The public sin

Last spring, Christian Aid argued that the entry of pension funds into the soft-commodities derivatives market had contributed to recent hikes in food prices.

Now, just over a year later, Union Investment has announced that it recently suspended all investments in the asset class due to a drop in demand caused by negative public opinion. In particular, it cites the impact of various NGOs alleging that investments in the sector are tantamount to food speculation.

Earlier this year, BNP Paribas Investment Partners made a similar announcement, confirming it had suspended its Parvest World Agriculture fund after “taking heed” of arguments put forward by Oxfam.

These and other fund managers could be forgiven for their retreat. After all, it is their clients, the pension funds, that call the shots. Last year, Philippe Aurain, CIO at French reserve fund FRR, told IPE his fund would remain “largely passive” in soft commodities because it wanted to avoid the debate over speculation and prices. Germany’s €3bn MetallRente scheme similarly abandoned investments in the “problematic” sector.

Not all pension funds have bowed to public pressure, of course. Notable exceptions include the Dutch giants ABP and PME, which have so far resisted years of pressure to divest. They have argued that last year’s price increases were down to policy – particularly the US government’s ethanol policy – and good old-fashioned supply and demand.

And then there is the matter of evidence, for which there is little to support the claim that soft-commodities derivatives have caused food-price hikes. As BNP Paribas IP itself points out in its announcement, “despite the absence of any clear-cut conclusions regarding the relationship between financial instruments and the volatility of food commodity prices”, it decided to suspend investments anyway.

It is this blatant capitulation, these actions based admittedly not on evidence but popular opinion, that is so bewildering, particularly considering that many would argue ethically-minded pension funds actually ought to be increasing investment in food. “It is the public scandal that offends,” Molière tells us. “To sin in secret is no sin at all.” These poor pension funds, and the managers who work for them, are trying to distance themselves from a public scandal without having sinned in the first place. 

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