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8 The Responsible Investor’s Guide to Commodities2INTRODUCTION“The Responsible Investor’s Guide to Commodities” summarises the resultsof a project by onValues in collaboration with the UN-backed Principles forResponsible Investment (PRI) Secretariat, the UN Global Compact Secretariatand the Swiss Federal Department of Foreign Affairs focusing on environmental,social and governance (ESG) issues related to investments in commodities.The project took place in the period between January 2010 and August 2011and explored the issues at stake, possible actions for institutional investors andareas for further research and collaboration.Responsible investment is a term that has evolved rapidly over the lastdecade and describes the process whereby an investor incorporates ESG considerationsinto investment decisions and ownership practices. The processstands in addition to, or is incorporated into, traditional investment analysisprocesses. The aim of responsible investment is to enable investors to makemore informed investment decisions, thereby protecting shareholder valueand enhancing long-term returns. It is based on the view that ESG trends arebecoming increasingly relevant and material, and can affect investment returns,particularly in the medium and long term. Therefore, like any relevantfinancial metric, these issues should be understood and analysed within aninvestment context. Furthermore, most institutional investors have a fiduciaryduty: a professional duty of care and legal obligation to their clients to take allmaterial issues into account in their investment decisions.The findings in this report are based on a range of interviews 3 and discussionswith leading institutional investors and other stakeholders active in thespace, and on the review of the available investment research and academicliterature 4 . In addition, two investor roundtables were organised at which assetowners, researchers, investment managers and other stakeholders providedinputs and challenged the findings from the project. 5We identified different motives for investors to consider ESG issues whenmanaging their commodities investments:• Long-term environmental and social trends such as the scarcity of finiteresources, climate change, and changes in demographics and lifestyles willinfluence future price levels and investment returns and create new investmentopportunities and risks• A wide range of ESG issues involved in the production and trade of commodities,e.g. local pollution and human rights issues, can translate intoinvestment and reputational risks for investors• At a more “systemic” level, concerns about the role played by investors incommodity markets could lead to new regulations impacting available investmentopportunities and returns, ultimately affecting investors’ “licenseto invest”.Because of their positive contribution to risk-adjusted returns and portfoliodiversification, commodities investments have grown considerably in the pastyears and are expected to continue their growth path in the coming years. Accordingto Barclays Capital, over $400 billion of institutional and retail moneyis currently invested in commodities, compared to only $6 billion a decade ago(see graph below).3. Interviews were conducted with finance professionals active in commodities, including commodity traders, asset owners,asset managers, investment consultants, and company, intergovernmental organisation and NGO representatives.4. See the 13 January 2011 report by onValues: “Responsible investment in commodities”5. onValues organized and moderated a commodities panel at the 2010 “PRI in Person” conference in San Franciscoand also held an all day concluding conference on “Agri-investing for the long term” on 17 June 2011 in Geneva, Switzerland.onValues also moderated a session on commodities investments at the 15-16 September 2011 “PRI in Person”annual event and at the 19 September 2011 International Sustainability Leadership Symposium