Feed the world: Could investors be instrumental in achieving SDG2?
Planet Tracker’s CEO Robin Millington lays out how and why investors need to step up engagement on food and agriculture
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The second of the UN’s Sustainable Development Goals (SDGs) is suitably ambitious: Zero Hunger.
Hunger, according to the UN, is measured as “the prevalence of undernourishment”. Ending it is an objective that may sound simple enough, but encapsulates complex challenges such as promoting sustainable agriculture and achieving food security for all.
Achieving a sustainable supply of one of our most basic human necessities is rapidly becoming more urgent than ever, as the world’s population stays firmly on track to surpass 10 billion by 2050. Critically, we will not be able to feed a population of this size under a business-as-usual scenario.
At the same time, as the population booms, the quality of resources to adequately feed it is declining. According to the UN’s definition, this too exacerbates hunger. Certainly, it is not just a case of ensuring there is sufficient food, but also of making sure that global food and agriculture systems provide food that meets nutritional requirements, while allocating it equitably.
Also locked within food and agriculture systems is, of course, the viability of numerous essential industries and substantial flows of capital. As food systems come under mounting strain, investors will undoubtedly be exposed to systemic risks, as natural degradation and overdemand take their toll on agricultural supply chains.
Given the scale and severity of the problem, many investors will want to know how they can leverage their unique positions as drivers of change to make a positive impact on SDG2 – rather than simply managing their own short-term financial exposure.
Hunger: sizing up the problem
So how do we meet the dietary needs of 10 billion people in under 30 years? Much work has already been done in terms of understanding what a balanced nutritious diet looks like, and our capacity to produce it.
The EAT-Lancet Commission report on Healthy Diets, Feeding the Anthropocene, defines a “universal reference diet” as consisting of an optimal caloric intake and a diversity of plant-based foods, low amounts of animal source foods, unsaturated rather than saturated fats, as well as limited amounts of refined grains, highly processed foods and added sugars. It identifies the “safe space” within which we must operate to produce such a diet under the assumption that we can only grow food on existing agricultural land areas. It concludes that, as things stand, we will soon be unable to sustainably feed the global population.
Indeed, another EAT-Lancet Commission report, Affordability of the EAT-Lancet Reference Diet; a Global Analysis, suggested that, based on the current price of food, the cost of an EAT–Lancet diet exceeded household per capita income for at least 1.58 billion people (roughly 20% of the global population).
As a result, current methods of food production must undergo profound change. Firstly, by increasing the production yields of existing agricultural land, not via the damaging intensification of the past, but rather by productive reallocation of use; and secondly, by changing diets at scale to reduce demand for foods with disproportionate yield-to-land use ratios – such as red meat.
Climate change and consumer behaviour are exacerbators
Current agricultural practices typically exploit water and soil which, in turn, diminishes the health of these resources and makes it increasingly harder to produce food. This problem intensifies as climate change increasingly disrupts weather patterns.
For example, Ukraine is already seeing significantly reduced crop yields over the same area of land due to climatic events. Farmers are about to start sowing their seed – but this is hot on the heels of Ukraine’s megadrought, which is expected to produce the country’s worst harvest for over 10 years.
With soil moisture levels at their lowest point in 50 years, Ukraine already has had seven million tonnes of decreased production this year. What’s more, the ramifications of this low-yield harvest are likely to be felt by 58 other countries including Egypt and China, which were the main importers of Ukrainian grain in 2019 and 2020.
Consumer behaviour also heavily influences demand and the land needed to ensure healthy diets for all. The hectares of land required to produce animal protein, such as beef, is greatly disproportionate relative to alternatives, like plant-based proteins. That said, from an affordability and cultural point of view, the shift away from predominantly meat-based diets is unlikely to achieve the much-needed change any time soon.
The investor impetus to instigate change
Several types of investors are likely to feel the direct impact of the pressure on food and agriculture systems – such as sovereign investors in economies like Brazil and Argentina. Their export markets depend heavily on the agriculture sector – 40% and 60%, respectively.
Argentina’s sovereign debt and overall GDP, in particular, relies heavily on its soybean and cattle exports, which face the impact of climate change and anticipated anti-deforestation policies. An estimated 28% of Argentina’s sovereign bonds will be exposed to these risks through the 2020s, rising to 44% after 2030.
Argentine sovereign debt is particularly exposed, with the yield to maturity for a 10-year bond estimated at 54% – the highest among all G20 debt. Argentina’s crucial need for ongoing revenues in foreign currency means it is critical that its export trade remains strong. Yet, if production and policy practices are not improved, a global shift to zero-deforestation could put at risk 4.8% of Argentina’s soybean exports alone – equivalent to a $1.7bn loss in government revenue. In the case of Argentina, as its agriculture production suffers, it is less able to service its debt, thus affecting its sovereign investors.
Corporate investors in the agriculture sector also face the financial implications of reduced food production.
Take the seafood industry, for example: production is hampered and becoming costlier simply because there are less fish in the sea, thus harming investor returns. What’s more, despite being a crucial food group, the proportion of seafood in a staple diet will likely have to diminish as fish stocks decline and the global population continues to grow.
It is not just investors at the production stage of agricultural supply chains that are exposed – those positioned both upstream and downstream are at risk too. An investor in a farm machinery company, for instance, will risk their assets becoming stranded if farms default due to decreased production.
Fortunately, investors are very well-positioned to drive SDG2 commitments through direct engagement, proxy voting and shareholder resolutions to influence management teams to operate more sustainably.
Investors can also send a message by choosing to divest from companies with unsustainable agricultural methods, or preferably by redirecting their capital to those that seek to meet SDG2 commitments.
Further, demanding enhanced transparency and independent, third-party verification on a company’s sustainability objectives is critical to underpinning the industry’s shift towards long-term sustainability – and ultimately, towards achieving SDG2 before it is too late.
Robin Millington is the CEO of Planet Tracker, a think-tank dedicated to promoting the alignment of financial markets with planetary boundaries. She has worked extensively in the climate, land-use and food sectors.