Sustainable Investing
6 min read 3 Apr 24
According to the Food and Agriculture Organisation (FAO) of the United Nations, a sustainable food system is a “food system that delivers food security and nutrition for all in such a way that the economic, social and environmental bases to generate food security and nutrition for future generations are not compromised1”.
This means that, for a food system to be sustainable, it needs to; be profitable throughout (economic sustainability); have broad-based benefits for society (social sustainability) and have positive or neutral impact on the natural environment (environmental sustainability).
Given the strong interconnectedness of the food system – how food is produced, provisioned, distributed, and consumed – and human development and nature, a sustainable food system is key to achieving all 17 of the United Nations’ Sustainable Development Goals (SDGs). Furthermore, providing food for an expected global population of around 9 to 10 billion by 2050, while reducing net emissions to zero to align with Paris Agreement climate change targets, will require food systems that are sustainable, inclusive, healthy and efficient.
Today’s food system is problematic for both people and the planet, with an estimated $10 trillion of value lost via hidden costs to health and the environment (or 10% of global GDP)2.
It is responsible for 21-37% of global GHG emissions, with the livestock sector alone representing almost half of these emissions3, according to IPCC estimates. If unchanged, this is expected to rise to 50% of all GHG emissions by 20504. Furthermore, agriculture also accounts for around 70% of freshwater use globally and occupies about 40% of global land, while driving more than 90% of tropical deforestation5.
The food system creates negative impacts for people as well. In 2022, more than 1 billion people were categorised as obese and almost 2 billion as overweight because of overconsumption, contributing to a rapid rise in associated health problems6. At the same time, approximately 700 million people face hunger7. Industrial animal farming operations that rear large numbers of animals in confined spaces can breed lethal viruses and spread antibiotic-resistant ‘superbugs’, while unhealthy diets now pose a greater risk of morbidity and mortality than unsafe sex, alcohol, drug and tobacco use combined8.
Food losses and waste are estimated to generate 8-10% of global GHG emissions9. Globally, an estimated 30% of food is lost or wasted on average, with 14% of food being lost between harvest and retail, and around 17% wasted in retail and at the consumption level10. The below chart highlights the average annual food waste generated per person in different regions, although notably there is insufficient data for the food service and retail categories in middle-income countries, and across all categories in low-income countries.
There are potential solutions to the challenge in several areas:
Within M&G’s public equity impact strategies, one investee company providing solutions in this area is Darling Ingredients, which specialises in the collection and recycling of food waste. The company collects a variety of animal by-products, commercial bakeries’ waste and used cooking oils. These are refined and recycled, before being used in a broad range of ingredients and products, such as animal feed, organic fertilisers, collagen, renewable diesel, and biogas for clean energy generation.
Catering to higher demand without increasing land and water use, and while reducing emissions, will require advances in the way food is produced.
We have noted several areas with the potential to improve the efficiency of food production:
One M&G public equity impact strategy investee company, Tomra, is creating positive outcomes in this area. The company uses its optical scanning technology to create food sorting and grading solutions. Its automated food sorters can quickly and effectively detect unwanted items in food processing lines, by analysing characteristics such as colour, shape, size, structure, and even biological characteristics. This helps to reduce food waste, increase yields and ultimately improve efficiency.
Research shows that meat and dairy comprise approximately 60% of agricultural emissions despite providing only 18% of calories and 37% of protein globally. The food system can therefore become more sustainable by reducing the consumption of animal-based protein and moving towards more plant-based foods.
To accelerate the shift towards plant-based proteins, various food technology innovations have been seen in the last few years. Demand for such technologies has risen in recent years, driven by increasing consumer awareness of the health, welfare and environmental impacts of animal protein, as well as positive response from the market to alternative protein-based offerings, and is expected to grow over the next few years.
There are several alternative protein technologies currently available in the market:
Within M&G’s public equity impact strategies, we are actively seeking impactful companies in this relatively nascent area. We carry out rigorous analysis of potential investees. They must deliver material, measurable and intentional positive impacts, while also demonstrating that they are quality companies with the potential to deliver attractive long-term financial growth. We are yet to identify any candidates meeting our strict impact and investment criteria, but we continue to do work in this area. We note that there are also promising innovators in private markets, with whom our private asset colleagues are working and whose progress we follow closely.
The need for an efficient and sustainable food system is of critical importance not just to deliver healthy nutrition for a growing population, but also for the climate, the protection of nature and equitable outcomes for the world’s millions of farmers. The scale of the challenge grows daily, amplified both by population growth and by the effects of climate change The role of innovative solutions in supporting the move towards a more sustainable system cannot be underestimated and provides an exciting opportunity for investors.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.