Recent years have witnessed a rapid expansion in land acquisition by foreign investors in developing countries. Soil fertility and water availability are two of the key drivers. But there are associated risks of adverse social and environmental impacts, and some consider it therefore a dirty business. Find out what this is all about.
In recent years, there has been an exponential growth in land acquisition – buying or leasing in Africa, Asia, Eastern Europe, and Latin America – by foreign multinationals and governments. And it is expected that this will continue to grow. The acquisitions concentrate on high-quality land in terms of soil fertility, irrigation potential and water availability. The availability of transport and communication infrastructure also plays a role.
Good or bad?
The growing interest in farmlands in these regions reflects the expectations of companies about higher and more volatile commodity prices, and governmental concerns about food security and growing human and environmental pressures. The land deals can provide valuable development opportunities for low-income countries, and could be a vital element of our ability to feed the growing world population.
Despite the potential benefits, land acquisition often also gives rise to controversies and creates negative social and environmental impacts. In practice, the land that is used by foreign investors to grow profitable crops like sugarcane, palm oil and soy is for export. In fact, according to Oxfam US, more than 60 percent of these crops are intended for export instead of for feeding local communities. Worse still, two-thirds of these agricultural land deals are in countries with serious hunger problems. When companies negotiate with governments to acquire ownership over vast areas of land, access of local farmers and communities that heavily depend on the land for food production, the raising of livestock or access to water, is often denied. When the acquisition is related to large pieces of land in developing countries, it is often referred to as land grabbing. Although large land grabs are often associated with companies in the agricultural sector, they are also related to those in mining and tourism industries.
Triodos is particularly concerned about deals that violate human rights, such as displacement of indigenous peoples without their consent or without compensation. Potential adverse environmental impacts, such as deforestation and loss of biodiversity are also major concerns. There are a few frontrunner companies that have published position statements on this issue, and some that claim to follow specific principles, but such practice is not yet common. One company with a clear position is Coca-Cola. Whilst not in the Triodos Sustainable Investment Universe, it recently published a statement of zero tolerance in a commitment statement on land grabbing and sugar.
Keeping our investment universe clean
Our Sustainable Investment Universe includes companies that produce food, paper and forestry products, as well as utility companies. These all run a relatively high risk of becoming involved in land grabbing and related potential negative social and environmental impacts. However, our general minimum standards, such as those for human rights and environmental damage, as well as those specifically designed for these industries (such as certification schemes), have so far helped us to exclude companies associated with detrimental land grabbing practices. If we do come across companies that are found to be involved in controversial practices, we apply additional requirements. One such requirement is that the company supports the Food and Agriculture Organization of the United Nations’ Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests, or the International Finance Corporation’s Performance Standard 5 on Land Acquisition and Involuntary Resettlement. Another requirement is to have a zero-tolerance policy on illegal land displacement of legitimate land tenure holders (own operations and/or supply chain) and commitment to community rights to access and control of land.
Note: The issues explored in this article are relevant for sustainable investments on the stock market. Triodos Bank believes that our socially responsible investments are a powerful means of promoting our values and working for greater sustainability, while enabling us to offer a complete range of attractive investment options to customers who choose to invest on the stock market.