Is it possible to help the Zero Hunger mission worldwide while also investing in companies with attractive fundamentals? Four ideas for impact investors.
As the rise in global population puts increasing stress on food supply worldwide, the demand for more food and better nutrition will only increase. For impact investors concerned with the issue of food security, identifying where to allocate capital for this issue—while quantifying impact—is not always obvious.
For investors, the report identifies opportunities in four key areas: agriculture, animal health, crop services and equipment.
The United Nations forecasts that the global population will grow by almost one billion to more than 8.5 billion by 2030, putting pressure on a food network that is already stretched and inefficient. The U.N. says 30% of all food is wasted, and while over 815 million people are undernourished—roughly 11% of the world's population—another 1.9 billion adults are overweight or obese.
“According to the U.N. Food and Agriculture Organization, there will be a 12% increase in meat demand, a 21% rise in milk consumption and a 30% increase in farmed fish by 2026," says Jessica Alsford, equity strategist for Morgan Stanley and head of the firm’s Global Sustainability Research team. “Improving food security requires a reduction in food waste since about one-third of food produced worldwide currently being lost or discarded," Alsford says. “Agriculture and livestock productivity will also need to be improved to cope with the growing population and the expanding middle class."
In a recent report from Morgan Stanley Research, Alsford and her colleagues outline how impact investors can direct capital toward companies helping to achieve the zero hunger mission, while also having an attractive fundamental investment case. The report is part of a new series of reports from Global Sustainability Research team which highlight each of the 17 goals of the U.N.'s 2030 Agenda for Sustainable Development.
The Sustainable Development Goals (SDGs) provide a framework for impact investing, which has gained increasing popularity in recent years. “We’re seeing heightened interest in directing capital to companies that have an attractive fundamental investment case while also offering an additional free option of positive social or environmental impact," Alsford says.
The SDGs are a set of goals to end poverty, protect the planet and ensure prosperity for all as part of a new sustainable development agenda. Alsford notes that achieving the SDGs will require capital to be allocated to key areas such as education, infrastructure and renewable energy. Mobilizing investment from multiple stakeholders will create interesting opportunities for corporates and investors alike.
For this goal, achieving zero hunger, the team has identified two key targets that are investable from a public equities perspective: First, ensuring access to safe, nutritious and sufficient food, and, second, ensuring sustainable food production systems and resilient agricultural practices.
For investors, the report identifies companies in four key areas: agriculture, animal health, crop services and equipment.
In agriculture, the report highlights companies that produce, supply, and process food commodities such as soybeans, corn and rice. In particular, investors should look at companies with higher yields compared to industry average. Another key performance metric (KPI) is how much land is farmed with precision farming techniques such as geomapping soil, use of sensors for soil and crop health and automated steering systems for farming machines.
The companies featured under animal health develop and sell medicines and vaccines that help to prevent or treat disease in animals, in addition to improving nutrition. “This helps raise food production and reduces the risk of transfer of illnesses to humans," Alsford says. Investors should examine KPIs such as the number of livestock treated, amount spent on innovation and initiatives to help ensure animal medicines are used in a responsible and sustainable way.
In the area of crop services, the majority of companies provide chemical fertilizers and pesticides, which contribute to improving agricultural yields, helping to increase the food supply. “We recognize that excessive use of these chemical products can have negative impacts on the environment, but precision farming should help improve the sustainable and responsible application of such chemicals," says Alsford.
Alsford notes that investors should look at KPIs such as amount of land on which the products are used and initiatives to help ensure chemical fertilizers are used in a responsible and sustainable manner.
Finally, the equipment category encompasses a range of industrial companies that produce products used in agriculture and the production and distribution of food, including farm machinery, irrigation, refrigeration and agricultural technology.
“The goal would be that by 2030 we could ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production," said Alsford. “This would help maintain ecosystems and strengthen capacity for adaptation to climate change and extreme weather—including drought, flooding and other disasters—and progressively improve land and soil quality."