Too few animal protein companies are assessing climate-related risks. This puts billions of dollars at risk for global investors, as the environmental impact of the meat and dairy sector starts to come under the same level of scrutiny as fossil fuels and other high-emitting sectors.
The FAIRR investor network, now backed by investors managing over $20trn of assets including Invesco, L&G Investment Management and Amundi, found that of 43 of the world’s largest listed meat companies, only two have publicly disclosed a climate-related scenario analysis. In comparison, 23% of oil and gas, mining and utilities companies have conducted this sort of analysis.
The world’s food system, including agriculture, land use and food manufacturing, accounts for up to 30% of emissions, according to the Intergovernmental Panel on Climate Change (IPCC).
The growing concern around the financial impact of climate change has become tangible of late; from the devastating floods sweeping the UK, to the forest-fires across Australia, we have already begun to see the very real impact of climate on both the planet and our economy.
FAIRR’s model identifies seven key risks that will impact the profitability of the meat sector in the IPCC’s scenario of a 2°C warmer world in 2050. Risks include the increased cost of electricity due to carbon pricing, higher costs of feed due to poor crop yields and increased livestock mortality due to heat stress. It forecasts that by 2050 ‘alternative proteins’ – such as plant-based burgers – will command at least 16% of the current meat market, rising to 62% based on factors such as technology adoption rates, consumer trends and a carbon tax on meat.
It also identifies a potential ‘climate progressive’ pathway that animal protein companies can take to avoid climate risk and harness the opportunities.
This includes growing alternative proteins faster than the market average and shifting feed and livestock mix towards less climate-influence crops and species in 2050.
For example, Canadian meat firm Maple Leaf Foods are currently set on a progressive pathway. They’ve set a science-based target to reduce Scope 3 emissions by 30%/ton by 2030, already invest in a product portfolio of plant-based proteins and are the only meat producer to disclose sales from plant protein. A pilot test using FAIRR’s model showed that if they remained on this pathway, their profitability could improve by 70% in 2050.
Companies with high exposure to beef, such as Brazilian giant JBS, face risks without a clear climate adaptation strategy. The overall beef sector is likely to be hit hard—a loss in market share due to increased temperature resulting in cattle mortality and reduced productivity, as well as higher exposure to potential taxes on the most carbon-intensive proteins. Substituting to ‘lower carbon-intensive species,’ such as poultry is an option, but there are off-setting trade-offs, including higher electricity and energy costs (poultry production requires more energy than beef production) and volatile feed costs. Pivoting towards alternative proteins is the most climate-friendly strategy.
FAIRR’s analysis demonstrates the urgent need for meat companies, and the wider food industry, to manage climate risks. This week FAIRR launched the Coller FAIRR Climate Risk tool. An online financial model to help investors calculate the potential downside risk and upside opportunities for meat companies, depending on how well they manage climate risk.
The tool is freely available to investors and should be valuable to any ESG analyst seeking to understand the financial impacts of climate on the future profitability of animal protein companies.