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New criteria for bank loans and stock exchanges listings could protect depleted marine resources from seafood sector

03 October 2019
Bert Scholtens

Two reforms in the finance sector have the potential to accelerate action towards a sustainable seafood industry, according to new research published in the journal Science Advances. Compiling data on 160 publicly listed seafood companies and 3000 shareholders, researchers from Birmingham, Stockholm and Groningen conclude that introducing sustainability criteria into bank loan agreements and stock exchange listing rules will significantly reduce pressure on seafood resources.

‘Almost 90% of the world’s fisheries are fully exploited or overexploited, and demand for seafood is projected to grow 70% by 2050. Yet when we reviewed almost a decade of published information we could not find a single bank loan to the seafood industry that included sustainability criteria’, says Jean Baptiste Jouffray from Stockholm Resilience Centre at Stockholm University.

A green financial system

‘Green bonds and green finance initiatives are good for starters, but what we really need is a green financial system which helps achieve a more sustainable economic system and a sustainable society. We propose a deliberate transformation of how seafood sustainability is integrated into traditional financial services,’ according to Bert Scholtens from the University of Groningen.

The authors note that while numerous green bonds and other impact investment tools have emerged in recent years, they represent less than 1% of global financial flows. As pressures on ecosystems mount, the researchers argue that what also is needed are new norms and regulations that can redirect traditional financial services. The Principles for Responsible Banking, launched in New York City last week, show that the financial sector is waking up to its role in steering businesses towards sustainability, but operationalizing the six principles remains a challenge.

The power of banks

Bank loans are a main way seafood companies finance their operations. Loans always come with loan covenants – agreements between a lender and borrower stipulating terms and forbidding the borrower from some behavior.

‘By incorporating sustainability criteria into loan covenants and binding companies to sustainable practices, banks may come to play a prominent role in advancing more rapid transformation towards sustainable practices, not just in seafood but across all commodities’ added Scholtens. He says’the rapid growth of sustainability-linked loans proves this can be done, but such criteria need to become mainstream.’

A good example: Rabobank in Chile

Scholtens points at the recent example of Rabobank, which arranged a USD 100 million’green and social loan’ in Chile with AgroSuper, the country’s leading salmon company and the second-largest salmon producer in the world. The loan agreement contains several environmental and social conditions that AgroSuper must comply with, such as a commitment to reduce antibiotic use in salmon farming, increase the number of certifications from the Aquaculture Stewardship Council (ASC) and implement an aquaculture improvement program for production centers – to get 100 percent of its production sites actively trying to go towards ASC certification. The World Wildlife Fund advised on the arrangement. Scholtens believes that this Rabobank loan can be of inspiration to others as it shows how environmental and social issues can enter the loan contract.

Stock exchanges as gatekeepers

The study also highlights that the majority of publicly listed companies among the world’s 100 largest seafood companies, are listed on just a handful of stock exchanges. The Tokyo Stock Exchange alone concentrates 53% of the combined revenue of listed seafood companies, while the largest four (Tokyo, Oslo, Korea and Thailand) together account for 86%.

‘More stringent sustainability criteria in the listing requirements is a key way by which stock exchanges can act as gatekeepers and promote sustainability’ notes Scholtens. The paper illustrates such potential with an example from 2014, when a Chinese seafood company keen to expand tuna fishing in the Pacific, attempted to raise up to US$200 million on the Hong Kong stock exchange. The share float was cancelled when the risks to fish populations were discovered to have been understated, and therefore represented an undisclosed risk to investors.

Shareholder activism

Shareholder activism is a third lever the researchers investigated, but found its influence may have limitations in the seafood sector, even though it has been promoted as an important way to influence corporate governance. While the majority of large seafood companies are privately owned, the analysis shows that even for the publicly listed ones, as no single investor has substantial shares across many different seafood companies. Therefore, shareholder activism appears to currently hold limited leveraging power for financial institutions to encourage sustainable practices in the seafood realm.

Pressure from civil society organizations and the general public will be important to improve awareness and stimulate financial responses that can not only complement but also promote existing governmental, market-based and corporate efforts towards increased sustainability, the authors conclude.

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Last modified:19 March 2020 2.37 p.m.
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