How can engaging with food companies help investors decarbonise their portfolios?

Week of 6 September 2021

How can engaging with food companies help investors decarbonise their portfolios?

Our key takeaway: The food and beverage sector is a major piece of the carbon puzzle, accounting for one-third of GHG emissions globally, mostly in the supply chain (Scope 3). To reduce their own climate risk, investors should engage portfolio companies in the sector—and in adjacent sectors—to set ambitious reduction targets and develop transition action plans.

 Climate Action 100+ (an investor-led engagement initiative focused on influencing ambitious GHG emissions goals in the highest-emitting sectors, and comprising 615 investors with $55 trillion in assets under management) published guidance for investors on engaging with companies in the food and beverage sector. The report, drafted by Ceres and the Principles for Responsible Investment (PRI), asks investors to set expectations for portfolio companies to transition to a net zero economy:

    • “A net-zero future is not possible without action from food and beverage companies.” According to the report, the “global food system is responsible for approximately one third of global anthropogenic greenhouse gas emissions” and all “land-based emissions must be reduced by 85% compared to a business as usual scenario by 2050” in order to meet the goals of the Paris Agreement. And a focus on reducing Scope 3 emissions is key, as most of the GHG emissions in the food and beverage sector come from the supply chain.
    • Investors need to set clear expectations for companies in this sector in order to move the needle. The report recommends six actions that companies should take to move towards net zero: (1) “Integrate supply chain climate action into corporate decision-making processes and procurement policies”; (2) “Incentivize and support agricultural producers to reduce the climate impact of crop and livestock production and enhance agricultural carbon sequestration”; (3) “Align capital expenditures, product development, and R&D with a 1.5-degree scenario”; (4) “Transition to more efficient and renewable energy use and transportation across operations, distribution, and supply chains”; (5) “Improve processing, manufacturing, and packaging practices to reduce emissions and food loss”; and (6) “Partner with peers, suppliers, and policymakers to drive transformations across the sector.”
    • But a one-size-fits-all engagement strategy won’t be enough. The report recommends that investors focus on the specific role of their portfolio companies in the food and beverage sector and tailor engagement to the most relevant topics that can maximize emission reduction. What’s more, investors can triangulate their efforts by also engaging portfolio companies in adjacent sectors that can impact emissions in the food and beverage sector. These include: “Chemical companies that produce agricultural inputs such as seeds and synthetic fertilizers; Machinery companies that produce agricultural and farm machinery; and Banks that play a key role in financing agricultural commodity production in emerging markets.”

For more, see Ceres and PRI, The Global Sector Strategies: Recommended Investor Expectations for Food and Beverage (September 2021)