Report offers investors engagement model on sustainable fishing

Changes in practices could reverse decline in Japanese fishing industry, which threaten long-term returns

Investors and lenders to the Japanese seafood industry face significant long-term financial risks from dwindling seafood stocks and should step up engagement on the issue, according to a new report.
Fish Tracker, part of Planet Tracker, an initiative launched by the people behind influential think-tank the Carbon Tracker Initiative has today published analysis of 41 listed Japanese seafood producers with a combined market capitalisation of $134bn.
Overfishing saw Japan’s share of the global seafood supply plummet by 85% to 2.2% in 2017, and the problem is set to be further exacerbated by the effects of climate change.
However, the risks are currently difficult for investors and banks to price due to a lack of transparency, and full traceability of catches and company supply chains is needed to allow investors to assess the level of company revenues that depend on fisheries at risk of over exploitation, the report concludes.
In 2016, 33% of the world’s fisheries were overexploited, compared to only about 10% in 1975.
In response, Japan revamped its 1949 Fisheries Act in 2018 by introducing an individual quota system within the total allowable catch (TAC) allocated to individual fishing vessels. Yet, currently quotas are in place for only eight species although they are anticipated to cover most commercial species in the future.Additionally, many Japanese seafood companies have a complex network of cross-holdings or investments in other competitors, buyers and suppliers which could see investors’ risk exposure multiplied if the cross-holdings are significant. Out of the 41 companies examined, approximately 2,900 subsidiaries were found.
Finally, wild-catch seafood producers do not have clear financial accounting rules and are not required to report on stock levels in their fisheries or exposure for their upstream activities. This prevents investors from assessing long-term company value.
In comparison, aquaculture producers have clear prescriptive financial accounting rules.
If fisheries are managed sustainably, it is projected that global seafood production could result in a 63% growth in annual revenue to $83bn.
The report provides a model for investor engagement based on two templates currently in use by Aviva Investors and Norges Bank Investment Management (NBIM). Both focus on ensuring that sustainability risks and opportunities are “effectively guided, monitored, and reviewed” by executive and board management. This can be done by securing certification by an internationally-recognised standard such as the publicly accessible Marine Stewardship Council (MSC) Fisheries Standard, employing independent observers or vessel monitoring systems and adopting credible sustainability policies.