ESG roundup: Impax on agri-equities, MSCI on weather events
GLOBAL – Food and agriculture equities offer better risk-adjusted returns than soft commodities, which, due to their volatility, tend to come with an unrewarded risk, according to Impax Asset Management.
Speaking at a seminar in London yesterday, Michael Landymore, investment manager of the recently launched Impax Food & Agriculture fund, said: "After a prolonged period of under-investment, this industry is now attracting significant new capital globally to meet the complex challenges presented by rapid population growth, increasing urbanisation and the shift towards an ever greater consumption of water and grain intensive foods."
He said investors should look to invest across both the food and agriculture chains for the best risk-adjusted returns.
Impax's research shows that a dynamic allocation between consumer-led food stocks and commodity-led agriculture stocks should improve longer-term risk-adjusted returns.
Food companies are characterised by sustainable growth and are cash generative and underpinned by secular change, whereas agriculture companies are generally higher beta, with some positive correlation to soft commodities but without the random walk volatility of the underlying commodities.
According to Landymore, food companies were out of favour with investors pre-2008 but have since taken off, and higher grain prices have been beneficial to everyone in the investment value chain, as they encourage more growth in the sector.
According to the UN, per capita food consumption is projected to increase by 13%, which will require a 70% increase in production by 2050.
In other news, MSCI ESG Research has made climate change and weather events the number one ESG trend to watch for 2013.
The firm pointed out that a significant share of assets located in developed markets was at high risk for weather-related disasters.
With two-thirds of developed market countries and about half of emerging or frontier market countries deemed to be either highly or extremely vulnerable to damage by natural hazards, according to the Environmental Vulnerability index, MSCI ESG Research finds that 62% of the aggregate installed capacity of the 15 largest electrical utilities companies in the MSCI World index are located in areas vulnerable to floods and cyclones.
In addition, it finds that around 46% of the assets held by the 17 largest real estate investment trusts are located in areas prone to flooding and cyclones, as defined by the World Bank and the Center for Hazards and Risk Research at Columbia University.
It warns that, "as climate change exacerbates the intensity and frequency of extreme rainfall and raises sea levels, investors will need to brace for economic disruptions and the kind of large-scale damage to property and infrastructure that could significantly impact asset values in developed markets around the world".