Sustainable agriculture: Regnan names four areas of investment
A global shift towards sustainable agriculture and food production is opening attractive opportunities for investors as new technologies and business models start to gain traction.
RESEARCHERS at Regnan, a global leader in sustainable investing, have named four areas of investment that will drive the transformation of food production while minimising waste and developing new sustainable and affordable food products.
The findings are featured in a new Regnan report, Catalysing Sustainable Agriculture and Food Production, by Regnan senior adviser Doug Holmes and Regnan fund manager Mohsin Ahmad.
Reforming agriculture is essential to meeting the challenge of climate change because agriculture and food production accounts for nearly a quarter of the world’s greenhouse gas emissions. Without change, emissions are forecast to grow more than 30 per cent by 2050.
Source: WRI analysis based on FAO (2017a); UNDESA (2017); and Alexandratos and Bruinsma (2012).
“But there’s so much evidence out there around the negative impacts from industrial farming as practised now that it’s quite clear we need to change course.”
Climate change aside, large-scale food production is doing astonishing damage to the environment.
Run-off from fertilisers, pesticides and herbicides is polluting waterways and marine habitats, soil is being degraded by reliance on chemicals and irrigation is depleting aquifers.
A third of the planet’s soil has already been degraded. Without significant change, 90 per cent of soil on earth will be degraded by 2050.
But despite the toll, crop land and pasture land will increase by 600 million hectares over the next three decades, destroying forests and natural ecosystems.
The challenge is how to feed a global population that will hit 10 billion by 2050 — requiring 50 per cent more food than we produce today — without inflicting further damage on struggling ecosystems.
In the new report, Regnan’s team identifies four areas of investment that are crucial to the key stress points in global food production, ideal to catalyse change and – perhaps most importantly – largely unsung by the global investment industry.
1. Soil health
The first is regenerative and organic farming aimed at improving soil health.
Organic matter – essentially dead and decomposing plant and animal debris alongside billions of living creatures like bacteria, fungi, insects and worms – plays a vital role in soil health.
A 1 per cent increase in soil organic matter helps soil hold 20,000 more gallons of water per acre. Organic matter is also a powerful store for carbon dioxide that helps mitigate climate change.
The investment opportunity lies in the carbon credits that can be generated by better soil management.
“There are business models being developed monitoring and measuring and tracking soil carbon using various technologies and then creating markets for soil carbon that can be brought into the public space,” says Holmes.
2. Controlled farming
The second opportunity is controlled farming which can be conducted in cities as indoor or vertical farms, or larger-scale state-of-the-art greenhouse farming close to urban areas.
“Within developed economies, this is a real growth area,” says Holmes.
“There are some quite large controlled-farming start-ups and businesses in places like the United States and in Europe developing models that are very focused on feeding a rapidly growing urban population. They typically employ AI and advanced technologies.”
Controlled farming is essential to support the rapid growth of cities and the increasing urbanisation of the world.
The growing risk of extreme weather is another driver, as controlled farming can be better protected, lowering the risk of crop loss.
3. Waste management
Third on the ledger is the growing industry aimed at reducing the enormous waste in food supply chains.
Close to a third of all food produced is lost to waste.
This not only means that fewer meals are available for those in need, but it also lifts the land area and resources required to make up lost food, putting additional stress on the food system and lifting greenhouse emissions.
“By reducing food waste, there’s more food available that eventually reaches the dinner plate, so that means less load on systems upstream.
“Less land is cleared for agriculture and there is less load from the agricultural processes themselves and all the inputs that go into producing food.
“You’re reducing greenhouse impact and the also providing more food at the other end of the cycle.”
Source: FAO 2011, Regnan 2020
ReFED, a non-profit aiming to end food waste, says a 20 per cent reduction in US food waste over the next decade would be equivalent to removing about 4 million cars from the road.
“It’s a key area for attention,” says Holmes, who says some of the more promising innovations are platforms connecting farmers with pre-determined buyers for food that might otherwise go to waste.
“For example, in developed countries, farmers who have produced crops that might be less presentable from a marketing perspective have pre-determined buyers to take that product and turn it into other value-added food products like juices or similar products.
“The systems are developed to pre-identify buyers for food that may be less visually appealing or perceived to be of lesser quality.”
The Regnan team singles out Tomra, which has its origins as a reverse vending machine company that collects bottles and cans for recycling. Tomra has now expanded into providing sorting technology for the food industry, inspecting produce and helping divert low-quality food to alternative uses.
Regnan funds also hold shares in NYSE-listed Ecolab, which makes antimicrobial water additive products that reduce foodborne pathogens and help control spoilage of processed fruit and vegetables.
4. Plant-based meat
Finally, Holmes points to the growth of a new plant-based meat industry as an example of a move to sustainable food products that replace resource intensive agriculture.
“Livestock production is enormously greenhouse intensive. The opportunities afforded by the plant-based products is a very big one from a sustainability perspective, and particularly as those products are get better and better.
“It seems to be to me there’s a there’s a very big business opportunity there.”
Who is Regnan?
Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.
Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.
The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.
The Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change.
Both funds are distributed by Pendal in Australia.
Find out about Regnan Global Equity Impact Solutions Fund
Find out about Regnan Credit Impact Trust
For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at email@example.com.
Regnan’s focuses is on delivering innovative solutions for sustainable and impact investment, leaning on over more than 20 years of experience at the frontier of responsible investment. “Regnan” is a registered trademark of Pendal.
The Regnan business consists of two distinct business lines. The investment management business is based in the United Kingdom and sits within J O Hambro Capital Management Limited, which is authorised and regulated by the Financial Conduct Authority and is registered as an investment adviser with the SEC. “Regnan” is a registered as a trading name of J O Hambro Capital Management Limited.
The investment team manages the Regnan Global Equity Impact Solutions (RGEIS) strategy, which aims to generate market-beating long-term returns by investing in solutions to the world’s environmental and societal problems. The RGEIS strategy is distributed in Australia by Pendal Fund Services Limited.
Alongside the investment team is the Engagement, Advisory and Research (EAR) team of Pendal Institutional Limited in Australia, which has a long history of providing services on environmental, social and governance issues. While the investment management team will often draw on services from and collaborate with the EAR team, they remain independent of the EAR team and are solely responsible for the investment management of the RGEIS strategy.
The Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change. Regnan Credit Impact Trust is distributed in Australia by Pendal.