ISSUES FOR RESPONSIBLE THE FUTURE OF FISH INVESTORS IN ASIA SEP 2011 Author Jenny Blinch Co-Authors Benjamin McCarron Katie Yewdall Editor Lucy Carmody THIS REPORT HAS BEEN MADE POSSIBLE BY The David and Lucile Packard Foundation Responsible Research Responsible Research – Independent ESG For nearly 50 years, the David and Lucile Packard Foundation has worked research in Asia for global investors. Since 2008 we have provided with partners around the world to improve the lives of children, families sectoral and thematic research, tools and services for investors who look and communities and to restore and protect our planet. The Foundation’s to analysis of ESG and sustainability both to identify risks to earnings and Conservation and Science Program invests in actions and ideas that discover new opportunities. We analyse material ESG factors, which change conserve and restore ecosystems while enhancing human well-being. It supports public policy reforms, changes in private sector practices, and according to industry and market. We provide knowledge of important specific activities to develop essential knowledge and tools for addressing regulatory landscapes in Asia, along with a fresh perspective on operational current and future environmental priorities. and sectoral issues. Investors access our reports and underlying data to enhance their decision- making, screen portfolios and improve stock selection and internal due diligence. Reports can also be commissioned as part of a general effort to promote sustainability and ESG integration. Our analysts hold regular ACKNOWLEDGEMENTS lunches, seminars and webinars to discuss findings, often with contributions from experts, companies and policy-makers. Responsible Research would like Thomas Bakke Commercial to thank the following for their Director, Intrafish Many of our clients are signatories to the UN-backed Principles of generosity with their time and Responsible Investment (PRI), an investor initiative. They have committed expertise: Abigail Herron Corporate to incorporate ESG issues into their investment analysis and to support the Governance Manager, The Co- development of ESG tools, metrics and methodologies. As a signatory to Melanie Siggs Senior Advisor Operative Asset Management the PRI ourselves we contribute time and resources to many collaborative at the Prince’s Charities’ initiatives focused on improving sustainability through appropriate capital International Sustainability Unit, allocation. Responsible Research is a strong supporter of independence and the Sustainable Fisheries Partnership (SFP) The following Responsible in research, without which conflict and bias can deliver investment risk. Research analysts provided The company is one of the founding members of the Asian Association of Lisa Monzon Program Officer, research on companies: Independent Research Providers. Marine Fisheries Subprogram, The David & Lucile Packard Foundation Jaideep Singh Panwar; Sun Xi; Shusuke Komuro; Alexander Sophie Le Clue Director, Read-Brown; Samantha Miller; Environment Program, ADM Bobby Chiu; Jungho Park; Jie Bai Capital Foundation Acknowledgements also to: Dr. Geoffrey Muldoon Strategy Leader, Fisheries in Transition, Marine Photobank, Intrafish and Industry WWF Coral Triangle WWF For more information, please contact Responsible Research: Program Email: [email protected] Tel: +65 6304 3528 www.responsibleresearch.com EXECUTIVE SUMMARY Global investors across a wide range of asset classes now recognise substantial net exporters of fish – even above other important the materiality of issues such as climate change, corruption and agricultural commodities.4 As global trade in fish and seafood has human capital management on portfolio returns. Many have increased over the past decades, basic processing like filleting and implemented related policies to address the risks and opportunities de-heading has migrated to developing countries where labour is presented in certain sectors and markets. Very few, however, cheaper. have developed policies to lessen the negative impacts their investments may have on the critical and time sensitive issue of At stake ecologically is the entire marine ecosystem, which may marine sustainability. This despite the fact marine-based products never recover from a catastrophe as complete as a total loss of are a key raw material for sectors as diverse as hotels, retail, commercial fishing stocks. Even now, it is impossible to know if pharmaceuticals, airlines and, of course, the fishing industry itself. ocean habitats will be able to recover from the damage already done by ubiquitous but destructive fishing methods such as bottom The oceans meanwhile are at crisis point. The question is no longer trawling, dynamite and cyanide fishing – most marine environments whether we have passed the point of ‘peak fish’– the year in which are fragile and take decades, if not centuries, to return to their harvests of fish from the wild peak in terms of quantity, before original state. going into decline. The question now is can we stop the decline at all? As the graph below shows, if we continue at our current rate, It may already be too late for certain marine species, which the we will have fished out the seas by the middle of this century. fishing industry continues to capture despite clear signals that they are being pushed to a point of no return. These include targeted Figure 1: Global loss of seafood species species, like bluefin tuna and cod, but also non-target species caught as ‘by-catch’, including many species of sharks, turtles, and rays. More action needed Despite all of the above, investors are not alone in remaining largely inactive on the issue of marine sustainability to-date. The convoluted chain of custody and overall lack of traceability typical of the seafood value chain has limited awareness of and action upon this crucial issue. Consumers assume that if they can buy a type of seafood easily, it must be widely available; retailers and caterers argue that if the customer wants it, they need to sell it; wholesalers and processors cite the dynamics of supply and demand; and the fishing industry itself says it is up to scientists and governments to impose any necessary standards or limitations on fishing – although they will not necessarily comply when they do. Source: The journal ‘Science’ using FAO data1 For many industries and sectors, the sustainability of marine At stake economically is a multi-billion dollar global industry, one resources may not immediately seem a material enough issue to of the oldest in the world. As a society, we seem to be knowingly be incorporated into their sourcing policies. The retail sector is a destroying a vital source of food and income at a time when the case in point. A typical supermarket might derive only around 1 to 5 global population is predicted to swell to 9.3 billion.2 percent of its revenues from direct seafood-related sales. However, if that supermarket were to consider the role of seafood throughout In Asia, the impact will be felt more deeply than in other regions. its supply chain, it would also need to factor in the fishmeal used Statistically, the region dominates the fishing industry in capture as feed in its pork, poultry and farmed fish products; the fish in its quantities, number of people employed, consumption and number pet food range; the fish oil in certain nutraceuticals and Omega-3 of vessels in operation. Over 85 percent of all fishers and fish enhanced nutritional products; and potentially even the traces farmers in 2008 were Asian, as were six of the top ten producer of fish in some household and personal care products. There are countries in capture fishing.3 currently very few supermarkets willing to take such an in-depth look into their supply chains, and very few shareholders prepared Certain Asian countries and other developing nations are also to challenge them to do so. © Responsible Research 2011 | Issues for Responsible Investors | 2 This report and its contents are the work of Responsible Research Pte Ltd. No reproduction or distribution is permitted without written consent. Yet even among those companies whose entire business model red list of threatened species as being among their key products – depends on the presence of certain kinds of fish in the sea, there this included 12 out of the 16 companies directly involved in wild is an incomprehensible level of inertia. This report, supported by capture fishing. The David and Lucile Packard Foundation, with contributions from experts in the fields of science and conservation, looks at a broad In terms of fishing methods used, trawling, purse seining and universe of Asian companies involved across the seafood value long-lining dominate, all of which are generally considered to be chain and finds public disclosure of marine sustainability-related destructive and indiscriminate - though methods exist to mitigate policies or initiatives to be minimal. by-catch for long-lining. Seven of the 16 companies directly involved in wild capture fishing mentioned plans to upgrade or expand their Action and commitment is required now, from many parties, to fishing fleet as an investment to drive future growth – only two of ensure the sustainability of marine resources and seafood supply these companies claim not to target sensitive tuna stocks. in Asia and globally. Success will safeguard marine ecosystems and improve the quality of earnings for the seafood industry and its In general, analysis of public disclosure on