Investors warned against ‘flying’ into biofuels

Co-operative Insurance today (1 March) warned investors that backing biofuels could leave their savings grounded as well as be potentially negative for the environment.

Use of biofuels has surged in recent years because of its attraction as a supposedly eco-friendly alternative to fossil fuels. Biofuels production is also heavily supported worldwide by governments keen to reduce their reliance on oil as well as provide additional income to farmers. The EU for example has set targets for 10 per cent of transport fuels to be supplied from biofuels by 2020.

While Co-operative Insurance supports the use of biofuels it is concerned that continued growth may be unsustainable unless more is done to protect long term supply chains, the environment and society. It is therefore warning investors to think carefully before investing in biofuels until these issues are addressed.

Sam Lacey, Analyst at Co-operative Insurance said: “On the face of it investing in biofuels appears attractive as governments worldwide are setting ambitious targets to significantly increase production.

“However, there is a risk that biofuels could actually have a negative impact on the environment due to the vast amounts of land required for production. More must be done to make their long-term supply sustainable.

“Initiatives by airlines and public transport companies to run vehicles on biofuels may appear eco-friendly, but could not currently be rolled out sustainably on a large scale. Co-operative Insurance recommends that companies take a cautious approach to biofuels and support the development of robust sustainability standards before rolling out biofuels to their fleets.”

The area of land required to grow biofuels is so great that it could cause serious environmental problems if not managed correctly. For example, meeting increased demand could lead to deforestation, as has been the case with palm oil production in South East Asia (palm oil is a key ingredient for some biofuels). It may also push up global food prices and have disastrous effects on biodiversity.

Last year, Co-operative Insurance issued a report on the risks and opportunities for the biofuels industry. As a responsible shareholder, it has been using the findings of the report to lobby companies in which it invests to develop effective approaches to address the challenges. During its meetings with companies it has found that there are good examples of sustainable practices but believes the potential for large-scale expansion is limited.