Investors are gathered at the Hyatt on King Street this week for the annual 2014 Canadian Responsible Investment Conference
. Day two saw Olga Emelianova, a vice-president with ESGP Research MSCI, lead a session on the rising investment risks in the global industrial supply chain.
“Consumer goods and retail companies reliant on suppliers in developing economies face the threat of rising labour, safety, and energy costs. There are reputational risks here. In some cases these are rising.” says Emalianova.
The 2012 Dhaka fire in Bangladesh that saw 117 people die and 200 injured. But the fire also clued western consumers in to the real, and often dirty, facts of modern global economy. “We know how look for the freshly painted floor in front of an audit,” says Emelianova. “But this is a hot topic today.”
In the case of apparel made in Bangladesh costs will rise as the government has announced it will raise the minimum wage increasing prices through the rest of the supply chain. In the case of the electronics sector costs there are also rising. Foxconn, the manufacturer of the i-pad, has experienced strikes and other worker actions. Because it is hard to move developed infrastructure needed for such delicate manufacturing, prices are rising. “China is no longer the low cost producer,” says Emelianova.
But there are other issues as well. Jackie Daitchman, an associate with ESG Research MSCI, talked about the new activist interest in palm oil, a product under intense scrutiny due to the environmental and social risks inherent in its production in Indonesia and Malaysia.
Palm oil is used in an amazing number of products. It often appears as “vegetable oil” on a label in food. One third of the revenues in the food sector are related to products that rely on palm oil. Big companies like Nestle and Proctor and Gamble use huge amounts of it. The oil is also used in cosmetics and soap to give products a creamy feel, and Unilever buys up 3% of the global crop. But peat land is being drained and regions deforested to grow the crop, and these issues are catching on with NGOs and investors.
According to Daitchman the number of shareholder actions brought against companies jumped from 5 to 55 between 2012 and 2013, while companies are being nudged toward taking part in new transparency and auditing programs focused on sustainable palm oil production. “The trend going forward…NGOs are naming and shaming users,” says Daitchman.