The EU Farm to Fork Strategy and Fertiliser Companies – Nature-related financial risk use case
April 2022 – The University of Cambridge Institute for Sustainability Leadership (CISL) in collaboration with Deutsche Bank and Union Bancaire Privée (UBP) has published a use case on how the transition to a sustainable and resilient food system impacts fertiliser company valuations.
The much needed transition to a sustainable food system puts almost 50 per cent of fertiliser equity value at risk.
In collaboration with CISL, Deutsche Bank and UBP quantified the impact on fertiliser company valuations of EU policy that supports the much needed transition to a sustainable and resilient food system.
The use case finds that polices reducing fertiliser usage could lead to valuation declines of between 12 and 46 per cent for two major fertiliser producers. If extrapolated to listed fertilisers globally, equity value across the sector could decline by USD 25–67 billion.
Download the use case
The analysis showcased the financial materiality of nature-related transition risk, underscoring the need for financiers to engage with at risk portfolio companies about how their business strategy and operations can be a part of a food system transformation.
Dr. Nina Seega, Research Director, Centre for Sustainable Finance, CISL said:“By assessing nature-related financial risks we move toward a financial system that accounts for nature and helps prevent catastrophic nature loss. Incorporating nature-related transition risks, such as policies to improve the sustainability and resilience of the food system, are part of this. The EU Farm to Fork Strategy is one such effort. By quantifying the impact of the strategy, this use case underscores the materiality of nature-related transition risks and the need for investors to engage with portfolio companies about the action they plan to take.” Rupert Welchman and Özgür Göker in the UBP Impact Team said:CISL’s “Handbook for Nature-related Financial Risks” was a very useful framework to help us assess the use case on transition risk, especially in terms of approaching the problem in a systematic way. The work we have done during the use case shows that estimating nature-related financial risks is possible but very difficult with the current data set. Therefore, in addition to a detailed study on a sector, direct engagement with the companies is necessary for a thorough analysis.” Markus Müller, Global Head Chief Investment Office at Deutsche Bank’s Private Bank said:“The global food system is heavily dependent on biodiversity, which acts as a safety layer, with a significant impact on the livelihoods of millions of people. The F2F Strategy can be seen as a potential game changer for the EU's nature, food, and agricultural policy while proposing a new wave of essential and long overdue targets on issues such as protected areas, nature restoration, organic farming, and the reduction of agrochemicals.” Dr Alex Kusen, Investment Officer Europe at Deutsche Bank’s Private Bank said:“The food system needs to be redesigned in order to enable the transition to lower natural resource consumption and ensure economic returns as well as livelihoods for all actors. While the F2F Strategy aims to shift European agriculture to more sustainable practices over the next few years by reducing the use of external inputs, this policy also poses transition risks in the form of a potential reduction in EU food production, farmers' incomes, and the productivity as well as the business model of companies.” |
Citing this Use Case
Please refer to this report as: University of Cambridge Institute for Sustainability Leadership (CISL), Deutsche Bank and Union Bancaire Privée (UBP), 2022. Nature-related financial risk: use case. The EU Farm to Fork Strategy and Fertiliser Companies.
Authors
Özgür Göker (Union Bancaire Privée), Dr Alex Kusen (Deutsche Bank), Markus Müller (Deutsche Bank) and Rupert Welchman (Union Bancaire Privée) wrote the report in close collaboration with Grant Rudgley and Dr Nina Seega from CISL.