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16 The Responsible Investor’s Guide to Commoditiesall these areas, additional research is needed.The considerable environmental, socialand human rights risks involved in extractingand producing these commodities canlead to reputation risks for investors. Becausecommodities are usually fungible, investorscan manage these risks only indirectly, bycontributing to the development of globalenvironmental and social standards for theproduction of the commodities and by engagingwith investment managers, ETF providers,exchanges and commodity traders in view ofthem implementing these standards as muchas possible in their activity.The development of methodologies andsupply chains allowing investors to sourcecommodities from producers and suppliersthat have been certified according to environmentaland social standards is another areafor further research and collaboration amonginvestors.“For metals such as copper and tin, withdemand already outstripping supply, a freshsource of demand from investors could sendprices soaring from current record levels”—Jack Farchy, Financial Times, 29 November 2010
176INVESTMENTSIN REAL ASSETS6.1 The issues at stakeProductive assets such as farmland and mines have emerged as an increasinglyattractive means for institutional investors to gain exposure to commodities.Real assets provide stable income streams and a certain hedge against inflation.Long-term investors also find real assets attractive as the illiquidity ofmulti-year investment periods reduces competition for properties.Real asset investments require a high degree of management capability.Only investors with sufficient in-house expertise can make these investmentsdirectly. Other investors access real assets indirectly via specialist fundmanagers.Whether investing directly or indirectly, as ultimate owners, financialinvestors in real assets are responsible for the full range of ESG issues relatedto the commodity production process, including issues around environmentalmanagement and the respect of human rights. These issues will vary based onthe type of commodity produced and the geographical location 10 .Direct or indirect ownership, however, will determine how investorsinfluence ESG outcomes. A direct investor will have control over the transactionand operation of an asset, while an indirect investor will only interfacewith their asset manager. An indirect investor can exert their influence in anumber of ways, from formalizing best practice requirements in contractualagreements to offering informal suggestions. In general, we would recommendthat investors formalize their ESG performance expectations to thegreatest extent possible, to command maximum attention and avoid misunderstanding.6.2 Recommendations for institutional investorsIn our discussions with investors we have identified the following recommendedactions for institutional investors:■■Prior to a transaction, require investment managers and operators toconduct an environmental impact assessment identifying the relevantenvironmental impacts and risks of a planned investment. Develop andimplement a best practice environmental management plan for everyasset purchased.■■Prior to a transaction, require investment managers and operatorsto identify relevant labour and human rights risks and impacts of aplanned investment. Develop and implement best practice mitigationand management measures to address social risks appropriately.■■Prior to a transaction, consult with the local community to identifyrisks and problem areas. Continue communications with communitiesthroughout the life of the investment and formalize processes to takeaccount of their feedback.■■Require that operators and managers comply with local and internationallaws, even where they are poorly-enforced, and require them toimplement policies avoiding corruption in all forms, including extortionand bribery.■■Where existing best practice standards are inadequate, stimulate thedevelopment of improved standards for various asset types■■Regularly monitor and report on the ESG performance of real assetinvestments.10. Appendix 1 illustrates the full range of ESG issues by commodity type
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Page 3 and 4: ForewordGlobal competition over sca
Page 5 and 6: 5Appendix 1. Overview of key enviro
Page 7 and 8: 7HEADLINES OF MAIN RECOMMENDED BEST
Page 9 and 10: 9FINANCIAL INVESTMENTS IN COMMODITI
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Page 13 and 14: 13Based on our discussions and inte
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Page 19 and 20: 197DEBTOR EQUITYINVESTMENTSIN COMPA
Page 21 and 22: 218SPECIAL FOCUS:INVESTMENTSIN AGRI
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Page 25 and 26: 25“There is no inherent ethical d
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Page 31 and 32: 31GOALS OF THE CONFERENCE:• To hi
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Page 35 and 36: 35• The opening plenary previewed
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Page 39 and 40: 39PRICE IMPACT: DEFINITION OF RESPO
Page 41 and 42: 41“You really do have to wonder w
Page 43 and 44: 43PARTICIPANT LISTParticipant Name
Page 45 and 46: 45APPENDIX 4.THE PRINCIPLES FOR RES
Page 47 and 48: 47Annexes to the Principles for Res
Page 49 and 50: 49APPENDIX 5.PROJECT TIMELINE2010Ba
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