A new tool released by Coller FAIRR that measures the financial implications on animal protein companies of a 2°C global temperature increase suggests Brazilian beef giants JBS and BRF could lose 30 percent and 45 percent of EBITDA, respectively.
The climate risk tool’s predictions are based on a variety of inputs such as whether a company takes a climate regressive, baseline or progressive approach, and it identifies seven key risks that include high rates of alternative protein market growth, increased livestock mortality rates due to a hotter climate and carbon taxes on electricity and meat.
The predictions on JBS and BRF are based on the scenario that the two companies “fail to improve market share in alternative proteins and reduce exposure to beef and poultry,” the report says.
Head of research and engagements at the FAIRR Initiative Aarti Ramachandran told Agri Investor the combination of risks that are affecting the animal protein industry “are not being factored into how investors value and engage with the sector.”
As part of its research, Coller FAIRR found that only two (Tyson Foods and Marfrig) of the 43 largest meat companies globally “has publicly disclosed a climate-related scenario analysis.”
Ramachandran said: “We thought it was important that based on the recommendations from the TCFD [Task Force on Climate-related Financial Disclosures], that both investors and companies start developing a more forward-looking approach to the sector and consider how these risks will play out in financial terms.
“The objective is to provide a framework within which investors and companies can understand what the financial impact of these climate-related risks will be.”
Coller Capital chief investment officer Jeremy Coller said in a statement: “Investors can see the inescapable truth for the meat sector is that it must adapt to climate change or face ruin in the years ahead.”
The climate risk tool is currently only applicable to poultry, meat and pork producers. Ramachandran confirmed Coller FAIRR plans to add dairy and aquaculture companies in future iterations of the tool, as well as incorporating additional risks such as water scarcity and changes to land use policy.
The model also predicts alternative proteins “will command at least 16 percent of the total meat market by 2050, potentially rising up to 62 percent.”
Ramachandran added that the tool could eventually help investors decide the extent to which animal protein companies “should be weighted in the construction of their portfolios.”