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18 The Responsible Investor’s Guide to Commodities6.3 Areas for further research andcollaborationThere are already efforts to research anddefine best practices across the spectrum ofcommodity producing real assets. Examplessuch as the Extractive Industries TransparencyInitiative, the Roundtable on SustainablePalm Oil or the Principles for Responsible Investmentin Farmland 11 demonstrate that theprivate sector is committed to developing andimplementing voluntary ESG standards forvarious types of assets. These efforts shouldbe continued for all permutations of geographyand commodity type.Efforts to involve a full range of stakeholdersare critical. The perspectives and roles ofinvestors, managers, operators, governmentsand civil society clearly differ. Collaborationbetween these actors and also a clear delineationof responsibilities will enable futureguidelines to be more effective and actionablein addressing ESG issues.11. See Appendix 4. The Principles for Responsible Investment inFarmland were developed within the remit of this project.
197DEBTOR EQUITYINVESTMENTSIN COMPANIESOR PROJECTSPROVIDINGCOMMODITIESEXPOSURE7.1 The issues at stakeDebt or equity investments in companies active in the commodities space 12represent another way for investors to gain exposure to the underlying commodities.This includes investments in sectors such as oil and gas, mining,metals, paper and pulp, etc. that represent almost a fifth of global equitymarkets. The risk-return profile of these investments, though, is mainlydetermined by their debt or equity character and is therefore not consideredan optimal way to gain exposure to commodities for portfolio diversificationreasons.The environmental, social and governance issues involved in such investmentshave been described in a previous report 13 and are summarized in Appendix1. Asset owners and managers have a range of established techniquesat their disposal for considering material ESG issues in the management ofthese investments and in their ownership policies and practices.Many independent and sell-side research organisations provide regularanalysis of ESG issues which can be used for investment and risk managementpurposes. The impression is that investors’ awareness of environmental risksin highly exposed sectors such as oil and gas or mining is relatively advanced.The understanding of how poor performance in areas such as labour practices,workplace conditions and human rights can affect investment and reputationrisks, on the other hand, is underdeveloped.Institutional investors also increasingly include ESG considerations in theiractive ownership policies and programs. A growing number of institutionalinvestors, many of which are signatories to the UN-backed Principles for ResponsibleInvestment, focus on “commodity-intensive” sectors and companiesin their collaborative engagement programs.7.2 Recommendations for institutional investorsIt’s important that investors realise that ESG issues in these sectors canhave significant financial impacts on their investments: poor managementcan lead to loss of business, fines, delay in regulatory approval processes,conflicts with local regulators and communities, severe damage to brands,etc. It is therefore important that investors improve their understandingof how ESG issues lead to financial and reputational risks, and how theserisks can be managed.In our discussions with investors we have identified the following recommendedactions for institutional investors:■■Articulate the case for considering ESG factors as it relates to key businessvalue drivers such as sourcing, brands and talent attraction■■Ask independent and sell-side research analysts to provide relevantresearch on ESG issues■■Integrate ESG research in portfolio management, investment valuations/decisions, and risk management processes■■Select (and review) external investment managers based on their capabilityto incorporate ESG issues in investment management■■Participate (either directly or through your investment managers) insupply chain initiatives aimed at developing voluntary ESG standardsfor different commodities■■Exercise voting rights and engage with companies on ESG issues (eitherdirectly, through investment managers or outsourcing to specialistengagement service providers). Ask investment managers to undertakeand report on ESG-related engagement.12. Including investments in special purpose vehicles used for large projects13. See the 13 January 2011 report by onValues: “Responsible investment in commodities”
Page 1 and 2: THE RESPONSIBLEINVESTOR’SGUIDE TO
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
Page 11 and 12: 11Possibility tomitigate ESGrisks b
Page 13 and 14: 13Based on our discussions and inte
Page 15 and 16: 155INVESTMENTSIN PHYSICALCOMMODITIE
Page 17: 176INVESTMENTSIN REAL ASSETS6.1 The
Page 21 and 22: 218SPECIAL FOCUS:INVESTMENTSIN AGRI
Page 23 and 24: 23“One of the main things in food
Page 25 and 26: 25“There is no inherent ethical d
Page 27 and 28: 27APPENDIX 1.OVERVIEW OF KEY ENVIRO
Page 29 and 30: 29appears to have been to throw the
Page 31 and 32: 31GOALS OF THE CONFERENCE:• To hi
Page 33 and 34: 33SET THE DIRECTION• Establish an
Page 35 and 36: 35• The opening plenary previewed
Page 37 and 38: 37encing prices levels and volatili
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
Page 52: Published by the UN Global Compact

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