Across most of Asia, ESG-related risks in the agriculture and food sectors are under increased scrutiny. 

Morningstar Sustainalytics noted ESG and relevant regulations are generally at a more mature stage in the West, where fund managers have a stronger focus on ESG issues. 

“Although investors are slowly waking up to the systemic risks of our global food system, Asian food companies tend to report less on ESG issues than their counterparts in Europe or North America,” said Thijs Huurdeman, consumer goods ESG research lead analyst at Morningstar Sustainalytics. 

Huurdeman also noted Asian food companies don’t score well on Morningstar Sustainalytics’ ESG risk ratings, with Chinese agriculture companies scoring most severe risks in general. 

The exception is New Zealand. With more cows and sheep than people, the country’s agriculture sector accounts for close to half of its total greenhouse gas emissions. This is why its Ministry of Environment has recently proposed a new “burp tax” where farmers pay for emissions from livestock. 

In need of standards 

Morningstar found despite a lack of regulatory standards in Asia, there are certain pockets, such as the palm oil industry, which have developed their own standards. 

“The industry has been much scrutinised over ESG issues in the past,” Huurdeman added. 

“In recent years, some form of self-regulation has emerged and developed a set of principles and criteria for the sustainable production of palm oil.” 
 
On the other hand, Japan’s Fuji Oil, a vegetable oils and fats processor, is one of the better-scored companies in Asia as it has been producing sustainability reports in accordance with international standards. 

Another risk faced by the region is that South Asia is particularly vulnerable to climate change and water risks.  

Emerging opportunities 

While there are challenges to the Asian food industry, there are also opportunities as it transitions to a more sustainable sector. 

For instance, Asia could play an important role in promoting plant-based food as the region increases its consumption due to rising populations and income.

“The environmental merits of plant-based versus meat-based foods are enormous,” said Huurdeman. 

“Intensive meat production is a resource-intensive process in terms of water and carbon, and there are massive impacts related to animal feed production.” 

As the food waste levels are high in Asia, it also means there is a lot of opportunity for waste prevention and recycling in the food sector, he added. 

This article first appeared in ESG Clarity sister publication Fund Selector Asia.