Why Food-Aware Investing can Help Fight Climate-Change

    At the Sustainable Investment Forum Europe (SInvEu) in Paris last month, we met with Maria Lettini (pictured right), Director and Jo Raven (pictured left), Engagement Manager at FAIRR, an initiative supported by the Jeremy Coller Foundation

    “Conferences like this one, provide a great mix of people with highly competent asset managers and experts, but in panels about climate change, they mostly discuss energy, utilities and fossil fuel. What about food and agriculture? We are here to fill the gap and bring these important topics into the climate discussion. We need to get investors thinking about integrating food considerations into their strategies,” starts Raven.

    FAIRR, which has now been active for over three years, is a network of institutional investors. The initiative doesn’t manage any assets directly, but firms that form the network manage US$12 trillion in aggregate. Membership is free of charge, as FAIRR is entirely funded by the Jeremy Coller Foundation, the philanthropic vehicle of private equity entrepreneur Jeremy Coller, founded in 2002.

    “How we produce our food contributes to climate change, and unless we address this issue head-on, we may be unable to meet the Paris Agreements’ target,” Lettini highlights. “A range of academic reports, including the IPCC report, explicitly identifies meat consumption and food production as a crucial factor. This idea is only starting to permeate the investment community.”

    Animal protein production will most likely represent higher risk for investors going forward. “Countries with significant proportion of their economy related to livestock production can no longer shy away from the climate-related effects, because it will continue to play  a key role. Animal agriculture accounts for as much as 15% of all green-house gas (GHG) emissions. When considering feed, and Scope 3 emissions, livestock may represent as much as 30-50% of total GHG emissions,” Lettini explains.

    While livestock production has an impact on the climate, climate change will likely significantly impact the production capacity itself, through yields and ultimately profitability. Some heat may momentarily benefit certain feeding crops, but droughts and weather-related catastrophes won’t. Investors need to take these considerations into account, if not to influence companies to change, to embed these risks into the investment evaluation.

    For Raven, corporate engagement is an important tool to drive change in the food industry and encourage companies to assess climate change risks and help address them. “We need to change the conversation,” she says. “The global food industry has been very powerful for decades. By using the voice of institutional investors, we can start to influence corporate practices.”

    One example, while not directly related to climate change, demonstrates this type of engagement can drive change. “We have been running a collaborative investor engagement for the last three years, focused on improving antibiotics stewardship in livestock supply chains,” Raven says. “When we started out this engagement, only one out of 20 fast food companies involved acknowledged antibiotics overuse as a material issue. Now all of them do. Some companies like McDonald’s have become very progressive in phasing out antibiotics The company has eliminated medically important antibiotics from all chicken it serves in its US restaurant and last year it announced a new policy on beef and dairy”.

    When it comes to the climate-change impacts of food, FAIRR encourages the protein-transition trend that is already taking place. “In the US, Tyson moved from being a meat producer to a self-proclaimed ‘protein producer’. They developed a business line focused on plant-based protein production. Maple Leaf, a large Canadian producer now reports ‘protein’ production regardless of its origin. Last year, they completed they announced the launch of a subsidiary called Green Leaf, which produces entirely plant-based proteins,” adds Lettini. “These are concrete changes, and the traditional meat producers have understood that they need to position themselves in this transition. It represents an opportunity for them.”

    To improve the transparency and visibility of the animal protein producers, the initiative has launched the Coller FAIRR Protein Producer Index. The food industry is currently under-represented in most global sustainability benchmarks. The 60 companies included in the index represent some of the largest listed global animal protein companies and are those most involved in breeding, processing, distributing and selling meat, dairy and/or aquaculture products. FAIRR analysed the risk factors related to the index components and ranked them. Top scores were attributed to Nordic fish-farmers Marine Harvest ASA, Lerøy Seafond Group ASA and Bakkafrost P/F. The lowest scores went to many emerging markets producers, which may have been particularly penalised by their lack of disclosure. We did notice however that Cal-Main Foods Inc, the third worst in the ranking, is a US-based egg producer.

    The entire findings are available here.  The second iteration of the Coller FAIRR Protein Producer Index is due to be published in July.

    Picture © NordSIP

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.

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