“Food and agriculture fits into most of our clients’ portfolios. Our food systems – from production through consumption to waste products – affect a range of stakeholders,” says Meredith Heimburger, head of impact at Global Endowment Management, a US-headquartered chief investment office for charities and foundations with $12 billion in managed assets.

GEM has invested nearly $100 million in food and agriculture impact investments. It seeks to improve outcomes for supply chain workers and the environment, Heimburger tells affiliate title New Private Markets.

“Food and agriculture fits into most of our clients’ portfolios because if you care about communities, supply chain workers, the climate, consumer health or healthcare in America – these are all things that feed into how traditional food and agriculture can be problematic, and how next generation food and agriculture are solving some of the critical problems that we’re facing today,” she says.

The “next generation” food and agriculture Heimburger is referring to includes technologies that produce plant-based or synthetic alternatives to animal food products, inhibit environmental degradation or facilitate more efficient or resilient agricultural practices.

The environmental impacts of food production are numerous: increased agriculture requires deforestation; intensive farming methods lead to soil degradation; producing meat and animal-based food products is much less land-efficient than other food types; livestock are heavy emitters of carbon dioxide, nitrous oxide and methane, the UN’s Food and Agriculture Organisation states.

Heimburger is part of GEM’s investment team and works directly with clients to establish their risk-return appetite and impact goals. Heimburger and the investment and impact teams have ultimate discretion over where they invest clients’ capital to achieve these aims.

GEM first invested in Sunridge Partners, an agribusiness venture capital firm, in 2017. Since then, GEM has increased its clients’ exposure to food and agriculture investments in its dedicated impact programme over the past year.

Sustainability is becoming a stronger priority for the investor and its impact investing programme, and it is seeing more opportunities for social and environmental impact investing in food systems as companies and consumers become more attuned to sustainability issues, says Heimburger. These two factors dovetail to explain GEM’s increasing interest in the food sector.

Health and climate change

Swedish pension fund AP4’s priority is to invest to tackle climate change, but it has secondary interests in promoting consumers’ health, Hanna Ideström, senior portfolio manager in AP4’s alternative investments team, tells New Private Markets.

AP4, which has assets worth SEK490 billion ($53.7 billion; €47.7 billion), is an investor in Equilibrium’s second controlled environment agriculture fund. It does not have a dedicated impact investing allocation but has “a strong thematic focus” and is seeking to invest in a number of sectors “that we think can be transformed by sustainability and climate transition”.

“We want the exposure to this sector because we think it’ll provide us with attractive returns. Returns are more lucrative because the sector is on the brink of a transition.”

Hanna Ideström, AP4

“Fifty-four or 55 percent of the LPs we’re talking to are looking at food and agriculture. It’s almost uniquely positioned to straddle environmental and social impact,” says Jeremy Smith, head of impact at placement agent Rede Partners.

“It’s such an interesting portfolio solve for LPs for health and wellness, food security and environmental issues. If you’re an LP and you’re interested in climate, you’re first going to invest in some renewables, some energy transition, and then you’ll do some food and agriculture because it has such a big impact on climate, even if it’s not an ‘on trend’ energy transition technology.”

Returns for starters

Above all, these investors are confident there is money to be made in food and agriculture sustainability. Blue Horizon, an alternative, protein-focused private equity firm, is targeting returns of more than 3x for its $750 million planned second fund, as New Private Markets recently reported.

Impossible Foods, a market leader in alternative protein, just completed a $500 million funding round, taking the California-based start-up’s total funding since inception in 2011 close to $2 billion, according to a statement.

AP4’s Ideström says: “We want the exposure to this sector because we think it’ll provide us with attractive returns. Returns are more lucrative because the sector is on the brink of a transition.”

The pandemic has showed the fragility of global food systems, says Ideström – so an asset that can produce food in any geography, at any time of year and via shorter supply chains is bound to be valuable. Strategies to protect global food supplies from the effects of climate change will rise sharply in value, she adds.

“Producing meat and growing crops are some of the heaviest emitters of greenhouse gases. And that is a risk for the food and agriculture sector – that will reduce profitability.

“Technology can play a role in developing alternative proteins and fats, and that’s an area where we can reduce emissions. And technology can make the agricultural process more regenerative and efficient and put nutrients back in the soil,” Ideström adds. “You don’t need to go back to the 1900s to make agriculture more sustainable.

“We want the exposure to this sector because we think it’ll provide us with attractive returns. Returns are more lucrative because the sector is on the brink of a transition.”

Risk appetite

The majority of LPs in this sector are family offices, high-net-worth development finance institutions, charities and foundations, and corporates – institutions with appetites for higher risks, says David Gowenlock, head of funds advisory and placement at ClearlySo, a placement agent for impact funds. He and his team raised Blue Horizon’s €183 million first fund.

“Family offices all have different interests and priorities. There’s often a mix of healthy eating, animal rights and wanting to do something for the climate,” says Gowenlock.

Families can become very passionate in a certain area and pursue their goals in a wider range of strategies because they have more flexibility with their capital, Gowenlock adds.

The investor base in this sector is becoming more institutionalised. “Historically, they were [the firm’s] friends, family and family offices. Now we’re seeing much more interest from multi-billion-dollar family offices, often family offices that have an interest in food,” such as those that made their wealth in the food industry or ethical or belief-based interests, Przemek Obloj, managing partner at Blue Horizon, told New Private Markets in September.