The natural-rubber industry has undergone rapid and fundamental changes in the last decade. In 2011, natural-rubber prices hit record highs as demand from China surged. This led to an unprecedented rush into the market by farmers, with many clearing forests with high conservation value to make way for rubber plantations.
Today, almost 85% of natural rubber is produced by approximately 6m smallholder farmers1 and prices are depressed amid a supply glut. Smallholder farmers and companies are struggling to pay tappers a minimum wage, let alone a living wage. In addition, studies have revealed adverse working conditions and practices at rubber plantations, including inadequate safety standards, discrimination, long working hours and, in some cases, the use of child labour2.
The Hermes SDG Engagement Equity Fund aims to generate attractive investment returns and positive social and environmental impacts by investing in companies with strong potential to improve through engagements focused on the United Nations Sustainable Development Goals (SDGs).
This is illustrated by our exposure to Swedish manufacturer Trelleborg, which uses natural rubber to produce large tyres, springs and rubber bearings as well as hoses, seals and engineered coated fabrics.
Natural rubber is a key input – and although it accounts for only 10% of the group’s total raw materials, it requires considerable attention. Increasingly, companies using rubber are being held responsible for addressing sustainability issues in their supply chains, such as poverty among smallholder farmers and their contribution to deforestation.
The SDGs provide an ideal framework for engaging to generate meaningful societal benefits and create more impactful and profitable companies. We are engaging with Trelleborg primarily on SDGs one, two, 12 and 15.
Towards sustainable natural-rubber production
In June, we spoke with Trelleborg’s corporate responsibility team. We discussed the company’s due-diligence checks on its natural-rubber suppliers. Encouragingly, the team explained that it was monitoring this issue: last year, it had coordinated dialogue – focusing on the risk of child-labour use and deforestation – with more than 1,000 representatives of its direct and indirect suppliers in Southeast Asia and Africa. We also discussed the end-of-life collection, recycling and repurposing of its products and its renewable-energy usage.
To align its corporate practices more closely with the SDGs, we have encouraged Trelleborg to:
Already, the company has demonstrated a willingness to continue these discussions. Through our ongoing engagement, we believe that Trelleborg can create positive impact by aligning its sustainability programmes towards the SDGs, while delivering robust financial performance.
1 “A small-scale farmer leads the way for big changes to rubber farming in Myanmar,” published by the World Wildlife Fund in March 2018.
2 “Lower prices drive natural rubber producers into poverty,” published by Aidenvironment in October 2016.
3 “Michelin and the circular economy,” published by Michelin