05 Feb 2013 10:07 GMT DJ

By Michael Haddon and Neena Rai

Companies will likely take the lead in creating a more responsible culture for investment in land” as potential losses from projects which have gone astray and the reputational impact of involvement in “land grabs” are too great to ignore” the land tenure coalition Rights and Resources said Tuesday.

“I think companies will move faster than the United Nations regarding the development of common standards as it's the private sector who loses money”” Andy White” president of rights and resources” told Dow Jones Newswires. “Companies are starting to see the risks and will act much faster”” he added.

The UN has launched a two-year consultation process to develop guidelines for responsible investment in agriculture that “respect rights” livelihoods and resources”” as controversy rages over land grabs in developing countries.

“Typically the agribusiness sector has been subjected to less scrutiny but this could be the time when things could change”” Jeffrey Hatcher” analyst at Rights and Resources” told Dow Jones Newswires.

A new report commissioned by Rights and Resources said conflicts over land tenure significantly increase financial risks for companies in infrastructure” mining” agriculture and forestry” inflating project expenditure and sometimes even endangering the future of the corporate parent itself.

Many companies have committed time” money and effort into projects without understanding some considerable risks” it added.

“Investors themselves now need to do a lot more due diligence to understand the issues with land tenure”” said Mr. White.

Property rights in many emerging markets are dysfunctional enough that ownership of land can be granted to an investor without the knowledge of tens of thousands of people living on” or dependent on” that land” the report said.

Tied to their land for many generations” they have little interest in” or no reasonable option for” moving to urban areas and are practically impossible to relocate” it added.

“An increasing amount of investors seem to realize that they can no longer just count on the word of the government that the investment is indeed sound”” said Mr. White. “Now governments need to recognize that they too face reputational risks”” he added.

A second report commissioned by Rights and Resources said the inequalities caused by extractive political and economic systems are replicating the “resource curse”” where nations become trapped in poverty and are driven by resentment and internal conflict” with growing risks of turmoil.

If countries choose open and inclusive democratic systems they can avoid this fate” it added” but they will need to recognize local property rights and develop strong civil societies that keep the public informed and hold leaders to account.

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