The Food Value Chain: ESG Risks and Solutions

Posted on January 29, 2021

Martin Vezér
Martin Vezér
Manager, Thematic Research

This years edition of Sustainalytics’ 10 for series takes a deep dive into some of the most pressing environmental, social and governance (ESG) issues affecting companies that contribute to the global food value chain.

Covering a range of industries directly connected to food production and distribution, we identify 10 companies that are well positioned to lead their peers in 2021, both in respect of their approach to ESG risk management and their initiatives to offer solutions that align with the principles of a circular economy, such as waste reduction and ecosystem conservation.

The focus of 10 for 2021 on the food economy is motivated by three macro trends that we see as increasingly material for impact and mainstream investors alike:

(i) mounting concerns about food security,
(ii) growing environmental and social impacts of food production and consumption, and
(iii) intensifying market demand for sustainable solutions.

According to the World Bank, although global food prices have remained stable during the pandemic, many countries are experiencing retail level price inflation driven in part by COVID-19 related supply disruptions and currency devaluations.[1] Due to the recent disruptions in economies, job markets and remittances, the UN World Food Programme estimates that an additional 121 million people could face acute food insecurity, bringing the total number to 270 million, an 82 percent jump compared to the pre-COVID period.[2]

With the world’s population on course to reach 9.7 billion by 2050,[3] demand for food production is projected to grow between 25% to 70% over the next 30 years.[4] While this growth in demand may attract investors to the food economy, exposed sectors face heightened ESG risks related to their production and supply chain processes. As detailed in 10 for 2021, deforestation, biodiversity loss and climate change are among the material ESG impacts that can adversely affect the financial performance of companies in industries such as agrochemicals, agriculture and packaged foods.

On the other hand, companies leading in material ESG issue (MEI) management and solution offerings stand to benefit from the need for more sustainable practices throughout the food value chain. The infographic below presents an overview of the subindustries and MEIs associated with 10 solutions that we see providing companies and their shareholders with upside exposure that can support a more circular food economy in 2021 and beyond.

Sustainalytics 10 for 2021 infographic

 

Sources:

[1] World Bank (14.12.2020), “Food Security and COVID-19,” accessed (28.01.2021) at: https://www.worldbank.org/en/topic/agriculture/brief/food-security-and-covid-19

[2] World Food Programme (2020), “WFP Global Update on COVID-19: November 2020 Growing Needs, Response to Date and What’s to Come in 2021,” accessed (28.01.2021) at: https://reliefweb.int/sites/reliefweb.int/files/resources/WFP-0000121038.pdf

[3] Department of Economic and Social Affairs – News (17.06.2019), “Growing at a slower pace, world population is expected to reach 9.7 billion in 2050 and could peak at nearly 11 billion around 2100,” United Nations, accessed (29.12.2020) at: https://www.un.org/development/desa/en/news/population/world-population-prospects-2019.html 

[4] PennState – News (26.12.2020), “Widely accepted vision for agriculture may be inaccurate, misleading,” PennState, accessed (29.12.202020) at: https://news.psu.edu/story/452218/2017/02/22/widely-accepted-vision-agriculture-may-be-inaccurate-misleading