Biofuels - the socially responsible investor view

Karina Litvack, Head of Governance & Sustainable Investment at F&C, comments: "First-generation biofuels present some thorny problems: firstly, on the political/economic front, because growing demand for oilseeds and corn pushes up food prices for consumers, and second, and arguably most worryingly, on the environmental front, because cultivation of these crops destroys the very forests that serve as vital carbon sinks and provide other irreplaceable ecosystem services.

But that doesn't mean we should throw the baby out with the bathwater. Next-generation feedstocks will address many of these concerns through the development of plants that thrive on marginal land and chemical processes that break down agricultural and other wastes into fuel, thereby protecting both food crops and forests. Ultimately, a sustainable biofuels industry will help consumers put less polluting fuel in their cars. Government support is vital to kickstart the industry – but care must be taken to ensure that these measures stimulate a move to sustainably-farmed feedstocks, otherwise the industry will be undermined by political backlash and fail to solve the climate problem anyway.

The biofuels industry stands at a crossroads and needs to show government that it does provide a sustainable long-term solution to the climate threat, but it needs to prove this by developing industry-wide sustainability standards."

From an investment perspective, the upwards pressure on crop prices as a result of competing demand for food and biofuels is likely pressure the margins of companies using only human food crops."