Feeding the planet: a mission for responsible investors
Guest blog from Mathilde Dufour, Deputy Head of Responsible Investment Research at Mirova
12 May 2015
'Feeding the Planet, Energy for Life' is the theme of the Universal Exhibition, Expo Milano 2015. From now until October, governments, businesses, NGOs and international organisations representing 145 countries will gather in Italy’s economic and financial heart, to discuss how the luxury dish risotto alla milanese could be made accessible to more than 800 million people globally.
Milan, a city renowned for its creativity will become a global market for innovative ideas and technologies on how to answer this most vital of needs: food security. To put it in the words of the Food and Agriculture Organization (FAO), this is when "all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life". Yet in order to germinate and grow, the seeds of innovation need financing.
At Mirova, we will be following this event closely. As responsible investors, we believe it is our role to imagine financial solutions to such challenges ‒ combining financial performance for our clients with positive environmental and social impacts over the long term. Our research team has been examining scenarios supported by insight from Cambridge academics and other researchers and business executives convened by the University of Cambridge Institute for Sustainability Leadership (CISL); this forms part of our wider research collaboration with CISL, including the formation of the Investment Leaders Group, to encourage European and international finance professionals to adopt more responsible behaviours.
Our conclusions, detailed in our study 'Food Security ‒ Closing the food gap: opportunities for investment?', are optimistic. We believe the 'food gap' between current production levels and the future needs of a growing and developing world population can be closed within 10 years. We say this is possible while following the United Nations Conference on Trade and Development’s Principles for Responsible Agricultural Investment ‒ generating indirect social and environmental benefits such as reduced poverty, greater gender equality and diversity, and the conservation of natural resources. We also believe the corporate sector has a key role to play in achieving these goals.
So where should responsible investors allocate their capital to participate in this movement? We have established a methodology to identify the most cost-effective and sustainable sectors, as well as companies in which to invest.
An extrapolation of figures from the Organisation for Economic Co-operation and Development (OECD) and FAO shows that 1.5 billion tonnes of additional food will be needed over the next 10 years to close the food gap. Based on our review of key sources, it appears that 62 per cent of this amount will have to come from the production side. This means that despite legitimate concerns over waste and competing uses of crops (e.g. first-generation biofuels), yield increases remain the most powerful lever for progress.
But balancing absolute performance with the overall objective of long-term sustainability is a sensitive matter. Our approach has been to monetise the environmental and social impacts of each potential solution, and integrate this into the estimated cost of implementing the solution itself.
In doing so we have been able to refine our cost curve and identify soil fertility management, bioprotection and precision agriculture as the three leading drivers of the next, truly 'green' revolution.
The first, soil fertility management, is an umbrella term for a number of good practices, some of which have been in use for centuries (e.g. the use of locally available soil amendments and organic matter). Conversely, bioprotection (natural or nature-inspired alternatives to chemical pesticides for protecting crops) and precision agriculture (bringing the precise inputs needed to grow a particular crop, given its climactic, biological and soil conditions) designate innovative sectors, with a strong potential for growth.
So which are the best companies to invest in?
Keeping in mind that our research is limited to listed equities – excluding a large spectrum of potential investment opportunities through private businesses, small enterprises, public-private partnerships, etc. – our main conclusion is that the current number of innovative candidates is minimal.
If the food gap is to be closed within the next 10 years or so, this has got to change. In the meantime it is vital to keep investing in companies providing business-as-usual solutions, as long as they are able and willing to manage their environmental and social risks.
