ESG Focus | Dec 18 2024
FNArena’s dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/
The latest ESG in focus details some of the solutions for global food production and sustainable protein sources.
-Climate change impacts on global food production
-Water infrastructure and aquaculture
-Addressing the global challenges of obesity
By Danielle Ecuyer
Insurance for crop production
Consultants Pollination Group detail how farmers worldwide are experiencing the “full force of climate change”. The United Nations Food and Agriculture Organisation estimates US$3.8trn of crops and livestock have been lost to climate disasters over the last thirty years, equaling more than -5% of annual global agricultural GDP.
Pollination Group explains small landholders (measuring ten hectares or less) produce 46% of the world’s food, including barley and coffee, on which large food producers rely heavily.
Smaller farmers in particular are financially vulnerable, with only 3% of sub-Saharan Africa’s farmers holding insurance. These farmers face higher risks of losses when managing extreme weather events.
To address the problem, organisations, including the UN Development Programme, are implementing partnerships with entities such as the Bill and Melinda Gates Foundation to embed financial resilience into the objectives of the countries they work with.
In Uganda, Pollination highlights, the government has started an agricultural insurance scheme offering a 50% subsidy on insurance premiums for small landholders, who comprise 80% of the country’s farming population, and an 80% subsidy on premiums for high-risk areas such as semi-desert locations.
Private capital investment opportunities
Federated Hermes examines the role of impact investing in utilising private capital to help address major sustainability issues, including air, water, and soil pollution. According to the latest UN Sustainable Development Goals Progress report, only 17% of targets are on track, while almost 50% show minimal or slight progress, and 30% have stalled or even regressed.
While there is progress on decarbonisation and electrification, Federated Hermes points to opportunities in the water sector. There is a “global imbalance between water supply and demand coupled with climate effects such as droughts and regulatory drivers around water pollution”.
As an ecosystem, water represents a “huge” global total addressable market, valued at US$800bn, with global water infrastructure requiring capex of -US$12.7trn over the decade.
Morgan Stanley continues its series on Sustainability within the context of the UN’s 17 Sustainable Development Goals. The latest update addresses the growing global demand for protein and malnutrition.
To improve access to nutritious food and “sustainable food production systems“, aquaculture is presented as a potential solution. At current consumption levels, aquaculture represents approximately 2% of global calories for humans, while oceans contribute around 50% of the planet’s biological production.
Morgan Stanley cites challenges, as detailed in the Animal Welfare journal this year. An estimated 87% of stock for food or animal feed in 2019 came from wild-caught fish, with around 50% of all caught fish processed into fishmeal or fish oil.
Approximately 70% of fishmeal and 73% of fish oil are used in aquaculture to feed farmed fish or crustaceans.
Environmentalists are raising concerns about the stress placed on ocean ecosystems, arguing an increase in the proportion of fish used for fish feed could instead be used for human consumption. Small pelagic fish from West Africa, such as herring, mackerel, and anchovies, could provide protein for 33 million people.
Another issue is the use of antibiotics in fish farming, as rising antimicrobial resistance has been flagged by the WHO as a top health threat. The World Bank estimates it could increase incremental healthcare costs by US$1trn by 2050.
To address sustainability issues in aquaculture, Atlantic Sapphire, the “largest land-based aquaculture company in the world”, aims to raise 220,000 tons of salmon on land previously used to grow 10,000 tons of tomatoes.
The company seeks to reduce operational costs and boost production, as land-based aquaculture has historically faced challenges such as high mortality rates and issues with harvest volumes and weights. Land-based operations in continuously purified water limit the need for chemicals and reduce impacts on biodiversity.
Tackling the obesity challenge
Morgan Stanley’s coverage of Sustainable Development Goals also explores obesity as part of “Good Health and Wellbeing”.
The broker estimates the global market for obesity medication will reach US$105bn by 2030, with a potential bull case scenario exceeding US$140bn. Over one billion people currently live with obesity, and this figure is expected to grow to over 1.5bn by 2035.
In the US, the Centers for Disease Control and Prevention report obesity has stabilised at slightly over 40% of the American population, while severe obesity impacts 10% of adults.
Under the UN Sustainable Goals, the aim is to achieve a one-third reduction in the risk of early death from cardiovascular disease, cancer, diabetes, and chronic lung disease for people aged 30-69 years by 2030.
Selected countries have successfully moderated or stabilised obesity rates. For example, France’s sugar tax led to a decline in soft drink purchases, while 27 studies across 11 geographies concluded higher soft drink taxes reduced consumption.
In Switzerland, school intervention programs promote increased exercise and healthier food choices.
Morgan Stanley concludes a multi-stakeholder engagement strategy, including changes to the food system and behavioural changes, will be required to address obesity.
Grant Thornton’s Agribusiness, Food and Beverage Dealtracker report for 2024 analyses M&A and equity market activity for 2024. The consultants highlight increasing activity and focus in Australia’s mid-market space on businesses that are tech-enabled, innovative, ESG, and sustainability-focused. Such businesses continue to attract “significant interest”.
Cameron Bacon, Grant Thornton: “While Australian deal volumes have slowed reflecting inflationary concerns, domestic mergers and acquisitions in the Agribusiness, Food & Beverage sector have shown a shift toward the mid-market suggesting a real opportunity for those businesses able to be agile and stay on the front foot when it comes to ESG and sustainability”.
FNArena’s dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/
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