When companies involved in environmentally intensive commodities like palm oil enter and retain a position on the stock market, they provide information about their holdings, governance and – at least ostensibly – their risks.
But, too often, the financial analysts and potential investors looking at these companies are not covering the whole story. Often, the story about where and how these commodities are being sourced is missing key elements, such as:
- Whether developing the land bank listed by the company as an asset would mean violating the law or industry standards;
- Whether it would significantly contribute to global climate change, or destroy land of high conservation value; and
- Whether governance and community engagement standards violate the human rights of indigenous peoples.
Taken together, it means that a company may have far more risk in its sourcing or its supply chain than is reported in its publicly available materials. That’s something financial analysts need to know.
Banks and investors across all asset classes, including passive asset managers that track major indices, need the best possible information about the risk in companies that deal with environmentally intensive commodities.
Investors need to determine to what extent palm oil risks are embedded in their current and future investments, and the potential impact of such risk. That will help them determine whether to diversify into opportunities positioned to benefit from sustainable practices, or to divest from those that embed major risks.
To make these critical decisions, investors need unbiased and objective information about the facts on the ground – and about where and how these companies have made choices that impact financial return. And they need it from an institution dedicated to dispassionate, credible analysis supported by thorough technical and fundamental analysis of commodity supply chains.
Chain Reaction Research has received support, in part, from the David and Lucille Packard Foundation, and from the International Climate and Forest Initiative (NICFI) scheme managed by the Norwegian Agency for Development Cooperation (Norad). Chain Reaction Research statements and materials do not necessarily reflect the standpoints of the Packard Foundation or Norad.