Summary

Global Foreign Direct Investment (FDI)

In 2007 global flow of Foreign Direct Investment (FDI) exceeded $1.8 trillion growing 30% on the previous year. FDI accounts for half of all net capital flows into developing countries. reaching a record $500 billion in 2007, with the developed countries currently providing the major source of funding. Trans National Companies (TNCs) are the leading sources of FDI accounting for over 80% of global outflows.This investment has the ability to impact upon the environment in countries receiving investment but also provides the opportunity for corporations and investment institutions based in developed countries to apply and share sustainability best practice within their business sector.

Three principal FDI groups are recognised, namely; primary resources, manufacturing and services. Since 2002, there has been a steady overall growth in global FDI with increased investment in services, particularly financial services, and less direct investment in manufacturing. Investment into primary resources showed a relative decline until 2006 but in some regions has seen resurgence in response to increased primary commodity prices.

UK Foreign Direct Investment

There has been an overall increase in annual flows of investment funds from the UK over the period 2002-2007 reaching £49 billion in 2006 (UK Office of National Statistics) increasing three fold to £150 billion in 2007 (UNCTAD figures).The UK was the 2nd largest global source of outward FDI in that year after the USA. Over 75% of UK FDI goes into Europe and North America1 but the principal areas of interest for this report are outside these regions, lying in a suite of countries across South America, Africa, and Eastern Europe. Although these countries attracted less than 5% of total UK FDI in 2006 these areas contain some of the world’s largest growing global economies (including Brazil and Russia) and large areas of land which are potentially available for production of agricultural foodstuffs, biomass based fuels and exploitation of other natural resources. Pressure on global biodiversity will inevitably result from these activities along with associated infrastructure developments.

Sustainable development implications for UK FDI

The UK is one of the major global sources of FDI. UK based Trans National Corporations, therefore, have a significant potential role to play as sector leaders in transferring environmental best practice to host countries. Understanding this role requires knowledge of FDI flows, not only in terms of countries and business sectors receiving UK FDI, but also requires identification of those sectors that are most significant in terms of their biodiversity impacts. Different business sectors have different potential biodiversity impacts. Combining biodiversity impact analysis with the review of the nature and distribution of UK FDI suggests that the following investment sectors are of most relevance in terms of level of investment and/or likely environmental impacts within receiving countries:

• financial services;
• food products and agriculture, forestry & fishing;
• extractive industries.

JNCC has undertaken new work and collated existing studies to characterise these sector impacts and identify sources of information for use in identifying corporate leaders in each sector.

Patterns of foreign investment flow vary through time reflecting global economic cycles and changing corporate priorities. The events of 2008 will have an impact on the scale and nature of future FDI by the UK economy. This initial report by JNCC on FDI sets the scene for future work. This work will track these changes on an annual basis and JNCC will monitor and report on the implications of UK FDI into new geographical areas involving those investment sectors regarded as important for biodiversity.