Climate change worries meat and dairy investors but not enough to affect financial decisions, study flags

18 Jul 2022 --- More than four out of five meat and dairy sector capital investors are worried about climate change and how it will affect their investments. While agreeing with the premise that “climate change presents a material risk to meat and dairy industry-related investments and that action is needed urgently”, a much lower number of investors, 33%, are taking action on those risks.

“Over half of the investors are aware of the inertia, when it comes to addressing climate risk in the meat and dairy sector. Although this is one of the sectors that is already harmed by the heating climate, there is little action to address its outsized contribution to climate change,” Nusa Urbancic, campaigns director at Changing Markets Foundation tells FoodIngredientsFirst.

“The alarming effects on the sector multiply the hotter the planet gets. Farmers across the globe are already feeling the pain and we need rapid action to break this vicious cycle,” she continues.

Changing Markets Foundation’s report “Stranded in a vicious cycle” surveyed 201 respondents from the investment community and found a divergence between investor expectations and climate scientists’ ones.

“The assumption is that meat production will expand by 40 metric tons to 366 metric tons by 2029. Dairy production is expected to grow by 1.6% per year by 2029. EAT-Lancet projects that red meat and dairy production will increase by over 50% by 2050 compared to 2010 baseline,” reads the report.

94% of investors surveyed recognized the importance of companies cutting methane emissions.2050 economic losses?
The report establishes that livestock might decline by 7% to 10% if global temperatures rise by 2°C by 2050, implying an economic loss of between US$9.7 billion and US$12.6 billion.

“Assets in water-stressed regions could become stranded temporarily, or permanently, if assumptions made about water availability and access prove inaccurate, regulatory responses are unanticipated, or if risk mitigation and stewardship plans are not put in place,” explains the report citing information from Planet Tracker.

Additionally, 23% of investors see a scenario of “stranded assets” as very likely and 61% as possibly.

However, as established before, the same report says that industry predicts a 50% increase in meat and dairy production, which is at odds with some climate science.

“Agricultural losses to drought between 1983 and 2009 amounted to US$166 billion, while food systems cost US$12 trillion in hidden social, economic and environmental impacts,” reads the report.

Methane catches attention
Livestock methane emissions are responsible for up to 32% of the methane emissions globally, and cutting them in the agriculture sector by 45% by 2030 might translate into avoiding 0.3˚C warming by 2040.

“Agriculture is the single biggest source of man-made methane emissions. Our survey shows that investors also perceive such lack of action as very short-sighted given that the meat and dairy sector will be so significantly impacted by climate change,” says Urbancic.

“[Methane] has 82.5-times more warming potential than CO2 over a 20-year period…Yet methane emissions continue to rise even faster than CO2, and 2021 saw a record increase in methane levels for the second year in a row,” flags the study.

Some countries are starting to try to curb methane emissions by firming up policy. For instance, the Ministry for the Environment of New Zealand unveiled a plan last month for it to become the first country in the world to tax farmers for their livestock methane emissions.

Furthermore, 94% of investors surveyed recognized the importance of companies cutting methane emissions, with 72% agreeing that businesses should report gas emissions alongside carbon ones.

In November 2021, most countries signed the Global Methane Pledge at the COP summit in Glasgow. The aim is to limit methane emissions by 30% in 2030 compared to 2020 levels. 

Livestock land abuseOnly one in three investors address climate related risks at the time to invest their funds.
Another part of the vicious cycle is the act of increasing land that meat and dairy requires, even when opportunities to raise efficiencies are considered. 

Agriculture currently occupies 38% of the earth's terrestrial surface, divided among 1.5 billion hectares of cropland and 3.4 billion hectares of pastures.

“While livestock takes up most of the world’s agricultural land, it only produces 18% of the world’s calories and 37% of total protein. Other crops make up 23% of agricultural land and produce 82% of global calories and 63% total protein,” explains the report.

“Agricultural land expansion is already linked as well to massive emissions from land-use change, for instance, through deforestation. Conversion to pasture for cattle in particular, as well as oilseeds, such as soy, used to feed livestock, are amongst the largest commodity-based drivers of global deforestation.”

Moderate investment in meat alternatives
All things considered, the study signals that investors are putting some money into meat and dairy alternatives. 

In 2021, a record US$5 billion was invested in alternative proteins, a considerable ramp-up of funding in the sector, as since 2020, US$11.1 billion have been captured by alternative proteins – 73% of the amount since 2020. 

“There is evidence that a growing number of large investors are becoming tougher with companies they invest in on climate change. Some of them are also announcing divestment plans if more traditional engagement does not deliver results,” highlights Urbancic.

“Although this is currently mostly focused on fossil fuel companies, it will soon affect food companies, especially as it becomes clearer that food companies are also responsible for a significant chunk of emissions. The pressure is also coming from regulators and citizens, so we see a perfect storm brewing,” she continues. 

While only 9% of investors report significant investments in meat alternatives, 36% of investors are committed to moderate investments and 28% to small investments, according to Changing Markets Foundation’s report. 

“Those who said they were concerned about climate change affecting the availability and performance of investment products and opportunities are slightly more likely to make significant (11%) to moderate (42%) investments in alternatives.”

By Marc Cervera