NETHERLANDS - Dutch institutional investors have rejected claims suggesting their investments in soft commodities are unethical against the background of fast-rising food prices worldwide.

Dutch pension fund giants ABP and PME have stressed their long-term investment horizon is the primary issue when selecting investments, while asset manager Robeco said its investment focus in on hi-tech solutions to food production.

The investors' responses follow criticism by the Social Democrat Party (PES) in the European Parliament of banks which offer food price-related investment products.

"Making profits on this comes at the expense of the very poor, and is therefore unethical and should be rejected," Dutch MEP Ieke van den Burg has suggested.

More specifically, she cited Robeco's commodities fund as an example which aims at ‘investing in scarcity', according to van den Burg.

However, Ronald Florisson, spokesman for Robeco, argued soft commodities are only a minor part of the portfolio, which is part of Robeco's strategic resources focus, containing sustainable investment funds.

"The Strategic Resources Note focuses mainly on developing new techniques, such as increasing food production and water purification, to counter scarcity. By stopping these investments, we definitely do not serve the poor," he explained.

According to Thijs Steger, spokesman of the €212bn civil service scheme ABP, strategically allocating a part of the scheme's overall commodity investments to this sector is based on diversification purposes but stressed "it does not conflict with our principles regarding responsible investing".

ABP has been investing in this sector for the past seven years, spokesman Thijs Steger made clear.

"We haven't increased our relative share in the past few years on the back of rising grain prices," he added.

The share of soy, wheat, corn, sugar - all products which have seen rising prices in recent months on the back of demand and reduced production levels - in ABP's total commodity portfolio is currently worth 11%.
 
"In our opinion, the recent rise in food prices is primarily the result of increasing usage of soft commodities for bio-fuels, which is policy driven, as well as increasing demand out of Asia as a result of rising wealth and sharply higher oil prices," said Steger.

"We do not think that it is due to speculation or increasing investments by investors in this sector through futures or other derivatives, and that long-term prices are primarily determined by demand and supply," he added.

Bram van Els, spokesman for the €22bn PME metal pension scheme, also pointed at the scheme's long-term investment in soft commodities.

"This category represents only a tiny fraction of our commodities portfolio, which makes up 5% of our assets. Moreover, we have invested in agricultural products for diversification, rather than for speculative purposes," he pointed out.

In Van Els' opinion, the rising food prices are mainly caused by rising demand from emerging countries. "Speculation by food producers and suppliers plays a role too," he argued.

What do you think? Are there responsible investment implications to investing in soft commodities? If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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