Ag investors release responsible investment principles

A group of eight institutional investors has launched a guiding set of principles for responsible investment in farmland, which forms part of a UN-backed Principles for Responsible Investment (PRI) push to provide practical guidelines for specific asset classes.

The principles come out of work undertaken looking at practices relating to investment in commodities, and PRI has similar working groups developing practical asset-specific principles for property and private equity.

The European and US investors for this latest farmland initiative represent $1.3 trillion in assets and are signatories to the UN-backed Principles for Responsible Investment (PRI). They will form a PRI working group to develop implementation of the Farmland Principles.

The principles were designed and endorsed by Swedish buffer fund AP2, Dutch investors PGGM, ABP and APG, Danish fund ATP, UK investors BT Pension Scheme and Hermes EOS, and US insurer and asset owner TIAA-CREF.

There has recently been strong interest in farmland as funds seek further diversification and returns uncorrelated to equity markets.

Xander den Uyl (pictured), the vice chairman of the board of trustees of ABP says investors in farmland would enjoy more successful investments if they integrated ESG best practices.

“Farmland operations that respect the environment, adhere to responsible labour practices and maintain positive stakeholder relations are better long-term investments – for the local communities, for host countries and for the pensioners we serve,” den Uyl says.

“We hope these principles will provide a reference point also for other investors’ farmland investments.”

The five principles cover the following areas:

• Promoting environmental sustainability
• Respecting labour and human rights
• Respecting existing land and resource rights
• Upholding high business and ethical standards
• Reporting on activities and progress towards implementing and promoting the principles

Two of the investors that helped draw up the principles, AP2 and TIAA-CREF, earlier this year launched a combined investment to purchase $500 million of agricultural land in the US, Australia and Brazil.

The investors involved in the design of the principles say they will review them based on their experiences in practical implementation, and in light of feedback from other stakeholders in farming investments.

The investors committed to five Farmland Principles:

Principle one: Promoting environmental sustainability  

• We will promote measures aimed at protecting the environment and contributing to the sustainability of specific crops and locations, for example by reducing soil erosion, protecting biodiversity, reducing chemical emissions, effectively managing water, and mitigating climate impacts.
• We will require investment managers and operators acting on our behalf to conduct an environmental assessment identifying the relevant environmental impacts and risks of a planned investment.
• Based on this environmental assessment, investment managers and operators will be expected to implement mitigation and management measures relevant and appropriate to the nature and scale of the proposed investment.

Principle two: Respecting labour and human rights 

• We will respect labour and human rights in our farmland investments. We will require investment managers and operators acting on our behalf to do the same and to avoid complicity in human rights abuses.
• We will require investment managers and operators to identify relevant labour and human rights risks and impacts of a planned investment, and to implement mitigation and management measures to address them appropriately.
• Depending on the location and the nature of the investment, we expect investment managers and operators to explicitly implement policies to respect rights such as those relating to indigenous peoples, vulnerable groups, unique cultural systems and values, local food security, labour and any other relevant rights in the scope of their risk assessment and mitigation measures.

Principle three: Respecting existing land and resource rights 

• We will respect the existing use of and ownership rights to land and other resources and we will require investment managers and operators acting on our behalf to do the same.
• Investment managers and operators acting on our behalf will be required to implement processes for land acquisitions and related investments that are culturally appropriate and transparent, are monitored, ensure accountability and the engagement with relevant stakeholders.
• For investments with potential significant adverse impacts on affected communities, the investment managers are expected to implement processes to ensure their free, prior and informed consultation and facilitate their informed participation as a means to establish whether a project has adequately incorporated affected communities’ concerns.

Principle four: Upholding high business and ethical standards  

• We will promote high business and ethical standards in our farmland investments.
• We will require that investment managers and operators acting on our behalf respect the rule of law even where it is poorly enforced. We will also require them to implement processes aimed at avoiding corruption in all its forms, including extortion and bribery, and to reflect an informed view of industry best-practice in their operations.

Principle five: Reporting on activities and progress towards implementing the Principles and promoting the Principles 

• We will report publicly on our activities and progress towards implementing the Farmland Principles, taking into account appropriate confidentiality considerations.
• We will encourage other institutional investors to endorse and implement the Farmland Principles.