Engaging to mitigate risks in the soy supply chain

14-07-2016 | Engage | Jürgen Siemer, Kanchan Mishra, Peter van der Werf

As an asset manager focused exclusively on Sustainability Investing, RobecoSAM systematically integrates long-term environmental, social and governance considerations into traditional financial analysis, enabling us to fully understand a company’s ability to create value. Firms that embrace sustainability are more likely to be successful over the long term than those that do not. The objective of our engagement activities is to enhance shareholder value while at the same time promoting responsible and sustainable conduct and good corporate governance.
 
As part of our active ownership approach RobecoSAM engages on financial material topics where we see risk for our investment portfolios. In 2012 we identified the soy supply chain as a topic with material ESG risks. With our engagement we have two goals in mind. First we aim to inform our investment decisions with the information acquired from the discussions with content experts at the companies to assess if they are able to mitigate short term risks. Secondly we aim to improve sustainable conduct at the companies to improve their practices in the long term and with that improve the risk/return profile of their securities.

 
Having identified the soy supply chain as financial material topic we assigned Verisk Maplecroft, a leading risk analytics company, to conduct a research project into the soy market. The report looked into the challenges companies operating in the soy supply chain face. It examined in detail the regulatory environment in production countries with high environmental and social risks, such as Brazil and Argentina, and identified conservation and certification initiatives that are relevant to soy production. This helped us gain in-depth understanding of the entire soy supply chain and the risks associated with it.

Following on from this research, we selected eight companies in our portfolio to form an engagement peer group that reflect the entire soy supply chain, covering seed suppliers, commodity traders, food producers, fast-food restaurants and retailers. We explored their current policies with respect to soy sourcing, how they assess and manage the risks they are exposed to as a result of their involvement in soy, the extent of their transparency and disclosure, and how they engage in partnerships and collaboration to improve standards in the soy value chain. These engagement objectives formed the basis of our dialogue with these companies over the past three years. We had many discussions with the eight companies to ascertain how they manage the risks of their exposure to soy and to try to help them better manage these risks. With these findings we ultimately want to inform our clients of the progress of the companies under engagement and inform the investment decisions of our portfolio managers.

We have split this report into three sections.

  • In Section 1, we discuss the soy market, its growth, the challenges that lie ahead and the risks associated with the soy value chain for investors and companies. 
  • In Section 2 we discuss the engagement objectives against which we evaluated each company, how we helped them improve their practices in these areas, and the overall progress that the companies made over the three years of our engagement process. 
  • In Section 3 we provide detailed information about each company’s policies, risk management processes, collaborations and disclosures with respect to soy.

We also show their progress over the three years and conclude by discussing the impact of our findings on our investment thesis for each company.

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peter-van-der-werfPeter van der Werf
Engagement Specialist 
 



kanchan-mishra.jpgKanchan Mishra
Engagement Specialist

juergen-siemerJürgen Siemer, PhD
Senior SI Analyst


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