Ethical Performance
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companies warned against headlong rush into biofuels

July 2007

A leading socially responsible investor has warned that companies are rushing to bring biofuels to market without giving proper consideration to the full range of social and environmental risks associated with their development.

F&C Asset Management, which manages £104billion ($208bn) in assets, believes the huge areas of land needed for biofuel crops could cause social and environmental problems and that ‘sustainability standards’ for the nascent industry are urgently required. Potential problems envisaged by F&C include pressure on food prices as agricultural land is planted with oil palms and other biofuel feedstocks. It points out that in Mexico the diversion of food crops into fuel has already raised the cost of basic foodstuffs and led to rioting.

In a submission to the UK government’s consultation on biofuels policy, Karina Litvack, head of F&C’s governance and sustainable investment team, says that biofuels ‘may lead to deforestation and habitat destruction’ and that emissions from the production process could wipe out greenhouse gas savings accrued from using them instead of oil-based fuels.

‘This is an issue that has worried F&C for some time,’ said Litvack. ‘We have held private discussions with 15 of the world’s leading companies involved in biofuels, in which we have pressed them to explain how their biofuels bring genuine carbon savings and whether they are sourcing feedstock sustainably.’

Companies consulted by F&C include: specialist biofuels producers Brasil Eco-Diesel, D1 Oils and Verbio; oil companies BP and Petrobras, and retailers Marks & Spencer and Tesco. Litvack said that some companies understood the sustainability risks but ‘across the board there is little consensus on what best practice means’.

Similar fears have been raised by Co-operative Insurance, which has published a report warning that companies needed to tread carefully when investing in biofuels because of the associated social and environmental problems. It will engage with companies ‘and seek reassurance that they will put strategies in place to mitigate the risks’.

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