Are cows the new coal?

ESG investors share their views on the climate change risks associated with dairy and meat industries

While the nefarious impact of coal and fossil fuels on the environment is widely recognised, the significant contribution of agriculture to global warming remains largely underappreciated.  

However, consumer awareness around the subject is growing, evidenced by the rising popularity of vegetarian and vegan diets. Slowly, investors are also catching on to the culpability of the dairy and meat industries, but action remains far from widespread. Anti-pollution efforts still concentrate on the energy and travel industries, while dairy and meat rarely feature on exclusion lists. 

Below, four investors discuss the risks associated with these industries – both to the environment and to the companies themselves – and how changes will be crucial to combat climate change. 

Charlie Carnegie, research director at Arisaig Partners 

More than 20% of global emissions stem from agriculture and land use, which is more than global transport and industry combined. Within agriculture, cattle farming holds the crown for being one of the most environmentally intensive forms of food conversion. Not only do cows require significant land resources via feed production and water, they also release incredibly potent greenhouse gases – methane is 25 times more effective at trapping heat in the atmosphere than carbon dioxide.  

As a result, emerging market listed dairy companies as a group have among the highest carbon intensity of any sector outside energy, materials and utilities. In order to ensure a more sustainable 1.5°C future, experts are now advising a 50% cut in production and consumption of dairy and red meat, which creates significant climate transition risk for dairy companies. By applying a midway carbon price to the current emissions of listed emerging market dairy companies, the average company would see a structural operating profit write-down of 50%. 

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. It is recommended dairy companies pursue portfolio premiumisation and diversification in order to insulate themselves from cost inflation in their key ingredient. Coupled with stock‐specific risks, this analysis helped push the risk‐reward trade‐off in favour of selling Vinamilk and Grupo Lala. The dairy holdings we are keeping – the various Nestlé subsidiaries – have much more diversified product mixes and we expect most future product launches to come from outside the dairy category. 

Jeneiv Shah, global equity analyst at Sarasin & Partners 

Climate and environment considerations have driven the adoption of vegan diets due to increased awareness of the livestock industry’s carbon footprint. According to the UN, this represents approximately 14% of all greenhouse gas emissions globally. Media attention has also highlighted the wider sustainability challenges with respect to the food system and its impact on soil, water and biodiversity

See also: – Question marks surrounding Beyond Meat’s environmental disclosures

This is a powerful long-term trend in its infancy, rather than a temporary fad. Consumers are starting to think about how food choices have an impact on animals, humans, and the planet – a dramatic change from the many decades of mass production of food at any cost. However, for consumers who are not vegan and not planning to change diets, there are other ways to improve their food-related carbon footprint. DSM, a Dutch-listed life science company, has developed a livestock feed enzyme able to reduce methane emissions from dairy cows by about 30%. 

In order to move towards sustainable food consumption, the entire system requires transformation. Farmers, governments, regulators and food businesses all have an important role to play – as well as investors. As corporates embark on the transition towards a sustainable food system, it is important for food equity investors to consider the wider themes around the environment and climate change. Within the Sarasin Food & Agriculture Opportunities Fund, we invest in companies, such as DSM, Givaudan and IFF, which are exposed to these broader themes in line with the food sustainability transition. 

Jon Mowll, responsible investment analyst at EdenTree Investment Management 

Meat, aquaculture, eggs and dairy are estimated to use approximately 83% of the world’s farmland, while only providing 37% of our protein and 18% of our calories. Producing beef, on average, uses 20 times as much land as growing beans per gram of protein. Land-use change often results in the destruction of biodiversity. 

In addition, animals themselves emit greenhouse gasses. Methane only lasts in the atmosphere for about ten years but has a considerably greater global warming potential than carbon dioxide – 80 times higher over 20 years. Cows produce the most methane – upwards of 200kg of methane per cow a year. Animal products, particularly meat, also have high levels of embedded water. The water footprint per calorie for beef, for instance, is on average twenty times larger than for cereals and starchy roots. 

Non-meat proteins potentially present the opportunity to mitigate climate change – while meeting the needs of a growing human population. However, in an era of climate and ecological breakdown, it seems the question is really whether ‘better’ is good enough. As long-term responsible and sustainable investors, we will continue to watch this emerging theme with interest, while recognising even greater environmental benefits may be achieved through the adoption of simpler, plant-based diets. 

Maria Elena Drew, director of research, responsible investing at T. Rowe Price 

We recognise the significant role played by the dairy and meat industries as it relates to climate change and monitor the progress of our investee companies through independent research and ongoing engagements. Given global consumer demand for meat continues to rise, we believe it is important for companies to have sustainable growth strategies in place that minimise negative climate impacts, where possible.  

Not only are these companies potentially going to experience regulatory pressure from climate change, they are also experiencing changing consumer demand preferences. Climate change is starting to have a modest influence on consumer demand for plant-based substitutes, but, over the past several years, we have seen a bigger shift in consumer demand patterns driven by health concerns for natural, organic and anti-biotic free meat products. 

Our future exposure to this industry will be dependent on a variety of factors, including those relating to environmental and social issues. 


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...