Accountability in the Pesticide Industry
INT J OCCUP ENVIRON HEALTH v.9, n.1, Jan/Mar03
PETER RIGGS, MEGAN WAPLES (Preparers)
To counter the lack of corporate accountability of the agrochemical industry for the damage caused by its perpetuation of the use of harmful chemical pesticides, the Rockefeller Brothers Fund staff in June 2002 brought together concerned scientists, lawyers, socially responsible investment professionals, and sustainable agriculture advocates at their Pocantico Conference Center. The group’s objective was to communicate to market analysts the long-term downside risks of investments in pesticides, in the hope that dissemination of this information would contribute to increasing corporate accountability and safeguarding public and environmental health. Excerpts from its proceedings are presented. Key words: corporate accountability; public health; pesticides; agrochemical industry; Pocantico.
This article is excerpted from a report based on a forum held at the Pocantico Conference Center of the Rockefeller Brothers Fund, Pocantico Hills, New York, June 25–28, 2002. The excerpts, which have been slightly edited for continuity, are reprinted with permission of the Rockefeller Brothers Fund. Address correspondence and requests for copies of the entire report (Pocantico Paper No. 5) to: Peter Riggs, Rockefeller Brothers Fund, 437 Madison Avenue, New York, NY 10022-7001, U.S.A.; telephone: (212) 812-4276; e-mail: < email@example.com >.
The current volume of pesticides used globally is unnecessary to maintain global food production— in fact, over-reliance on chemical shortcuts is degrading the productive agricultural resource base, making future increases in yields much more difficult. Substituting less toxic chemicals, accelerating production and deployment of safer botanical pesticides, and most importantly, vigorously promoting farmer-centered, ecologically-based approaches to pest management are considered here as primary goals for the future of agriculture.
These are hardly radical assertions. Over the past several decades, research in ecology and public health has shown the problems associated with pesticide use, and regulatory systems designed to control their use at both national and international levels have evolved. In addition, research and activism at the local level have convincingly demonstrated that viable alternatives to chemical- dependent agriculture are both possible and profitable. The dramatic success of farmer-led integrated pest management (IPM) programs in curbing excessive pesticide use shows that ample scope for reductions exists even within the commodity-focused, “industrial agriculture” paradigm. For all intents and purposes, there is a broad professional consensus on the importance of reducing chemical reliance in agriculture.
The group of concerned scientists, lawyers, socially responsible investment professionals, and sustainable agriculture advocates that convened at Pocantico under the auspices of the Rockefeller Brothers Fund considered the interplay of research, advocacy, and market change factors that influence the rate of change in agricultural practices worldwide. Implementing the changes necessary for reducing pesticide reliance will inevitably challenge the vested interests of the existing industrial sector, including pesticide production, formulation, and marketing. The rational behavior of firms in this industry inevitably includes attempts to expand their markets, prolong the patentprotected life and overall use of their products, and shape IPM programs to ensure a future role for their chemicals. In addition, there is legitimate disagreement over the speed at which major changes to our food production systems can be made, and the degree of economic disruption that will occur as a result. An accelerated move away from pesticide dependency is likely to dramatically decrease the attractiveness of the agrochemical sector for investors.
A widely-held view that informs this paper is the likelihood that corporations will face larger liabilities than they do now as a result of harms imposed on people and nature around the world. This has already occurred with tobacco and with asbestos claims, and, in the latter case, liabilities have exceeded profitability for many companies, resulting in a slew of bankruptcies. Increasing disclosure and quantifying potential liabilities can help to discourage excessive investment in risky practices.
. . .
PESTICIDE INDUSTRY RISKS
and scope to date, have the potential to become a major threat. In addition to the legal challenges involved in such suits, there are broader questions about access to the justice system in a globalized economy. Much of the harm caused by pesticides takes place in developing countries, among workers who may have little access to formalized systems of justice. Establishing jurisdiction for civil actions is fraught with difficulties, and is often compounded by justice systems that are weak, corrupt, or vulnerable to political pressures.
. . .
Recent cases have undermined the traditional defenses used by the industry against product liability claims. As more cases are pursued, pesticide companies may face increasing liability for their products. Legal activists have also been working to hold the pesticide industry, especially transnational corporations operating in a global economy, accountable in other ways, increasing the trend of upholding the doctrine of "the polluter pays."
Market trends. Market trends are a key concern for potential investors. If a technology or a group of products is becoming obsolete or losing consumer favor, a company whose business strategy depends on that technology or product “market-leader” will usually not fare well over the medium to long term. . . . Several trends indicate a growing public unease with pesticides, and a clear preference for foods grown in a less damaging, more sustainable way. These trends are visible at the level of the individual consumers’ increasing preference for organic foods, and at the supplier level among food processors and retailers. . . .
Regulatory trends away from pesticide use.
Regulatory trends play a critical role in determining a company’s future value. Since regulations can greatly alter the costs of doing business and the marketability of products, any uncertainty in the regulatory environment should be of concern to investors. With the trend toward increasingly stringent regulation of pesticide use in both the developed and the developing world, the picture for those investing in agrochemicals is not encouraging. Europe, in particular, is leading the way. European Union regulations are increasingly establishing liabilities for pollution caused by pesticides, both affecting pesticide sales and creating legal liability costs for the industry. Both the European Union and the United States are reviewing lists of registered pesticides with an eye toward reducing use of these products.
. . .
In the United States, the Food Quality Protection Act passed in 1996 requires EPA to establish new safety standards that more adequately protect children from pesticide exposure, and then reassess permitted pesticide uses and food residues according to these standards within ten years.
. . .
Regulatory trends demonstrate a consistent and increasing concern about the costs and impacts of pesticides. Over time, these regulations will both reduce the markets for pesticides and attach higher costs and liabilities to their use.
Quality of management. Most serious investors and analysts devote significant effort to assessing the quality of a company's management, since that quality affects the ongoing financial welfare and competitiveness of the company throughout its operations. A widespread loss of confidence in corporate management is likely to contribute to a precipitous decline in share value. Qualitative factors are inherently more difficult to assess than quarterly profits and losses. . . .
Certain patterns of corporate conduct on the part of agrochemical companies may serve as reliable indicators of a higher quality of overall corporate management. These potential indicators include: adhering to international codes and conventions and taking a leadership role in to the implementation of voluntary codes; adopting uniform company-wide performance standards rather than defaulting to lower environmental and occupational health standards permitted by local regulations; demonstrating life-cycle concern for products; and achieving an above-average level of transparency with respect to company operations.
Conversely, the kinds of pesticide abuses of concern to public interest activists may indicate a divisionwide, or even company-wide, failure of management. . . . In many instances, the patterns of irresponsible conduct by agrochemical corporations represent precisely the kinds of imprudent behaviors that give rise to fiduciary concerns, since these behavior patterns pose real risks of financial injury to investors as well as posing serious risks of harm to public health and the environment.
. . .
Compliance with international codes and conventions. Most national and international standards are voluntary, although some are legally binding, including two recent conventions with provisions requiring implementation by governments who have ratified them. Non-binding, “normative” standards can provide pesticide companies with a frame of reference for considering best practice, corporate responsibility, product stewardship, and good environmental management.
These standards can also help investors evaluate the management strength and performance of individual companies, and provide a standard for comparing a specific company’s performance and standing with those of other firms in the industry. Such standards can indicate how companies are performing relative to international standards and norms—especially those espoused in the company’s own literature. Industry has offered its own set of standards for best practices. The Responsible Care® program was developed in 1988 by the American Chemistry Council (ACC) “to respond to public concerns about the manufacture and use of chemicals.” According to ACC literature, “Responsible Care is advancing in 46 countries, representing over 85 percent of the world's chemical production.” The program is essentially an environmental management system for chemical manufacturers, and in fact, the ACC is working on a single audit process that will award both Responsible Care and ISO14001 certificates. The ACC Web site describes the program as moving from a “process-based” to a “performance-based” focus. In their promotional literature and advertising for the program, the ACC has attempted to use the Responsible Care program as evidence that the industry is capable of policing itself and does not require further governmental regulation. Some companies in their annual reports and SEC filings refer to their participation in the program as evidence of strong environmental management.
Another particularly relevant convention, with substantial normative force in the developing world, is the Food and Agriculture Organization’s (FAO’s) International Code of Conduct on the Distribution and Use of Pesticides (referred to as the Code of Conduct).
CropLife International, the trade association representing the pesticide industry, has “actively supported the FAO Code of Conduct, and has made compliance with the FAO Code by national associations and their members a condition of membership.” Given the broad level of support for the FAO Code of Conduct, and the industry’s professed desire to comply with it, the Code is a good measuring stick by which to evaluate company practice and management.
Feedback from the field, especially from developing countries, suggests that these standards of behavior and self-regulation are frequently ignored in daily practice. . . . Properly documented and publicized, such circumstances would demonstrate that many companies are out of step with internationally accepted standards and norms for good management and corporate responsibility.
REACHING THE MARKETS
Improved communication regarding risks is badly needed. Continuing lack of awareness in the finance community with respect to these risks allows corporations to pursue “business as usual,” including routinely marketing extraordinarily toxic chemicals and taking advantage of under-regulated developing country environments. While ongoing regulatory changes and public actions can help to curtail some of this irresponsible behavior, they are not sufficient to fulfill the demand for improved corporate accountability and disclosure now growing among investors. To protect investors (and public and environmental health), and to create market incentives for developing sustainable alternatives such as IPM and organic agriculture, it is essential that financial markets accurately account for the true costs and risks of pesticides. Improved communication of such information will also fill an important gap in the materials available to the public regarding pesticides.
In order to achieve more accurate accounting of these risks and costs, Pocantico participants strongly recommended:
• Document the true extent of the global risks and liabilities associated with this industry, and seek legal and financial accountability.
• Increase the Socially Responsible Investment (SRI) community’s engagement with the pesticide industry and related issues.
• Use the power of private and institutional investment monies to move the agricultural sector away from a financially risky and environmentally destructive overuse or abuse of pesticides and toward more socially responsible, beneficial, and accountable industries and activities.
• End direct and indirect public subsidies to the pesticide industry and increase public support for sustainable alternatives.
• End public agencies’ partnerships with pesticide companies wherever these partnerships create a clear conflict of interest or violate the codes of the public agency in question.
• Use the pesticide industry as an important “test case” to enhance current efforts to improve corporate disclosure, governance, accountability, and ethics.
Any attempt to use financial leverage in the ways described above must be multifaceted and reach a wide variety of audiences. Different strategies are required to reach these different aims, and to bring the different constituencies into stronger alignment. In considering what strategies would be most effective, the group looked at several key actors in the financial markets.
The Socially Responsible Investment community. The research and investment companies involved in the SRI movement have helped lead the way in making financial markets account for the environmental and social costs of different industries. Different SRI firms use different strategies. These strategies include screening (choosing not to invest in companies that create environmental and social risk, or investing only in those companies considered “best in class”); shareholder activism (seeking to improve corporate behavior through dialogue and resolutions); and community development (investing in opportunities that support communities and sustainable development). Although most SRI funds are not invested in pesticide companies, they are well positioned to play a lead role in strategies involving shareholder activism, and in improving the level of due diligence on pesticide companies. Other SRI investors, pursuing a “best in class” approach, can help strengthen support for international codes of conduct and other mechanisms that distinguish pro-active management from mere legal compliance.
Pension funds and other institutional investors. These are a strong force in financial markets, commanding (for example) 30% of invested capital in the New York Stock Exchange. They represent concentrations of investor power, and thus are an easier target for public interest activists than are individual investors. Many pension funds are quite sensitive to concerns not considered strictly financial. For example, public pension funds in some states have a mandate to invest in ways that benefit the state, and might view support for companies producing products that degrade groundwater and surface water quality (for example) as inimical to state interests. Foundations, particularly those with programs in health, environment, or rural development, should be willing to vote their proxies or invest in ways that support their program goals. Universities can come under pressure from the student body to use their endowments and consumer power in socially responsible ways (as has been demonstrated both in the fight against apartheid in South Africa, and more recently in anti-sweatshop campaigns). Given these other interests, institutional investors may become allies for shareholder activism, and potentially for pursuing divestment.
Shareholder activists. Other types of shareholder activists could impact investment patterns in the pesticide industry. There is presently a great deal of shareholder activism on issues of good corporate governance, including improved reporting, which would overlap with efforts to more accurately reflect the disclosure concerns discussed here.
Analysts. Financial analysts play an essential role in the financial markets, researching and valuing companies according to various models, and providing recommendations to fund managers to buy or sell the stock. While analysts work in an information-rich environment, they often rely primarily on company-based sources and may not be aware of broader contextual issues, or of the views of other stakeholders. Analysts with interests in long-term market forecasting would be particularly interested in the kinds of materials and information presented here.
The Securities Exchange Commission. The SEC oversees the U.S. stock markets and regulates company-reporting requirements. There is an ongoing effort encouraging the SEC to improve enforcement of existing reporting requirements on social and environmental issues, and to expand and enhance these requirements.
Working with the SEC could be important both in improving data disclosure and reporting across the industry, and in pursuing omissions or misleading statements by particular companies. The impact of impending regulatory changes in Europe may be considered as material business issues, subject therefore to disclosure. Recent events make it more likely that the SEC will have a stronger role in monitoring the corporate sector by adopting broader definitions and standards of disclosure.
Public Agencies. Public funding from governments and international bodies such as the World Bank continues indirectly to support the pesticide industry around the world. This support can be in the form of tax breaks, subsidies, funding for “safe-use” programs, or procurement of products through foreign aid programs. International agencies such as the UN and the World Bank have begun to establish “public-private partnerships” with these companies, partnerships that provide positive public relations benefits to the companies, and sometimes help to open new markets for them. However, governments and public agencies are accountable to the public, and are required to act in the public interest. Multiple opportunities exist to work with governments and public agencies to re-direct these monies to more sustainable alternatives.
Consumers. Working with consumers is essential to raise social awareness around the health and environmental impacts of pesticide use. Consumers obtain investment advice and use financial service products; use foodstuffs and fibers that may be contaminated with pesticides; and may purchase other products sold by the same companies.
Insurers, bond analysts, and banks. Insurers may prove to be an interesting audience for pesticide concerns in two ways: as major investors and as underwriters of disaster insurance to specific companies. Indeed, the underwriting industry estimates the cost of complying with environmental cleanup costs and legal fees to be in excess of $100 billion; insurance companies obviously have a strong interest in reducing such costs and fees. Bond analysts are at first glance an unlikely target audience. But analysis done for bond markets is frequently both more thorough and more long-term in its orientation, which may suggest a direct interest in improving data disclosure requirements for companies floating commercial paper. Companies planning major new initiatives are likely to have a close relationship with one or more investment banks, so these banks may be an important future target.
source: http://www.ijoeh.com/pfds/0901_riggs_accountability.pdf 3jul03
you have come to this page from an outside location click
here to get back to mindfully.org