Alan Briefel is executive director of the Farm Animal Investment Risk and Return (FAIRR) Initiative, an executive at the Jeremy Coller Foundation and chief executive officer at Stratcom, a research-based strategy consultancy focused on asset management and financial services. After we reported on the Business Benchmark for Animal Welfare last week, Briefel makes a case for why investors should be aware of animal welfare.
I first became aware of animal welfare concerns in the 1970s when the debate was focused on endangered species, hunting and mistreated pets. It was certainly not an issue for the red-blooded investors of the City of London, and even now few investors pay attention to the issue – even though many will be exposed it.
The world has changed since the 70s. One of the largely unseen phenomenon has been the dramatic shift to large-scale, intensive, highly-mechanised systems of meat production. Over the last 50 years global meat production has quadrupled, and over 70 percent of the world’s farm animals are factory farmed (in the US it is closer to 99 percent) – a proportion rising fast as emerging economies increasingly harness the method.
Many investors are aware of how industrialisation has affected, say, the sustainability of our climate or international labour regimes, yet few have stopped to think how industrialisation has affected global food production, particularly when it comes to livestock.
But I believe that’s changing – because the long-term risks of intensive farming of animals are becoming the next big sustainability issue for investors.
Alarm bells should be ringing
This should ring alarm bells for forward-looking investors. Just as with the global climate, industrialisation has created some long-term risks alongside its benefits. In this case, issues of human health and the environment in particular are rapidly reducing our options for feeding the world, and may eliminate many of the yield increases brought about to date.
My colleagues and I at the Farm Animal Investment Risk and Return (FAIRR) Initiative recently released a landmark report Factory Farming: Assessing the Investment Risks, that highlights some of these risks.
The one I find captures investors’ attention most is the threat to human health. Intensive farming methods have been shown to catalyse the spread of deadly viruses such the H1N1 swine flu, which in 2009 killed over 150,000 people and wiped billions off some portfolios. For example the MSCI US Agriculture & and Food Index plunged over 1.5 percent in two weeks in April that year due to the impact of the virus.
The massive overuse of antibiotics by factory farms also makes them breeding grounds for antibiotic-resistant superbugs that could threaten to set medical advances back by years.
Of just as much concern are the environmental issues. For example, over 14 percent of global greenhouse gas emissions come from the livestock sector, more than the transport sector, so the sector is likely to be hit hard by the transition to a low carbon economy, a transition fast-tracked by the recent Paris Agreement.
The forgotten ESG issue
Meanwhile, investors globally have changed too. Investors managing around $60 trillion of assets, around a third of the world’s investable capital, have recognised the importance of considering environmental, social and governance (ESG) risks by signing the UN-supported Principles for Responsible Investment (PRI). But while these investors may be well versed in the ESG risks in sectors such as healthcare, infrastructure or energy, they have a vast knowledge gap when it comes to issues in the food sector. This is a dangerous blind spot for investors and society.
And its not just about risk, there are opportunities too.
The next wave of a food revolution is emerging through food technology companies that are bringing together biotechnology, sensory experience and data to create affordable, sustainable alternatives to meat.
For example, Hampton Creek is a food technology company in California that uses plant proteins as egg substitutes, to create products such as ‘Just Mayo’ and ‘Just Scrambled’. Their products are cheaper and use less natural resources than egg-based equivalents. Since the outbreak of avian flu in the US this year – another example of a virus catalysed by intensive farming – the company has reported enquires from most major food chains and is now on track to become the fastest-growing food company in history.
Another example is Impossible Food, which uses proteins and other nutrients to recreate the complex taste and texture of meats and dairy products.
It won’t all be plain sailing. New food technology companies will have to battle with issues such as economies of scale, consistency of output and opposition from powerful industry lobbies but many private equity and other investors have already realised these are calculated risks.
The growing risks and opportunities mean its time for smart investors to pay attention.