Drought, floods, extreme heat and wildfires caused by climate change have heaped misery on farmers worldwide and added to the stress on the global food system from Russia’s invasion of Ukraine. As the global population nears eight billion, providing everyone with a nutritious balanced diet, produced sustainably, looks increasingly challenging.
Food businesses and their customers are feeling the impact, in the form of commodity and ingredient shortages and rising costs. As an example, one of the world’s largest dairy companies noted at the end of August that the price of fertiliser had risen by an average of 145%, fuel by 134%, feed by 36% and energy by 346% from 2021.
Nearly all countries are experiencing record food price inflation, which commentators predict could cause political headaches and social unrest for months – or perhaps years – to come.
Not only is climate change affecting the food sector, the industry itself is responsible for around a third of global greenhouse gas emissions. Evidence shows that even if fossil fuel emissions were eliminated, food system emissions alone would make it extremely difficult to meet the Paris Agreement goal of a 2oC rise in global temperatures, and impossible to achieve 1.5oC .
Moreover, agriculture and the food sector have a sizeable environmental impact. Agriculture has been identified as the main threat to 86% of species at risk of extinction; cattle ranching caused three–quarters of the deforestation in the Amazon between 1978-2020; farming accounts for 70% of water used in the world, making it a leading contributor to water stress.
In our view, failure to tackle the sector’s emissions, and its environmental and health impact, presents a significant risk to investors.
We believe it is in our interests, those of our clients and our stakeholders to encourage governments and other policymaking bodies to provide the frameworks and guidance to support the transformation of the global food system.
Setting a path for a fast transition
This is why we have joined 33 other institutional investors with over USD 17 trillion in assets under management in sending a letter[1] to the director-general of the Food and Agriculture Organization of the United Nations (FAO). The letter has also been signed by the UN-convened Net-Zero Asset Owner Alliance (NZAOA), and global leaders including former UN Secretary General Ban Ki-moon.
As the UN body responsible for ensuring global food security and eliminating hunger, we believe the FAO is best placed to provide leadership on tackling climate change in the food and agriculture sectors.
The letter urges the FAO to emulate the lead of the International Energy Agency (IEA) in providing a roadmap for the energy sector. It calls for developing a plan on how the food system can align with the Paris goals, while also tackling other environmental and social issues the sector’s transformation must address. Such a tool would be valuable to investors in shaping investment and stewardship activities, as well as to companies and other stakeholders.
We believe this transition should be fast and fair, based on well-established science. The food system of the future needs to be one that operates within the critical planetary boundaries[2], while delivering healthy sustainable diets for all.[3]
The roadmap would need to outline approaches to
- Limit methane emissions
- Halt deforestation
- Halt the loss of biodiversity and restore natural systems
- Scale up alternative proteins
- Arrest antimicrobial resistance
- Create mechanisms to ensure a just transition.
At the same time, efforts to eliminate malnutrition, from undernutrition to overweight and obesity, need to be redoubled. By providing such a roadmap, the FAO would support countries in setting their own emissions reduction targets for agriculture within or alongside their national goals.
As a large institutional investor with holdings across the world in the agriculture, food, and beverage manufacturing, retail and service sectors, we believe the sustainable transformation of the food system is essential to the future financial security and wellbeing of clients and stakeholders.
While we recognise this is a sizeable and complex challenge, we stand willing to work with stakeholders including the FAO, governments, policymakers, companies and NGOs to meet it.
References
[1] The letter has been organised by FAIRR, of which BNPP AM is a signatory. Also see Global Roadmap to 2050 for Food and Agriculture – FAIRR
[2] as defined by the Stockholm Resilience Centre in 2009
[3] as outlined by the EAT Lancet Commission in 2019
Disclaimer
This material is issued and has been prepared by BNP PARIBAS ASSET MANAGEMENT UK Limited (“BNPPAM UK”). Registered in England No: 02474627, registered office: 5 Aldermanbury Square, London, England, EC2V 7BP, United Kingdom. BNPPAM UK is regulated by the FCA under UK laws, which differ from Australian laws. In Australia, BNPPAM UK is exempt from the requirement to hold an Australian financial services license under the Corporations Act 2001 in respect of the financial services. This material is distributed in Australia by BNP PARIBAS ASSET MANAGEMENT Australia Limited ABN 78 008 576 449, AFSL 223418.
This material is produced for information purposes only and does not constitute:
- an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or
- investment advice.
Opinions included in this material constitute the judgement of BNPP AMAU at the time specified and may be subject to change without notice. BNPP AMAU is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal and tax advisors in respect of legal, accounting, domicile and tax advice prior to investing in the financial instrument(s) in order to make an independent determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment may either be suitable, appropriate or profitable for an investor’s investment portfolio.
Given the economic and market risks, there can be no assurance that the financial instrument(s) will achieve its/their investment objectives. Returns may be affected by, amongst other things, investment strategies or objectives of the financial instrument(s) and material market and economic conditions, including interest rates, market terms and general market conditions. The different strategies applied to the financial instruments may have a significant effect on the results portrayed in this material. Past performance is not a guide to future performance and the value of the investments in financial instrument(s) may go down as well as up. Investors may not get back the amount they originally invested. The performance date, as applicable, reflected in this material, does not take into account the commissions, costs incurred on the issue and redemption and taxes. All information referred to in the present material is available on www.bnpparibas-am.com
