Virtually everyone on Earth depends on agriculture for their survival. The planet could not support a large and growing human population without sophisticated systems for growing crops and raising livestock. Agriculture is also a significant source of livelihoods, employing 27 percent of the world’s workforce, according to the UN Food and Agriculture Organization. The vast majority of agricultural workers are found in Asia and Africa.
While the burning of fossil fuels is the leading cause of greenhouse gas emissions, the global food system is another significant driver of the climate crisis. Estimates vary on the level of emissions that derive from food, but a study last year found that food production and consumption was responsible for up to 37 percent of emissions.
Meanwhile, as the global population and demand for agriculture products increases, the demand for fertile agricultural land is larger than ever. Investors are under growing pressure to ensure investments in agriculture and forestry are consistent with the net-zero agenda.
Investors are more interested than ever in alternative practices in agriculture that will help meet Paris Agreement goals and tackle emissions. Many are wary of controversial concepts such as carbon offsetting that have the potential to be deemed greenwashing. But investments in lower-carbon alternative fertilizers and environmentally friendly protein alternatives to meat are on the rise, and several initiatives are being implemented to restore forests and protect the earth’s biodiversity.
With COP27 dedicating an entire day to agriculture, the importance of the industry in tackling climate change is finally taking its rightful place at the heart of the climate debate.
Invest in alternative fertilizers
Environmental worries and price concerns are increasingly driving investors to look at biological alternatives to traditional chemical fertilizers.
First, fertilizers are produced using natural gas feedstocks, which make significant contributions to greenhouse gas emissions. Especially when used imprecisely and excessively to cater for global agricultural demand, fertilizers and pesticides deplete the quality of soil and cause dangers for aquatic life. Fertilizers that seep into freshwater ecosystems can cause eutrophication, leading to ‘algal blooms’ that deprive fish and other species of oxygen.
Meanwhile, due to supply chain disruptions and the energy security crisis in Europe, the prices of certain chemicals used to produce fertilizers – such as synthetic nitrogenous fertilizers – have soared, while natural gas used as a feedstock is in short supply. This has further encouraged investor interest in biological alternatives.
According to AgFunder, start-ups focused on developing biological inputs for crops raised $892 million worldwide in 2021. A greener alternative feedstock that has sparked investor interest is green ammonia, which is 100 percent renewable and carbon-free, and can be made by using hydrogen and nitrogen separated from the air and processed through renewable energy. Although the cost of producing green ammonia via electrolysis currently comes at two to four times the cost of ‘grey’ equivalents, costs are likely to fall over time. Carlyle Group and CIG have recently backed Eneus Energy, supporting its green ammonia projects.
Another solution is ‘precision agriculture.’ This relies on systems that collect information through satellite data and remote sensing devices to address inter- and intra-field variability in crops. Precision methods optimize the use of fertilizers and pesticides, reducing their negative impact. They can also optimize irrigation and provide real-time information on temperature, sunlight or soil conditions.
Produce alternatives to meat
Animal produce is ranked as one of the biggest contributors to global CO2 emissions, with 502 million metric tons of carbon dioxide released each year through livestock in UK and EU farms, according to the Food and Agriculture Organization.
“Cows are the new coal – cows must sit alongside coal and cars at the top of the COP27 agenda if leaders are to leave Egypt with a credible plan for achieving the Paris Agreement,” said Jeremy Coller, chair and founder of the Farm Animal Investment Risk and Return Initiative, and chief investment officer of private equity firm Coller Capital. The animal produce industry is heavily resource-intensive compared with plant-based lower carbon alternatives, while less and less arable land is available globally. There is therefore a growing need for other solutions that satisfy consumer demand and are gentler on the environment.
Data released by the Good Food Institute states that 2021 was a record-breaking year for investment into alternative produce. Cultivated meat and seafood companies, fermentation companies focused on alternative products, and companies that specialized in plant-based alternatives, secured almost $11.1 billion in investment capital, 60 percent more than in 2019.
The GFI highlights how the public health and environmental crises of 2020 and 2021 heavily influenced this decision. GFI senior investor engagement specialist Sharyn Murray says: “With more and more investors acknowledging that climate risk is investment risk, alternative proteins offer a scalable solution that gets the world closer to a more secure, carbon-neutral food system. Managing climate risks is impossible without addressing food, and agriculture and alternative proteins offer us a tool to do that.”
Restore forests and ecosystems
The Earth’s natural ecosystems provide humankind with almost everything we depend on, from food, water and plants that give us fuel, shelter and medicine, to climate regulation and natural flood defences.
But human impacts through climate change and deforestation are putting ecosystems – and the businesses that rely on them – at serious risk. For natural capital to be restored, planet-conscious investment decisions need to be made. “In these times of crisis for the planet, which individual investor would not want to tell their kids they invest in the Earth’s capacity to regenerate life?” asks Alejandro Litovsky, founder and CEO of consulting firm Earth Security. “But despite the hype, nature is not yet an asset class; and carbon markets’ impact can be flimsy.”
The World Economic Forum’s 1t.org initiative provides opportunities to make transparent and accountable pledges toward conservation and restoration of the ecosystem. More than 30 companies have pledged to make investment decisions that protect and conserve 4.6 billion trees in around 60 countries.
Companies that depend on the ecosystem for their products are implementing new practices to improve supply chain impacts on biodiversity. “Doing it requires a new mindset – especially in agriculture and real assets – funding and growing companies whose business models are based on ecological restoration,” Litovsky says.
For example, Nestlé has committed to planting 200 million trees by 2030 in and around farms where it sources its ingredients. In 2021, Mozambique became the first country to be paid through the World Bank’s Forest Carbon Partnership Facility for reducing emissions, signaling to the international carbon markets that reducing emissions from deforestation and forest degradation leads to higher-quality carbon credits.
Carbon offsetting – when companies increase carbon storage through restoring land or planting trees to compensate for emissions – has long been a controversial concept.
Although an environmentally-friendly idea in theory, offsetting becomes detrimental to the net-zero agenda when offsets are used as a substitute for reducing emissions. The Science Based Targets initiative has warned that an over-reliance on offsetting to maintain ‘business as usual’ creates issues around land use, equity, fairness and climate justice.
Despite numerous companies and countries jumping aboard the offsetting bandwagon, many are skeptical that it truly contributes to the net-zero path. Offsetting may even be seen as a glorified form of greenwashing. For offsetting programs to truly contribute to net zero, the credits must not be generated from emission reduction efforts that would have occurred regardless of a company’s investment.
Australia has recently appointed the country’s former chief scientist to review the country’s carbon credits, following allegations that they do not add up to emissions reductions. And some companies are rethinking offsetting programs altogether.
After launching its offset program in 2019 and becoming one of the first major airlines to claim that it offset all its emissions, easyJet announced in September that it will abandon its carbon offsetting scheme. The company will instead concentrate on other technologies such as fuel-efficient aircraft, greener fuels and hydrogen-powered aircraft. easyJet has reportedly offset 8.7 million metric tons of emissions since the launch of the scheme in 2019 and will still give customers the option of voluntarily offsetting with an additional cost.