGM (Netherlands) and TIAA-CREF (US).
The PRI for Farmland can be viewed at: http://www.unpri.org/commodities/Farmland%20Principles_Sept2011_final.pdf
Source: Investment and Pensions Europe 2 &9/Mar/2012; bfinance 2/Apr/2012; Professional Pensions 13/Mar/2012; http://farmlandgrab.org/ 2/Apr/2012.
See DTE 89-91, November 2011 for an overview of land grabs.
The updated IFC Performance Standards on Social & Environmental Sustainability can be accessed from http://www1.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/IFC+Sustainability/Sustainability+Framework
For more background on the MIFEE project see http://www.downtoearth-indonesia.org/campaign/mifee
Many thanks to Sophie Crocker for contributing this article