Weekly round up week 1
Or things you need to be reading and know from the world of Sustainable Investing
Welcome to the first of our weekly round up blogs, covering things we think you need to be reading around Sustainable Investing. This merges our What Caught our Eye and Bridging the Gap blogs, plus our regular Sunday Brunch. You can read all of these for free on our blog website www.thesustainableinvestor.org.uk.
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Sunday Brunch
In yesterday’s Sunday Brunch we explored the question …
Can a premium coffee brand help the farmers ?
People who know me know that I love coffee. But, we have to accept that as an industry, it has some sustainability issues. One is climate change, which could impact where good coffee can be grown. The other is poverty among the coffee growers. Don't think that the price of your cup of coffee in New York or London reflects what the farmers get paid. For this second aspect to change, we need to rebuild how industry profits are split. or in finance speak - we need to change the value chain.
One question I have been pondering is - could creating local/regional premium coffee brands help the industry with it's sustainability issues? And could this act as a template for other agricultural/natural capital challenges?
We are suggesting that one part of the answer might be to use what we can learn from premium branding in the food & beverages industry, plus co-operatives, appellations & protected region of origins. And what went wrong with the manuka honey industry - a premium product if there ever was one. Click on the image below to read the full long blog.
What Caught our Eye last week.
Here are three stories that we found particularly interesting this week and why:
Natural farming for yields, livelihoods and health.
Where are the shortfalls in raw materials for the energy transition?
Sustainability engagement by companies needs to be proactive rather than reactive.
Natural farming for yields, livelihoods and health.
'Natural farming' - the phrase seems to provoke strong reactions. On one side it leads to lower yields, and from there to an inability to feed the world, with rising agricultural prices and increasing levels of starvation. On the other side, it’s seen as the solution to the damage that industrial scale farming, with its over reliance on fertilisers and pesticides, and the damage its monocultures can do to biodiversity.
As regular readers will know, the answer is always 'it depends'. We have highlighted before the importance of soil and biodiversity. We have also touched on studies that show that in certain environments, natural farming can improve the productivity and profitability of farms.
Link to blog 👇🏾
A recent study from GIST Impact, undertaken in India, explored the benefits of what is known as Community Managed Natural Farming or CNF. This is a farming practice that depends on the natural growth of crops without the use of any synthetic fertilisers and pesticides and with less consumption of ground water. It has dramatically reduced the net cost of production, as there are additional gains to farmers by growing inter crops, border crops, multicrops, etc.
The few significant inputs that are used for seed treatments and soil inoculations are all locally available. They include cow dung, cow urine, handfuls of soil, jaggery, pulses flour, and botanicals for bio pesticides.
The study found that on average the farms saw an 11% increase in yields, while still maintaining crop diversity. There were additional social benefits. It’s not a silver bullet, but it should be part of the solution. It needs help to take root. Farmers need to be trained, and new ecosystems need to be set up.
Where are the shortfalls in raw materials for the energy transition?
Mining is considered by some to be a dirty industry. The reality is that we are going to need a lot of mining, of some specific materials, if the energy sustainability transition is going to happen. We largely know what we need to do to make mining more sustainable. Although to be fair, there is not a clear consensus on which path is the best one to follow.
Surprisingly, there doesn't seem to be a clear view on where the raw material shortfalls are. This makes deciding where to invest challenging. A recent study from the Energy Transitions Commission is bringing some clarity to this.
It kicks into the long grass some popular fallacies, including those about land use and water requirements. It scopes out where the big gaps are in reserves and those gaps are maybe not where you expected.
We are pretty well set up for steel, aluminium, graphite and polysilicon. We are going to need more, but not beyond the possible level of resources. However, there are a number of materials where the reserves we know about are insufficient. A couple of these get a lot of attention - specifically lithium and cobalt. But others, such as copper (which goes into a lot of technologies), nickel and silver, could become problematic.
We need to bear two points in mind when we look at this analysis. First - changing the design of the product can make this analysis dated. The best example is cobalt, where new (ish) battery technologies such as LFP and low-cobalt NMC could be a game changer.
The second is that just because something is in short supply now does mean it will be so in the future. Supply has a habit of filling the gap, especially if there is money to be made.
We discussed these points in a recent Quick Insight
Link to blog 👇🏾
Sustainability engagement by companies needs to be proactive rather than reactive.
Much of what we read about sustainability engagement looks at what investors need to do. And by investors, they generally mean asset managers, rather than the asset owners (the underlying providers of the capital, who employ asset managers).
Outside of specialist publications, we see little on what companies should do. Yes, there is a lot on ESG data and reporting, but much less on engagement with a company's investors and potential investors. For this reason, a recent article in IR magazine by the financial team at the World Benchmarking Alliance, is welcomed.
Their message is simple. Engagement by companies needs to be proactive rather than reactive. Investors who you are actively engaged with are more likely to become long-term supportive partners rather than short-term profiteers. It needs to be followed up by action. Reporting is a good start but getting both senior management and the board skilled up and involved is better.
For many IR professionals this will be what they do day to day. For many others, sustainability is still seen as a bit of a tick box process rather than a fundamental contributor to strategic value creation. It raises the parallel issue of upskilling. As someone recently said to me “a good sustainability professional not only knows about sustainability, they understand the numbers as well as the finance department, and the social issues as well as HR.
We discussed some these points in a recent Sunday Brunch
Link to blog 👇🏾
Bridging the Gap
Here is a selection of recently published Quick Insights, Deep Dives or Perspectives that our subscribers get to read in full.
Can the big miners fix artisanal mining? (Greener Energy Applications, Transitions / Human Rights)
Only as strong as the weakest link in the supply chain (Transitions / Human Rights)
Can the big miners fix artisanal mining?
Mining is a massive sustainability issue. We know we need more mining of certain minerals to allow the sustainability transitions to happen. We know we need mining to become more sustainable. How? Who takes the lead? We argue there is a really important role in this for all investors, both asset owners and asset managers.
Over the last few months, Rob Karpati, from The Blended Capital Group, has been guest writing blogs on artisanal mining - one of the tougher challenges in sustainability. One piece of feedback we frequently get from people who have read his writing is 'thanks, we now get the problem, so what can we do?'. This blog is about providing part of the answer. Formalisation is the preferred pathway, but how to best deliver it?
As with most sustainability topics, the real world answer is complicated. Governments have a clear role, as do NGOs and multilateral agencies, including providers of aid. They cannot do it on their own. In some cases government-led action has been patchy, and building consensus through multilateral agencies can be slow.
Another potentially big part of the solution is the involvement of the large scale miners. They obviously have the resources, and arguably they have the motivation. Yes, they cannot do it on their own but we argue they must be part of the solution. To make this happen we need to understand how the two groups interact, and how they can change this to their mutual benefit.
Link to blog 👇🏾
Only as strong as the weakest link in the supply chain
(Transitions / Human Rights, Professional)
Extensive and often complex supply chains lie at the heart of our current economic system. Stakeholders are increasingly considering the business as part of the broader ecosystem and are less inclined to absolve a business for 'sins of the connected.'
However many companies have limited knowledge of what happens upstream of their direct operations. The further one gets outside of an organisation into the value chain both upstream and downstream, the less control and assurance a business naturally has over activities, intermediary products, raw materials and unexpected events.
This is why governance is so important. Having strong policies, procedures and technology in place can help to provide a strong governance environment around a business's supply chain. Policies and procedures have been, and will continue to be important, but there are also technological innovations that could help. Traceability is a crucial component in guaranteeing provenance and sustainability through a supply chain. We discuss some examples of innovations there.
As important as having a strong governance environment around one's supply chain is how a business responds when supply chain disruption and issues happen, both operationally and from a communications perspective. The impact on value can be material, sometimes terminal.
Between 2008 and 2015, whilst working at Morgan Stanley, I was focused on the Asia markets, from India in the West to Australia and New Zealand in the East; from the ASEAN countries in the South to Mongolia and Japan in the North.
At the time, outsourcing was accelerating and the commodities supercycle was in full swing with rising demand from emerging markets and the BRIC countries (Brazil, Russia, India and China). This meant that supply chains grew rapidly and in many cases opaquely giving rise to a number of 'scandals' across different industries. From milk to shampoo to suitcases.
We'll start with a more recent example from late last year when simple cough medicine may have contributed to childhood deaths in Indonesia with the issues potentially arising from the pharmaceutical supply chain.
Link to blog 👇🏾
Plus a few from the archives:
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