© FT montage

Climate campaigners have spent years pushing for defunding and divestment from fossil fuel companies. Now, as their arguments gain traction, they are taking aim at the emissions-heavy meat and dairy industries.

“At some point those companies will no longer generate any revenue due to ecological limits. The financial markets aren’t pricing in those risks,” said Mark Campanale, founder of Carbon Tracker, the think-tank that popularised the notion that global warming would lead to unviable “stranded assets” in the hydrocarbon sector.

Fossil fuel companies dismissed for years the idea of an inevitable energy transition making their investments unviable but some now acknowledge the risks. BP and Royal Dutch Shell have both written down the value of their assets in recent months.

With rising awareness of the carbon impact of the food system, which the UN Intergovernmental Panel on Climate Change estimates accounts for up to 37 per cent of global emissions, investors are starting to take note.

Arisaig Partners, an emerging markets investor with about £3.7bn under management, divested from dairy companies in Vietnam and Mexico this year after assessing the future impact of carbon pricing — a tool used by many governments to help meet the Paris goals on emissions reductions.

Bar chart of As of April 2020 ($bn) showing The biggest investors in the meat and dairy industries

Its data suggested that operating profits at the average listed emerging market dairy company would be halved if it had to pay a carbon price, with some ceasing to make a profit.

“This does not close the door on the $215bn dairy market in the emerging world, but it does raise the bar on growth, quality and alignment,” said Charlie Carnegie, research director.

Nordea Asset Management, part of the Nordic financial services group, announced this summer that its funds would divest holdings of about €40m in Brazil’s JBS, the world's largest meat company by processing volume.

Climate campaigners are taking aim at the emissions-heavy meat and dairy industries © AFP

After a period of engagement with the company on environmental, social and governance issues, NAM “did not feel that we were seeing the response that we were looking for”, said Eric Pedersen, head of responsible investments.

JBS said it was “disappointed” that the relationship was terminated without being notified directly by Nordea, adding that it was not given an opportunity to engage in a meaningful way.

Investors will need to start adjusting food and agricultural company valuations to account for the damage climate change will do to soil quality, biodiversity and water degradation, according to Matthew McLuckie, research director of Planet Tracker, a sister group to Carbon Tracker that studies how capital markets should incorporate environmental risks.

“Unlike political risk and currency risk, companies are not reporting against ‘natural capital risk’,” he said.

Food value chain accounts for up to 37% of global emissions

In the animal agriculture and food sectors, he said assets from feedlots and abattoirs to bank loans, grazing rights and even research and development investments may become useless as climate change dented production and consumers turned to alternative proteins such as plant-based meat.

While no big global lender to the sector has moved to cut its exposure, some acknowledge that this may change.

Deutsche Bank said it had “processes in place to monitor our credit exposure across various portfolios”, and that, as a formal backer of the Task Force on Climate-related Financial Disclosures recommendations, was “in the process of developing methods to measure and manage climate risk”.

Awareness is rising of the carbon impact of the food system © Bloomberg

Mitsubishi UFJ acknowledged that if climate change worsened, “it is likely that the credit risk for the agricultural sector will increase, and in that case it might be difficult to maintain the same level of exposure as in the present”.

Barclays said it had made “a firm commitment to align our entire financing portfolio to the goals of the Paris Agreement”.

Large institutional investors in the meat industry are similarly guarded on the matter.

“We have not observed any increase in the risks we bear in this sector,” said Crédit Agricole, adding that it had “no strategy to reduce our commitments”. However, it said its exposure “should naturally decrease” should consumer trends, such as the shift towards vegetable-based proteins, continue.

UBS acknowledged “increased investment risk” in the meat and dairy sectors but noted that a growing global middle-class population meant “overall demand for meat will continue to increase”.

“Many traditional players in these areas are investing in both alternatives and innovation to address the climate implications of their core product and meet evolving consumer preferences,” the Swiss bank said.

Farm Animal Investment Risk and Return, an investor advisory and research network backed by asset managers controlling $23tn, has assessed the potential impact of climate change on 50 meat and dairy companies.

Bar chart of 2015-2019 ($bn) showing The biggest creditors to the meat and dairy industries

It found that 44 of them had no, or limited, disclosure of initiatives against deforestation — which is often driven by livestock demand and has a huge direct carbon impact.

The failure to address these issues will lead to the devaluation of companies in the meat and dairy sectors, said Maria Lettini, Fairr’s executive director. “The $1.5tn [meat] industry has significant value at risk now.”

Rather than engaging with investors and lenders from a financial risk perspective, other environmental activists are opting for blunter methods, demanding divestment and cutting of lending to the sector for the sake of the planet. 

“If [banks and investors] want to take their climate change responsibilities seriously then they can't continue to support livestock and dairy businesses,” said Carina Millstone, executive director of Feedback, which is calling for a sustainable food system.

Chart showing areas of ‘forest disturbance alerts’, which suggest deforestation (hectares ’000) in Africa, Asia and South America in 2020

Ms Millstone said engagement by big investors and lenders did not work and often led to greenwashing, insisting that the only way to change the sector’s practices was to “defund it”.

But Marisa Drew, chief sustainability officer at Credit Suisse, warned that divestment or defunding was not necessarily constructive.

“When you divest without a credible substitute, an environmental issue could become a social issue,” she said, emphasising the importance of helping high-emissions industries and those that rely on them to transition quickly.

Research shows that many meat or dairy companies have no, or limited, disclosure of initiatives against deforestation © AFP via Getty Images

The meat and dairy industry regard both the highlighting of financial risks and demands of divestment as “anti-meat” and “alarmist”.

“The livestock sector is very far from being the new fossil fuel industry,” said Kay Johnson Smith, head of the Animal Agriculture Alliance. “Investors who are supporting the sustainable production of safe, affordable and nutritious food should not be targeted as such.”

Frédéric Leroy, professor of food science and biotechnology at Vrije Universiteit in Brussels, believes that investor pressure on the meat and dairy sector, as well as a worsening perception of the industry among consumers, is damaging for farmers. 

“Farmers put their soul in what they’re doing, and then are criticised,” he said. “They are under huge amounts of pressure, and it's no wonder young people don't want to go into agriculture.”

Prof Leroy warned of the dangers of glorifying new technologies in alternative protein production, such as microbials and 3D printing.

“These are fragile ideas. Farming skills will be lost,” he said. “It will make the food supply dangerously fragile.” 

Additional reporting by Anna Gross in London


Letter in response to this article:

Green policies must aid agriculture, not damage it / From Susana Campos-Martins and David F Hendry, Nuffield College, Oxford, UK






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