Regenerative Agriculture - A Rising Solution

When Calvert assesses how biodiversity may impact the food production ecosystem, we like to consider how Food and Agricultural Products companies are implementing solutions to mitigate the effects of issues such as land degradation soil erosion and soil health. Regenerative agriculture is a practice Calvert believes can solve the growing global food supply issue and improve the operational and financial performance of companies.

Regenerative agriculture describes a broad set of food production methods with two clear and complementary outcomes:

1. The production of high-quality food, and,
2. The improvement of the surrounding natural ecosystem.

The practice focuses on the improvement of soil health, frequently degraded by heavy machinery, fertilizers and pesticides used in intensive farming. Successful implementation implies a paradigm shift from extractive, linear processes focused on increasing yields to establishing sustainable cycles of regeneration.

Regenerative Agriculture encompasses important principles across soils and production:

• Don't disturb the soil
• Keep the soil surface covered
• Keep living roots in the soil
• Grow a diverse range of crops
• Bring grazing animals back to the land

The principles promote healthier soils that are more resistant to harsh weather conditions, may produce increased yields, and reduce water loss and soil erosion. Healthy soil is also full of microorganisms, which represent a full quarter of the world's biodiversity. These microorganisms nourish and protect vegetal and animal biodiversity, creating healthy ecosystems that are more resilient to the stresses of climate change.

Interest exceeds implementation plans

According to a FAIRR Initiative report published in September 2023, 50 of 79 (63%) of publicly traded agri-food sector companies (Agricultural Products, Food Retail, Packaged Foods & Meats and Restaurants) surveyed by the organization mention regenerative agriculture initiatives in their disclosures. However, only 36% have quantified company-wide targets for regenerative agriculture and only 8% have targets to financially support farmers to deploy regenerative practices.¹

While the idea of regenerative agriculture is an important issue for companies across these industries most impacted by biodiversity issues, there remains uncertainty as to how companies will implement measures to mitigate current risks and create meaningful change to current agricultural practices.

Regenerative agriculture in regulation

The Kunming-Montreal Global Biodiversity Framework (GBF) was adopted during the fifteenth meeting of the Conference of the Parties (COP 15) in 2022 following a four-year consultation and negotiation process. The GBF establishes both short-and long-term goals for societies and companies to address biodiversity related issues. Short term goals to be achieved by 2030 focus on halting and reversing biodiversity loss while 2050 goals focus on long term sustainable use and management of ecological resources.

Meanwhile, the U.S. Inflation Reduction Act (IRA) is set to inject $20 billion over 10 years into existing conservation programs administered by the Department of Agriculture. The biggest benefactor is expected to be the Conservation Stewardship Program, which helps farmers defray costs for implementing practices like:

• Cover crops: plants grown primarily to benefit the successful growth of other future crops - keep soil and fertilizer in place over the winter.
• Buffer strips: Barriers of closely spaced trees/shrubs that prevent severe soil erosion from storms.
• Hedgerows: Habitat for wild bees and other beneficial species like butterflies, bats, and birds.

In addition, the IRA will add $3.5 billion annually to the Conservation Reserve Program (CRP)'s current $1.8 billion budget, to support payments to enrollees who receive annual rental and other incentive payments for taking eligible land out of production for 10 years or more.

What else can Regenerative Agriculture offer?

Regenerative Agriculture has the potential to address broader social issues - farmer livelihoods and autonomy, health and safety for all and worker labor conditions. Regenerative Agriculture practices are also encouraging greater collaboration among stakeholders in highest impact industries. Some companies are creating open-sourced websites dedicated to sharing regenerative agriculture knowledge across different types of production (fresh milk, soy, almonds, oats, fruits, vegetables, and cereals) with farmers, farm advisors, field technicians and technical partners. This practice allows companies to establish longer-term relationships with farmers and enables farmers to become the lead actors in a transition to regenerative agriculture. We believe this collaboration is important to solving global challenges associated with the food ecosystem and broader issues such as climate change and Just Transition.

Companies that are embracing closer collaboration with stakeholders are generating potential business advantages -close relationships with farmers enable the creation of long-term contracts and new price management systems based on the evolution of production costs rather than the market prices. Contracts like these may help guarantee farmers stable profit margins and mitigate the effects of fluctuations in the price of goods. This also provides farmers the stability to project and invest in the future, including investing in sustainable and regenerative practices.

Bottom line: Calvert believes regenerative agriculture will play an important role in the progress toward an improved biodiversity landscape that benefits the larger food production ecosystem and improves the world's ability to feed a growing population. As responsible investors, we believe that a more sustainable food ecosystem will also likely mean sustained revenues and increased profits for the companies we are invested in.

¹ "The Four Labours of Regenerative Agriculture: Paving the way towards meaningful commitments," September 2023, https://www.fairr.org/resources/reports/regenerative-agriculture-four-labours

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