UN backs core values on commodity markets

UN-backed principles for commodities-related investments have been established to help institutional investors navigate the sector’s CSR implications.

Responsible Investment in Commodities has been produced by the UN Principles for Responsible Investment (PRI), the UN Global Compact and the Swiss Federal Department of Foreign Affairs.

The principles outline core values and recommendations in areas such as the issues in commodity derivatives, the environmental risks for investments seeking exposure to commodities, and special considerations for agricultural investment.

It makes recommendations for every commodity-exposed asset class. On physical commodities, for example, the principles advise limited investment in commodities for which competition with industry is negligible – such as in gold, for example.

The principles also advise supporting supply-chain programmes for developing global ESG standards for these commodities, as well as fund managers aiming to source ‘traceable’ commodities from producers and suppliers certified according to environmental and social standards.

The principles, resulting from a two-year engagement process with investors and stakeholders, end with a comprehensive matrix of ‘issues’ affecting every commodity – for example, greenhouse gas emissions and acid gases for energy investments, and human rights and corruption for precious metals.

The report also moots the possibility of fairtrade commodity investment.

One route investors in sustainable futures could pursue, according to the principles, are ‘ESG-friendly’ commodities as specified by an underlying standard – though ‘the demand for such commodities would have to be big enough to allow for an efficient and liquid market’.

Institutional and retail investors now have $400bn (£250bn, €288bn) involved in commodities, compared with only $6bn a decade ago, causing growing concerns about price volatility and global stability.

Gavin Power, deputy director of the UN Global Compact, said: “Given rising concerns about volatility in commodities markets, and how this may be negatively impacting economies and communities, we believe this report is extremely timely and important.

“As we attempt to embed markets with longer-range considerations and time horizons, it is critical that all asset classes be included – and this means commodities.”

Donald MacDonald, the PRI founding chairman, said: “Global competition over scarce natural resources will be one of the defining aspects of the 21st century.

“Policymakers will accept much needed private sector investment in this area as long as it is seen as positively contributing to the development and stability of our economies and societies.”

And he added: “Investors must recognise social sensitivities and concerns, even if they are sometimes perceived as being unfair and not based on absolute certainty.”