Investing in biofuels could backfire on companies according to Co-operative Insurance.
The society says that while it supports the use of the environmentally-friendly fuel it is concerned about the potential environmental and social dangers if growth continues at its current rate.
It has issued a warning to investors in the sector that unless sustainability criteria are built into supply chains, investments could be poor value.
Biofuel production is heavily supported worldwide by governments keen to reduce their reliance on oil as well as provide additional income to farmers. However, 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.
In its report, Co-operative Insurance has told companies to develop effective approaches to address the challenges. It will now use its recommendations to engage with other organisations and seek reassurance they will put strategies in place to mitigate the risks.
Sam Lacey, Responsible Shareholding Analyst at Co-operative Insurance and author of the report, said: “Biofuels are not a panacea for climate change but can play their part if governments and companies start thoroughly managing the social and environmental impacts.
“The current growth of the industry is happening without paying attention to long-term impacts. It must be pushed in a more sustainable direction and complemented by fuel efficiency measures and reducing our use of fossil fuels.”
The report makes a number of recommendations in three key areas: Examples include:
• Ensure conversion of land to grow biofuels does not cause environmental damage. Conduct stakeholder consultation prior to land conversion to avoid civil unrest
• Incorporate sustainability criteria into decision-making processes and contracts throughout the supply chain and consult with stakeholders
• Prioritise sustainability in biofuels and seek to mitigate risks of increasing commodity prices
Co-operative Insurance has already encouraged investors involved in the palm oil supply chain to join the Roundtable for Sustainable Palm Oil (RSPO). Palm oil is a key ingredient in a huge number of everyday products, such as margarine, crisps, lipstick and soap, as well as biodiesel.
Many major UK businesses joined up and are working towards sustainable supply chains following engagement with CIS.