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In the evolving landscape of sustainable investing, regenerative agriculture emerges as a compelling theme.
At its core, regenerative agriculture is a set of farming practices aimed at restoring soil health, enhancing water retention, and increasing biodiversity.
By focusing on techniques such as:
Crop rotation, cover cropping, reduced tillage, and organic inputs, this approach offers a buffer against the impacts of climate change, as well as supporting in the fight against biodiversity loss.
Why does this matter for our investments?
The conventional agricultural practices that degrade soil health and biodiversity pose significant risks to food security and supply chains, potentially undermining the stability of investments in the agribusiness sector. In contrast, investments in regenerative agriculture can yield long-term benefits, including improved crop yields, reduced vulnerability to climate impacts, and enhanced brand reputation among increasingly environmentally conscious consumers.
Increased pressure from consumers, investors, and potentially regulators, means that there is a need for businesses in the food sector to transition to a more sustainable model, in line with global goals for a net zero future. Food accounts for around 1/3 of global emissions and is a primary driver of biodiversity loss!
Our investments in the shares of companies in the food, drink and farming sectors (including things like fertilisers and farm machinery), currently amount to a value of just under £50m over 61 different companies!
Case study - PepsiCo (WPF holding approx. £4.3m)
For PepsiCo, the link between better agricultural practices and the bottom line is clear:
Agriculture is core to PepsiCo's business. We source more than 30 agricultural crops and ingredients—such as potatoes, corn and oats—from approximately 60 countries. Creating a more resilient, sustainable agricultural system helps to protect our continued business growth from disruption due to climate change, water scarcity, and other environmental and social risks. It also enhances the lives of agricultural workers and their communities.
As published on their website, the company has set several regenerative agriculture goals, and reports on their progress. For example, one goal is to spread the adoption of regenerative farming practices across 7 million acres (equivalent to all the land used around the World to grow the key crops and ingredients for their products). To date, they report progress towards this goal of >900,000 regenerative acres since 2020.
Regenerative agriculture in emerging markets
Within our emerging markets multi asset portfolio, managed by Ninety One, we have shareholdings in food companies of around £12m. We asked Ninety One about WH Group (WPF holding approx. £1.3m), the largest meat producer in China, which has so far only made limited comments around regenerative agriculture, in order to understand whether this potential lack of preparedness was a risk to our investment. Ninety One agree that this is a priority area, and state that "regenerative agriculture and animal farming standards is really a key lever for the company's broader decarbonisation plan - it's where nature/biodiversity and climate meet".
Smithfield (an American company owned by WH) has identified hog manure as a key biodiversity and emissions risk. Accordingly, Smithfield has implemented manure-to-energy facilities at its hog farms. However, at a WH Group level, company disclosures lack in-depth discussion of biodiversity risks beyond those associated with waste management.
Ninety One have an ongoing engagement with WH to encourage the company to harmonise its sustainability policies across the group and increase transparency on the roadmap and actions for reaching net zero.
It would therefore appear at the current time that much is still to be done to improve sustainability at this company, but we are reassured that Ninety One are on the case.
Engagement case study - Nestlé (WPF holding approx. £6.5m)
Engagement work: EOS (on behalf of Brunel) have been proactively engaging with Nestlé to set and pursue goals related to incorporating regenerative agriculture into their supply chains. EOS have also advocated for the measurement of the impact of these practices on soil health, water quality, carbon, and biodiversity.
Outcome:Nestlé now integrate regenerative agriculture as part of their overall strategy to reach net zero by 2050. The company has made a commitment to sourcing 50% of their key ingredients through regenerative agriculture by 2030.
Ongoing issues: EOS have encouraged the Nestlé management team to expand this target to 100% by 2050.
WPF opinion: We are very interested in this theme and its wider implications. It has been shown that yields can dip for the first couple of years after implementing regenerative agriculture practices before recovering, so companies (such as Nestlé) will need to be held to account on how they support their farmers through this transition. We will continue to monitor.
Conclusion
Regenerative agriculture is an intriguing area that we will be keeping an eye on. Managed well, it could play a role in improving food security and potentially provide better investment returns. It's a theme worth watching as it develops, offering a blend of environmental and financial benefits. Our hope is that, with careful attention, it can make a positive impact to both biodiversity and our investment portfolios.
As part of our research for this article, we relied on the fantastic report and company database published by FAIRR, of which WPF is a member. FAIRR is an investor network that raises awareness of the environmental, social and governance (ESG) risks and opportunities in the global food sector.
