ESG – Feature

in traditionally cooler areas. “In some parts of the world there is a negative impact on agriculture yields, but it is not a world- wide phenomenon,” he adds. Kernohan’s colleague, Oliver Williams, who is head of agricul- tural investments at Hancock Natural Resource Group at Man- ulife Investment Management, says: “Agricultural producers have to deal with variable weather patterns and so must build management systems that are flexible and adaptable,” he adds.

The Covid diet

Another factor impacting what food we keep in our kitchen is Covid-19. Initially, the pandemic disrupted harvests and pro- duction lines. Supply was hit further by borders closing and some drivers refusing to deliver to Covid hotspots. However, some food producers recovered faster than others. “We saw a lot of resilience in some parts of the value chain,” Rackauskaite says. “Vertically integrated larger brands which have full control over their supply chain adapted much better to the changing environment.” Soussan adds that production was relatively good in 2020 and that Covid’s impact was felt most in the processing and deliv- ery areas of the industry. “Meat processing in the US is where we have seen a relatively high number of Covid cases,” Sous- san says.

This was mainly a result of working conditions, Svan says. “Some food companies failed to introduce adequate health and safety measures to protect their staff from Covid-19.” Investors specialising in food have faced a difficult period, but some are optimistic. “We were encouraged that while there were periods when shelves were empty, farms were not, so there was sufficient resilience to keep us ticking along,” Rackauskaite says. Covid has changed some government food strategies as well as consumer demands. Rackauskaite says that the pandemic highlighted weaknesses in the supply chain, which has led to shifts in consumer behav- iour. “People are a lot more focused on safety and testing, while countries which are big food importers have started prioritis- ing food security,” she adds. Singapore, for example, relies on food imports but has speeded up its vertical farming strategy since the pandemic hit and has started regulating alternative meat products. Meanwhile, some consumers have started shopping for fresh food online since the lockdowns began, which may have removed some of their concerns and could drive growth in online food shopping post Covid. Then there are reports that obese people suffer more severely from Covid. This has led to vitamin and probiotic companies reporting rising demand for their products during the pan- demic, Rackauskaite says. “It is not just the same consumers

28 | portfolio institutional | April 2021 | issue 102

buying more, it is a new group who are taking an interest in immunity boosters,” she adds.

Funding the defence

“There are challenges across the food chain,” Rackauskaite says. Challenges that she seeks to tackle at the BNP Paribas Smart Food strategy through lowering the environmental impact of agriculture, provide nutritious food, improve safety and promote animal welfare standards. “A solution to changing temperatures is agricultural machin- ery that helps farmers adapt to these factors by providing greater precision,” Rackauskaite adds.

She also uses non-genetically modified seeds that adapt better to regions that are prone to draught or higher temperatures. Newton’s Future Food fund also focuses on agricultural machinery and software, especially automation. Drones are used to monitor large farms and plantations, while sensors detect the height and colour of plants to decide how much fer- tiliser to administer. This is what Takano calls the “technifica- tion” of farming.

“This is not like big tech, which is super advanced,” she adds. “Technology in agriculture comes from a low base, so innova- tion has a huge impact.” Williams also sees the positives that tech can have here. “Auto- mation is bringing greater efficiency by using less water, emit- ting fewer greenhouse gases and ultimately producing more nutritious food.” But this could need huge investment. “Climatic shocks have doubled in the past 20 years,” Rackauskaite says, “which has an impact on smaller farms that cannot invest to adapt.” Soussan says that modern farming techniques are having a negative impact on the planet because they use too much fresh- water and pesticides. “One of the big challenges of food pro- duction is to produce more for a growing population, with less input,” he adds.

It is not only about tech. Farming contributes to biodiversity loss, soil erosion and deforestation. During its engagement work with food companies, LGIM encourages a move to regen- erative agriculture, which means farming using fewer chemi- cal inputs, while leveraging interventions such as crop rota- tion, cover crops and agroforestry. Consumer goods companies are setting sourcing targets, such as buying X% of their corn from regenerative farms. “This is a result of investor pressure,” Svan says. Yet, despite knowing what is needed to tackle the headwind approaching the industry, the lack of a roadmap could be a problem for some. “What makes this sector particularly chal- lenging to engage with on a climate change basis is the lack of frameworks,” Svan says. “The sustainable development goals (SDG) provide a great starting point, but where we run into

Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56