The future of fish: investors get active on unsustainable fishing practices

Engagement could be a turning point for marine engagement.

When a group of PRI signatories launched a collaborative engagement on sustainable fisheries earlier this year, it marked a potential turning point for the issue of marine sustainability within the investment community. A group of 20 investors, led by Threadneedle Asset Management and Hermes Fund Managers, wrote to 40 large global companies across the seafood value chain to “investigate sustainable fishery sourcing practices in international retailers, distributors and producers”. Their motivation was described in a PRI Clearinghouse document as concern “about the possibility that unsustainable fishing practices could cause an irreversible decline in fish populations and eventually lead to disruptions in company supply chains”. According to a PRI spokesperson, the investor group will be reviewing the company feedback and considering next steps following the deadline for responses at the end of this month. If they do decide to take the engagement forward, they will be entering largely uncharted territory. While many investors have investment policies relating to environmental, social and governance issues, few have yet incorporated marine sustainability into their considerations. There are a number of stumbling blocks for investors. The first hurdle is the lack of clarity around the true extent of the marine value chain – few people would realize for example that shrimp shells are the base ingredient of chitosan, a key component of many hair gels and sprays.A second more pertinent problem is the question of where the issues are material to the business. As the chitosan example shows, marine byproducts can pop up in the most unlikely of products, and therefore marine sustainability is likely to be relevant in some way to many companies within a typical investment portfolio. However, outside of those companies with direct links to the fishing and seafood industry, it is often challenging to justify the time required to develop and implement specific marine resource responsible investment policies for all sectors. The retail sector is a case in point. A typical supermarket might derive only around 1 to 5 percent of its revenues from direct seafood-related sales. However, if that supermarket was to consider the complete role held by seafood in its supply chain, it would also need to factor in the fishmeal used as feed in its pork, poultry and farmed fish products; the fish in its pet food range; the fish oil in certain nutraceuticals and Omega-3 enhanced nutritional products; and potentially even the traces of fish in some household and personal care products. There are very few supermarkets willing to take such an in-depth look into their supply chains, and very few shareholders prepared to challenge them to do so. However, there are other spurs to action. In Europe and the US, rising public awareness of the threats to marine sustainability – over-fishing, environmentally damaging fishing, by-catch, rapidly dwindling stocks – has introduced another compelling reason for
investors and companies to engage on this issue: reputational risk. Direct attacks on specific brands within companies have been the tactic chosen by certain NGOs and campaigners to force change on this issue, with some success. One example is Greenpeace’s annual ranking of US supermarkets according to the perceived virtues of their seafood sourcing policies, ‘Carting Away the Oceans’, which is now in its fifth year. In the UK meanwhile, the second largest market for tinned tuna globally, a Greenpeace tuna campaign has been so successful that as of July 2011 all of the country’s leading tuna brands committed to stop sourcing fish caught using fish aggregating devices and shift purchasing away from purse seine fishing to the more sustainable pole and line capture. Another compelling motivation for some consumer-facing companies to consider issues of marine sustainability is food safety, which of course also ties into reputational risk. Potentially dangerous levels of mercury have been found in fish at the top of the food chain, such as swordfish, shark and king mackerel, as a result of biomagnification of toxins and pollutants. Both reputational risk and food safety were used as leverage by The Cooperative Asset Management (TCAM), one of the few asset managers to have engaged on marine sustainability, in its recent engagement with Metro, Europe’s largest retailer of fish. TCAM successfully persuaded Metro’s UK subsidiary, Makro Self Service Wholesalers – at the time the only multiple retailer in the UK selling shark meat – to drop this endangered species from its inventory. From an ecological standpoint, the pressing need for conservation action in our oceans is self-evident. According to statistics from the Food and Agriculture Organisation of the United Nations (FAO), total
annual seafood capture from marine waters peaked in 1986 at 85 million tonnes. As of 2008, some 85% of all marine stocks are classed by the FAO as “fully” or “over-exploited”. A chart first published in the journal ‘Science’ in 2006 based on FAO data, suggested that one possible scenario is the terminal decline of commercial fishing stocks altogether by the middle of this century. There are already cases where fishing stocks have been wiped out, perhaps the most famous being the Newfoundland cod fishery which was fished into inexistence in the 1990s. Should the worst-case scenario depicted by the graph above occur, the consequences for the entire ecosystem would be catastrophic and potentially irreversible. Socially, the impact would also be disastrous. According to the FAO, fish accounted for almost 16 percent of the global human consumption of animal protein in 2007. Currently marine stocks account for around half of this supply. A recent report from The WorldFish Center in Malaysia highlighted aquaculture as the most environmentally and ecologically efficient of all animal production methods. With the human population predicted by the UN to soar to 9.3 billion from its current 7 billion by 2050, aquaculture will have a crucial role to play in ensuring food security. However, much aquaculture currently still relies on wild marine stocks both as a source of captive stock and, most pertinently, as a feed input. At risk in economic terms is a multi-billion dollar global industry – the 90 million tonnes of fish and marine life caught from wild stocks in 2008 had an estimated “first-sale value” of USD93.9 billion. First-sale value is the first economic
value attached to seafood – i.e. the price paid to the harvester of the fish, before any ‘value-add’ processing is carried out. For developing countries as a whole, many of which are net exporters of seafood due to their seafood processing activities, fish is the highest contributing of all the agricultural commodities economically (FAO).
In Asia, the issue of marine sustainability is particularly relevant. Statistically, the region dominates the global fishing industry in capture quantities, number of people
employed, consumption and number of vessels in operation. In fact, over 85 percent of all fishers and fish farmers in 2008 were Asian, as were six of the top ten producer countries in capture fishing, according to the FAO. In aquaculture too, Asia was responsible for 89% of total annual global production. For this reason, Asia is the focus of the report ‘The Future of Fish in Asia’, released this month by Singapore-based independent research provider Responsible Research. The report set out to provide a toolkit for investors by analysing current disclosed policy on marine sustainability at 106 Asian listed companies. It considered both sectors directly dependent on marine resources for revenues (fishing, aquaculture and seafood wholesale and processing) and sectors further along the seafood value chain where marine resources play an important, albeit less material role (retail, airlines, hotels, restaurants, and pharmaceuticals). Company analysis showed that even at those businesses 100% reliant on marine resources for income, there is often little to no public disclosure of sustainability initiatives which would ultimately ensure the protection of revenues. In fact, of 16 companies analysed in the report with significant wild capture fishing operations, representing some of the largestcorporate fishing fleets in the world, only a quarter disclose related sustainability initiatives, revealing a staggering disregard for the conservation of the marine resources that enriched them in the first place. At the same time, 12 of these 16 companies include species of tuna included on the respected IUCN red list of threatened species among their target fishing stocks. Meanwhile, in sectors less directly dependent on marine resources, where marine sustainability must be incorporated into sourcing policies, there is also little consideration of this issue in Asian companies. Of 66 companies looked at across the retail, hotel, restaurant, airline and pharmaceutical industries, only three mentioned seafood in their supplier policies. Overall, the report revealed a pressing need for action at the company level, not only to ensure the sustainability of marine resources and seafood supply in Asia, but also to protect income and improve quality of earnings. However, given the lack of proactivity seen so far from companies in the seafood value chain, investor engagement may well prove decisive in moving the issue of marine sustainability forward.
Jenny Blinch is Senior Editor at Singapore-based Responsible Research
An investor lunch on this topic will take place in London on November 18th.
Interested investors are invited to contact Lucy Carmody for more information.
The report: The Future of Fish in Asia is available for free download from: Link to site