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By Imani CampESG Senior Research Analyst, Calvert Research and Management

According to the World Resource Institute (WRI), projected global population growth will result in a 50% increase in food demand and a 70% increase in animal-based food demand by 2050. Meeting this need in an environmentally sustainable way that recognizes the importance and impact of biodiversity will be challenging.

Agricultural production accounts for 25% of greenhouse gas emissions (GHG), uses almost 50% of the world's vegetated land, and consumes 70% of fresh water. In addition, animal-based foods have a higher environmental impact relative to plant-based foods. Production of animal-based foods accounted for more than 75% of agricultural land use and about two-thirds of GHG emissions attributed to agriculture in 2010.1

The food industry is at a crossroads in how it meets this increased demand sustainably. Traditional strategies rely on increased efficiencies in agriculture, manufacturing, and distribution. For these approaches to work, WRI most recent estimates indicate that agricultural land would need to expand by 593 million hectares (twice the size of India) to address global food demand, a daunting task that would bring the industry into conflict with Net Zero goals that assume no net releases from land clearing by 2050. We believe this approach is untenable. In our view, longer-term solutions that sustainably meet long-term demand for food, and help position companies for success, will depend on reducing food waste, increasing productivity through technological advancements, and reducing GHG emissions from agricultural production.

While government action and regulation will play a key role in sustainably addressing global food needs, companies can take steps now to fortify their businesses and position themselves to take advantage of opportunities. Leading companies are implementing sustainability initiatives such as targets for food waste reduction and sustainable sourcing. We believe issuers that proactively and appropriately manage the risks and opportunities associated with growing food demand will be less likely to be caught flat-footed by government regulations or be negatively impacted by supply chain disruptions or consumer backlash. Such issuers are attractive investment candidates for Calvert's long-term investment horizon.

Biodiversity and the food supply chain

Calvert has adopted a definition of biodiversity that aligns with the FAIRR Initiative , a collaborative investor network that raises awareness of the environmental, social and governance (ESG) risks and opportunities in the global food sector. We believe biodiversity represents nature's capacity to provide an ecosystem of services that humans, other species, societies and economies rely on. Without biological diversity, or biodiversity as it is more commonly referenced, life and economic activities as we are accustomed to could not exist, making biodiversity loss a financially material risk.

These ecosystem services can be divided into four broad categories:

  • Provisioning services (food: fruits, vegetables, trees, etc.)
  • Regulating services that make life possible on earth (pollination, water purification, flood control, and climate regulation)
  • Cultural services (non-material benefits that contribute to the cultural advancement of society)
  • Supporting services (photosynthesis, nutrient cycling, and the creation of new soils).2

Food supply chains have high dependency on ecosystem services provided by global biodiversity, at the same time food supply chains have high negative impact on biodiversity loss. Companies operating in this space will increasingly face risks from this global loss, but they can shift towards business models that provide solutions such as precision agriculture, regenerative agriculture, and vertical farming. Investor pressure and downstream company pressures are expected to drive expectations for these changes.

Bottom line: Calvert deems biodiversity a financially material issue across many of its peer groups, and it is quite significant for food and agricultural industries. The importance of biodiversity is reflected in our research and we have concluded that companies that have strategically implemented practices to mitigate certain biodiversity-related risks are better positioned for success.