New PRI for farmland investments launched by $1.3 trillion investor group

A group of institutional investors managing US$ 1.3 trillion in assets have launched the Principles for Responsible Investment in Farmland (the Farmland Principles) with the aim of avoiding controversies including environmental degradation and the problem of rising food prices as investors shift significantly into the asset class. The principles have been developed and signed by pension funds and asset managers including AP2 in Sweden ABP, APG and PGGM in the Netherlands, ATP in Denmark, the UK’s BT Pension Scheme and Hermes EOS and TIAA–CREF in the US, all signatories to the UN-backed Principles for Responsible Investment (PRI). Investor interest in farmland has increased strongly in recent years due to its low correlation with other asset classes, relatively stable cash flows and inflation protection potential. However, the move has thrown up issues over water use, environmental impact, rising food price rises and fears over ‘land grabs’ by developed countries in the developing world. A report published in May this year by Christian Aid, accused pension fund investors of being partly responsible for driving up food prices globally. The report said: “Food has now become a financial commodity, to be traded and bet against just like any other, such as copper or oil.”
The institutional investors said the new principles – based on the PRI – aimed to improve the “sustainability, transparency and accountability” of investments in farmland. Each will adopt the principles in their investment policies and practices. Other institutional investors are also being invited to sign on.In May, Sweden’s SEK222.5bn (€158bn) Andra AP-fonden (AP2) and $453bn (€322bn) US retirement provider TIAA–CREF announced they were forming a joint venture to invest in agricultural real estate in the US, Australia and Brazil.
AP2 said it would invest about $250m in a newly formed company that will acquire and manage agricultural real estate for predominantly grain production, with TIAA–CREF as the majority shareholder and administrator. Referring to the new principles, Christina Olivecrona, Sustainability Analyst at AP2, said, “Environmental and ethical issues are an important part of our investment process. Having recently decided to invest in farmland, AP2 therefore actively supported the development of the Farmland Principles.”
Jose Minaya, Head of Natural Resources & Infrastructure Investments at TIAA–CREF, said: “As the world faces the challenge of feeding 9 billion people, it is critical that new investments into agriculture are made with sensitivity to their environmental and social impact. The Farmland Principles express a strong commitment by long-term oriented investors to practice responsible investment as we seek to create value for our clients.”

The 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.