investor's guide to commodities - PRI Signatory Extranet - Principles ...

38 The Responsible Investor’s Guide to CommoditiesPERCENTAGE OF TOTAL OPEN INTEREST HELD BY LONG COMMODITYINDEX TRADERS■ Index Traders ■ Non-Commercial ■ Commercial ■ NonreportableWheat (CBOT)Lean HogsLive CattleCoffeeSoybean OilCornSugarSoybeansFeeder CattleCottonCocoaWheat (KCBT)Crude Oil (NYMEX)0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Source: CFTC. Data as of 30 November 2010THE ROLE OF OTHER STAKEHOLDERS:• Commonly, participants felt thatmarket regulators should publishdata similar to the CFTC in theU.S. also for other markets andotherwise increase transparencyrequirements• In general, commodities marketsare not well understood. Allstakeholders, including investors,should educate themselves betterto improve the sophistication ofmarket interactions. Participantsespecially would like pensionfund trustees to become morefamiliar with commodities investments.• Regulators could consider increasingthe margin requirement fornon-commercial investors to takesome “hot money” out of thesystem. However, certain participantsobserved that too muchregulation could drive marketsoffshore rather than reformingthem.• Participants called on indexproviders to take ESG and marketstability considerations into accountin defining and weightingthe composition of their commodityindexes.INNOVATIVE APPROACHES• Several participants identifiedthe opportunity for stakeholdersto collaborate in engaging withexchanges in creating a range ofESG-certified contracts for differentcommodities.• While investors still do not havean adequate choice of managerswho are concerned with systemicimpacts on commodities markets,meeting participants heard fromone manager that has developedits own process for limiting exposureto commodities with problematicprice dynamics or levels.The graphic below describes someof those considerations.f ) Breakout 2– Listed equityinvestmentsMany investors use listed equities asa convenient way to gain exposureto agricultural commodities. Mostcommonly, investors hold shares ofagri-chemical and seed producers,agricultural technology companies,farm equipment manufacturers,agricultural producers, andfood companies. Both individualcompany characteristics and the dynamicsof the related commoditiesmarkets will drive the performanceof these holdings. On both fronts,understanding ESG issues will beimportant in making informedinvestments and contributing to an