ClientEarth: Responsibility should be a priority for seafood investors

Responsible investment is a key driver of a sustainable seafood industry, and financiers are coming under increasing pressure to invest their money responsibly. In the case of fossil fuels and deforestation, investors have been called out for supporting damaging practices. It is inevitable that seafood will receive the same attention.

In the case of palm oil, Greenpeace identified a direct link between the largest palm oil companies and HSBC. Through their investments, HSBC were contributing to the huge rate of deforestation in Indonesia. As a response, some banks have committed to implement zero deforestation policies and HSBC has recently stepped up its efforts to significantly tighten its lending standards to the palm oil industry.

Finance should be part of the equation
Businesses require financial resources to start or expand their activities. Without money, they struggle to function.
Responsible investment stems from the idea that investments should have a positive financial return, but also other beneficial impacts, such as on society and/or the environment.
Business leaders need to ensure a business prospers. And as a society, we have a duty to protect our environment – including our oceans. When both environmental responsibility and business soundness are considered, the conditions of a good investment opportunity are more likely to be met.

Seafood is often forgotten in the responsible investment momentum
Overfishing is a global problem, and stocks are nearing collapse levels in many regions. At the same time, illegal fish is still entering the EU market.
There is evidence that major seafood companies’ supply chains have been directly linked to human rights violations and IUU fishing.
A recent study has shown that 13 of the largest seafood companies in the world are responsible for 11-16% of the global catch. If these companies work together to source responsibly, taking environmental and social impacts into account, this could have a great positive impact. Additional pressure to source responsibly should also be applied by financiers on businesses operating in the seafood supply chain, from fishing fleet proprietors to processors and retailers sourcing fish from around the world. They have a major role to play in promoting responsible supply chains.
As an essential player in a business’s existing or future operational capability, investors have a responsibility to diligently check that the business they are putting money in is not jeopardising the resource it relies upon. Getting a clearer idea of the nature of the relationships between financial institutions and supply chains, and minimising the exposure of investors to risks, is one of the aims of Fish Tracker responsible investment team are calling for more responsible practices from investors in the seafood sector.

I recently blogged about how seafood businesses can be more responsible. The Sustainable Seafood Coalition is a good example of a risk assessment approach in its environmentally responsible Sourcing Code.

What can financiers do?
In order to avoid reputational and credit risks, financiers should move away from companies that are operating irresponsibly.
Banks and investors are indirectly linked to the same risks, in terms of supply and reputation, as the businesses they finance. Financing seafood companies whose activities are dependent on a resource that is not properly managed and/or protected represents a risk. It is a risk because the fish might run out, and the business can collapse – with obvious repercussions for investors and lenders.
Equally importantly, if a business is linked to illegal or irresponsible practices, the financier can also face a significant reputational risk. In a recent attempt to raise USD 100 million on the Hong Kong Stock Exchange, China Tuna Industry Holdings (a subsidiary of Mitsubishi Corp.) was called off because it misled investors. The investor prospectus ignored the most recent scientific advice on the state of the Pacific Bigeye tuna stock as being overfished. The reputation of the company and its financial backers (including Deutsche Bank) has been impacted. In a case like this, the company is publicly listed, investors should encourage full transparency.
In the case of loans being made to seafood companies, banks should be more rigorous in their due diligence requirements. This can include being particularly aware of the diverse risks associated with such an investment and making sure that the seafood business operates in compliance with the law.
Financiers investing in seafood must carefully vet the companies they invest in and implement internal policies that enable them to do so. A recent report by Aviva Investors and Sustainable Fisheries Partnership presents some guidelines on how investors can check a company’s sourcing policies and the questions they should ask to find out more.
The level of risk associated with irresponsible practices is increasing. Thanks to public campaigns, consumers are becoming more aware of the role businesses and their financiers should play. This is a great opportunity for seafood investors to raise the standards for everyone and drive change towards healthier oceans.

Quentin Marchais is sustainable seafood researcher at ClientEarth.