Part 5 in a series on the ESG risks and opportunities associated with the transition to a more sustainable economy.
Supported by Impax Asset Management
Sustainable food & agriculture in the public equity space has been a limited part of the environmental, social and governance (ESG) investing universe up until now. But investors of all flavors — from big institutions to family offices and other high-net-worth investors — are showing signs that the sector could be poised for take-off in the near future.
That should translate to more asset managers launching sustainable food & ag mutual funds and other strategies as more investors look to take advantage of growing consumer demand for sustainable practices in what they eat and drink — and invest in.
There are not many public equity, sustainable food-focused funds or strategies in the marketplace yet; the funds that do exist tend to be venture capital or other private investments, though some public equity funds are available. But as investors boost their interest in ESG investing, and as the need for sustainable agriculture becomes more and more clear, that will change.
“We have not yet seen demand specifically for sustainable, ESG-focused agriculture strategies, but it is an area where we expect to see an increased focus, both from new and existing asset managers,” says Sarah Gal, v.p. for real assets consulting at investment consultant Callan. “There is growing consumer demand for sustainable products and investor interest in making socially responsible investments.”
Publicly traded companies have plenty of ways they can put their resources to work within the sustainable food & ag space — all of which should appeal to ESG investors.
“Sustainable practices can be implemented across the agricultural value chain – from fertilizer and water management strategies on the farm, which can help to maintain the health of the soil and water resources, supporting strong yields and land values, to sustainable packaging at the food processor,” Gal says. “Beyond the effects on the agricultural land and products themselves, a focus on sustainability positively impacts the surrounding rural community that shares natural resources and the local economy that depends on agricultural activity.”
Institutional investors have been pouring money into food & ag-focused private equity funds, and making direct investments in food & ag companies, for years. For example, the Ireland Strategic Investment Fund, a $10 billion sovereign wealth fund, invested €40 million ($45 million) with Finistere Ventures in 2017, half of it to launch the Ireland AgTech Fund and the other half in an existing Finistere global agtech venture capital fund.
That same year, Singapore’s sovereign wealth fund Temasek joined with T. Rowe Price to invest in Farmer Business Network’s Series D venture funding round. Last year, Temasek invested in the venture funding rounds of startups Perfect Day Foods, Bowery Farming and Impossible Foods.
Also in 2018, Netherlands-based Anterra Capital extended its first venture capital fund by $75 million to a total of $200 million, making it one of the largest agtech venture funds. Investors include Rabobank and Fidelity International.
Sustainable food & ag investments investments with public equity asset managers lag behind these numbers. Still, some managers have collected hundreds of millions of dollars by being early movers. Impax Asset Management’s Food & Agriculture Strategy, for instance, has about £557 million ($720 million) in assets, according to its website, while Pictet Asset Management‘s Nutrition fund has €224 million ($253) in assets, its website says. Fund manager Alice de Lamaze says in an interview that the firm manages about €1 billion ($1.1 billion) in the strategy across all vehicles.
More money is poised to flow in to such strategies, observers say.
There is indeed increased attention being paid to food sustainability issues across the board, says Jo Raven, engagement manager at FAIRR, an institutional investor network focused on transforming the food system, particularly the global meat production industry. This increased attention comes as consumers and investors become increasingly aware of the environmental and other problems related with traditional farming and meat husbandry.
“The message seems to be pretty consistent that if we want to address climate change and stay well below a 2-degree scenario, we really need to look at animal protein production and the consumption of meat and other livestock products,” Raven says
So far, she says, this growth in interest — and the pressure it’s putting on managers to offer sustainable food & ag strategies — ‘’has been primarily driven by European investors.” But she adds that she is starting to see signs of pick-up in the US as well.
“US investors have been lagging in terms of taking action,” Raven says, which means American asset managers have felt less pressure. “But given the momentum we are seeing in Europe, this is beginning to cross over to the US, and we are hopeful that investors in the US will begin to shift in the next six to 12 months.”
That tracks with what Callan senior v.p. Andy Iseri reports. “We’ve seen low but growing demand for ESG strategies in general in the US institutional marketplace,” he says. The specific themes of sustainable food and agriculture “have gained traction — but only within a broader ESG mandate. We have not seen demand specifically for sustainable food and agriculture themed strategies as standalone mandates within public equity. “
Still, awareness is on the rise. “Investors are increasingly aware of the risks impacting the food and agriculture sector and can see how these risks provide opportunity for alternatives from the sustainable food & agriculture sector,” says Agne Rackauskaite, research analyst and senior associate at Impax Asset Management. “Risks like drought, flooding and climate change, for example, put sectors like palm oil, first generation biofuels and food and agriculture traders at risk. However, this opens up opportunities for sustainable growers and inputs, for efficient irrigation and machinery, more sustainable logistics and sustainable food producers and retailers.”
And all that creates opportunity for investors to make money.
Many investors are already seizing those opportunities, albeit on the private side: venture and growth capital investments in agriculture and food — including controlled agriculture, sustainable proteins and plant science — reached nearly $4.4 billion last year, according to a new report from Cleantech Group, up from about $3 billion in 2017 and $2.4 billion in 2016. Deal count is up too: 230 in 2016, 304 in 2017 and 349 last year.
More than half of the deal volume, and about three-fourths of the dollars invested in startups, was in North America. Cleantech Group says the sector is seeing increased participation of nonagricultural investors, such as Softbank and Breakthrough Energy Ventures. That broader participation, and the increasing numbers, could be early indicators that sustainable sustainable food & ag investing is indeed about to burst into growth mode.
The only real question is the timing. There’s little doubt that the need for sustainable food and agriculture is going to drive investor interest, which will lead to more money entering the space via public equities. That means more money to existing funds, and surely means more asset managers will look to develop new sustainable food & ag public market funds. “Sustainable food and ag are attractive to investors seeking sustainable economies,” says Callan’s Iseri. In coming months and years, it will be “a growing investment opportunity as solutions are needed to feed a growing global population.”