The first US SIF Collaboration for Innovation will be launched at its Annual Forum in Washington DC on June 27. Led by US SIF Board Member and Founder of First Peoples Worldwide, Rebecca Adamson, the collaboration will establish an investors and Indigenous Peoples’ hub that combines investment acumen and academic rigor with a global Indigenous network for innovating Sustainable Indigenous Finance. The purpose of the Sustainable Indigenous Finance Collaboration is to provide practical analytics and evidence-based research (including quantitative and empirical evidence on Indigenous risks) and establish a safe creative space to translate Indigenous priorities (such as land rights, culture shelf determination, and FPIC), specifically through the lens of financial materiality.
Financial Materiality and Indigenous Peoples
A new report by US SIF, First Peoples, and ImpactARC, Sustainable Indigenous Finance: Investors and Indigenous Peoples, found that investors often overlook the potential adverse impacts on Indigenous peoples that can then result in significant business risks — from supply chain disruptions to land tenure disputes — and hence, affect financial performance. Indigenous Peoples’ land constitutes 23% to 30% of the earth’s surface and contains vast natural resources such as 80% of the biodiversity[1], 50% of the inland waters, 36% of the large intact forests and vast amounts of the new transition minerals (over 50% of the lithium 70% of the nickel, copper)[2]. This reinforces the fact that Indigenous conflict isn’t just about the extractive sector — it now spans new transition minerals, natural resources, ecoservices, and clean energy.
Recent research by the Wharton ESG Initiative supports this thinking. Wharton found that Indigenous Peoples’ rights — coupled with their natural assets — have been historically under-addressed by investors and are now impacting financial performance across the majority of sectors. The first-of-its-kind global research, titled ‘ESG Material Credit Events and Credit Risks’[3], quantified material risk events for 1,444 projects operating on or near Indigenous lands and found that companies incur 500% higher risk events than those operating elsewhere. Moreover, individual projects had an increased risk from 3 to 66 times higher than other company projects. In a further study, Wharton tracked the correlation to Indigenous Peoples’ conflict and potential material risk factors Research found that foreign direct investment (FDI) increases armed conflict across all sectors[4]. The meta-study looked at over 3,000 Indigenous conflicts and concluded that where both Indigenous lands and investments co-exist, an additional 6.7-armed conflict events can be expected in the following year.
In both studies Wharton also found that companies with poor Indigenous Peoples risk management also had low environmental and social performance ratings as well as higher financial risk. Investors are often analyzing these risks separately and overlooking their interconnectedness. Factors such as erratic weather patterns, water insecurity and the exponential increase in demand of goods and services should not be viewed in isolation as they are frequently correlated. Investors still looking at their portfolios as an aggregate of individual businesses without acknowledging the underlying correlated risks to their asset base may be mis-valuing their portfolios.
