The focus on agriculture is intensifying ahead of COP30, presenting opportunities for investors, writes Max Boucher
Investors know that the agricultural transition must be central to net-zero plans. Just as we need to shift from a high- to a low-carbon energy economy, we also need to transition from a food system that fuels climate change to one that embraces nature, sequesters carbon, and promotes resilient and equitable agricultural production.
With COP30 in Brazil less than 500 days away, which marks the deadline for countries to have pursued integrating agriculture into their NDCs, the pressure on stakeholders across the public and private realm to supercharge the sustainable agricultural transition is intensifying.
A constructive dialogue between investors and corporates is a vital component of a shift to sustainable agricultural practices, and for building robust and resilient portfolios.
Yet with the anniversary of beef-producer JBS's SEC application passing with a successful listing uncertain after challenges tied to its sustainability record, and news that meat and dairy emissions remain stubbornly elevated, questions surrounding the industry's ambition to change abound.
There are five key areas of risk and opportunity in the food system that investors must focus on to drive sustainable change, which is increasingly considered to be part of their fiduciary duty: governance, deforestation, regeneration, protein diversification and a just transition.
From Boardroom to barnyard
Agriculture has long been dogged by corporate governance scandals. Tyson Foods faced a $221.5 million penalty for price-fixing in the poultry industry, and BRF S.A. was rocked by a scandal involving expired meat and falsified permits.
Events like this pose a sizable threat to corporate reputation – and as evidenced by FAIRR's successful engagements, investor intervention can make a difference. For example, three out of 10 producers engaged by FAIRR on biodiversity and pollution have started the process of incorporating the recommendations of the Task Force on Nature Related Disclosures (TNFD).
Deforestation due diligence
Deforestation and land conversion are perhaps the most obvious risks associated with food and farming. Deforestation alone - mostly due to agricultural expansion for beef, palm oil, soy, pulp and paper - causes 11% of emissions. In 2020, exports from JBS were linked to the clearance of forests and other ecosystems almost three times the size of New York City, and a report released earlier this year found the supply chains of three of the world's largest meatpackers (JBS, Marfrig and Minerva, all from Brazil) were responsible for an area of deforestation in Mato Grosso the size of Chicago.
"With new EU Deforestation Regulation requiring companies to prove that products do not originate from recently deforested land, and nature and food policies doubling in 12 months, it's imperative that investors work constructively with companies to ensure they are deforestation-free before 2030"
With new EU Deforestation Regulation requiring companies to prove that products do not originate from recently deforested land, and nature and food policies doubling in 12 months, it's imperative that investors work constructively with companies to ensure they are deforestation-free before 2030.
Progress can be made. Bunge and ADM, the world's largest Brazilian soyabean traders, previously strengthened their deforestation policies in response to calls from shareholders, and Marfrig is ahead of its peers in establishing traceable beef supply chains beyond direct suppliers. Others are likely to follow, as groups like Finance Sector Deforestation Action aim to eliminate deforestation in their portfolios through sustained engagements.
Embracing nature solutions
The 28 million hectares of degraded pasture lands that now sit where the Amazon and Cerrado forests were a few decades ago also offer an opportunity. Nature can be embraced to regenerate soils, sequester carbon and support biodiversity while building crop and livestock resilience to the climate-driven droughts and floods Brazil has been experiencing along with many other parts of the world. Productive soils also support the livelihoods of farming communities in those areas, helping reduce the financial incentives that drive the conversion of pristine forests and savannahs to more agriculture.
Beneath the bottom line
Despite the positive outcomes regenerative agriculture can offer, protein diversification must be part of a serious roadmap to net zero in food systems. Overconsumption of animal protein in many countries is linked to climate change and health risks such as heart disease and obesity. The climate-related risks to companies' growth are also rising; FAIRR's Climate Risk Tool estimated a $23.7billion total decrease in EBIT in 2030 compared with 2020 levels for 40 of the largest livestock producers.
Consumer-facing businesses have already started integrating protein diversification into their strategies. Carrefour is leading the charge, aiming to grow plant-based sales to $540 million by 2026 and thereby abate 7% of its Scope 3 emissions by 2030. Yet across the board only 15% of the world's largest food manufacturers and retailers have protein diversification targets, highlighting the need for more investor pressure in this crucial area.
Shareholders at the crossroad
COP30 in Belem in Brazil is already seen as a moment to take stock of the world's commitment to tackling greenhouse gas emissions and the degradation of nature, our most powerful carbon sink. For investors, there will also be watershed moments in the coming years, where they get the opportunity to influence the direction that the most impactful companies will take.
Investors need to take full advantage of these opportunities to encourage a transition to a food system that works in harmony with climate and nature and stay attuned to proposals -such as the proposed JBS IPO – that could limit shareholder influence.
Of the risks and opportunities discussed here, governance may be the area where investors have the most impact through their influence, and an area that will affect how corporate ambitions translate to sustainable change, from deforestation to regenerative agriculture and just transition.
Max Boucher is senior manager, research & engagements, biodiversity at the FAIRR Initiative.