The impact of food production on the environment and climate poses a range of challenges for Irish farming. Yet a disproportionate amount of time and focus is given to the challenge of reducing carbon emissions.

Sainsbury’s head of agriculture Gavin Hodgson thinks the focus on carbon emissions is unbalanced. Speaking at Bord Bia’s meat industry seminar last week, Hodgson said the science around nature is critically important.

Without nature, there would be no agriculture. But he’s concerned that we are focusing a lot of conversation on carbon. Hodgson noted that agriculture is good at sitting on a problem until legislation drives the change.

However, large institutional investors who fund the largest global food and livestock processors, and indeed domestic banks and finance providers, aren’t prepared to sit back and wait for legislation. Research from consultants PwC indicates that while innovation and financial performance remain the highest priorities for investors, they expect more from companies in terms of managing climate change and innovation. According to PwC, companies are not meeting investor expectations in relation to climate change. If investor expectations increase, this would pose a significant threat to businesses.

FAIRR investors drive change

One investor collective, the FAIRR initiative, is solely focused on driving change across the global animal protein supply chain. Combining 360 investors that manage $70 trillion in assets, the group which includes Danske Bank, Allianz, Credit Suisse and AXA among others, has significant market influence. It produces the annual Coller FAIRR Protein Producer Index, an Environmental, Social and Governance (ESG) assessment of the risks and opportunities associated with livestock production.

Investors use the index to support sector and company analysis. The targeted companies, including Fonterra, JBS and Tyson, are some of the most important suppliers to the biggest global food retailers.

Spotlight on emissions producers

It focuses on 60 of the world’s largest animal protein producers, and evaluates them on 10 risk and opportunity factors linked to the UN Sustainable Development goals. The index measures 10 opportunity and risk factors: Greenhouse gas emissions; deforestation and biodiversity; water use and scarcity; water pollution; antibiotics; animal welfare; working conditions; food safety; governance; and sustainable proteins.

How does the sector benchmark?

The good news is that the percentage of companies rated high risk has fallen significantly over time – from 70% in 2019 to 55% in 2022 – despite methodology changes that have raised expectations of what constitutes best practice. There are not yet companies achieving a best practice score across all risk factors, but more are securing a low risk rank.

The results found that more than three-quarters of protein producers are still poorly prepared to meet the demands of a 1.5°C aligned pathway on carbon emissions which investors say leaves them vulnerable to climate-related financial risks.

Most companies assessed still don’t disclose any animal farming emissions even though these account for at least 80% of livestock companies’ emissions. However, investors are encouraged that one-third of companies are trialling innovations, typically feed-related, to reduce emissions in animal farming.

This week’s announcement by Danone, one of the world’s largest dairy companies, of its plan to reduce methane emissions by 30% by 2030 on 2020 levels is the type of specific, targeted and timebound action that provides comfort to investors. Of course, it also sets the company on course to reduce its climate impact.

Progress on nature not encouraging

The findings on nature-related risks are not encouraging. More companies have implemented soy-sourcing commitments in 2022 but almost 70% have yet to set targets. This is a key ESG focus for the animal protein sector on which pressure is mounting.

Hodgson flagged it as a key issue, saying we need to sort out soy and we can’t keep getting it in the way we do.

According to FAIRR, water scarcity and waste pollution remain largely unchanged. While most companies assessed provide disclosures on manure management, fewer than 10% engage with their suppliers to ensure better nutrient management practices.

Pushing for greater innovation

While cellular meats appear to have floundered during 2023, they are not going away. The assessment found that more than half of the companies have exposure to alternative proteins although few have set timebound commitments to diversify their protein sources.

For investors, diversifying product portfolios to include both animal and alternative protein sources present the biggest opportunity for companies to mitigate risks. The headlines may suggest that this has paused.

In reality, look at your supermarket shelves. Even Irish dairy co-ops have healthy alternative protein product lines meeting market and risk requirements.

Food companies, retailers and businesses all along the food chain are being forced to make more specific and timebound environmental and climate commitments. This is driven by regulation, investors and societal stakeholders. Essentially, investors want businesses to reduce their climate and environmental impact which reduces the long-term risk to those investments. Danone and Sainsbury’s are examples of the direction the supply chain is heading.

Irish farming’s ‘social licence to operate’, that is acceptance by all stakeholders, will be contingent on making verifiable change to address nature loss, water quality, emissions, animal welfare, pesticide and antibiotic use and more. As Danone showed this week, there is no guarantee that the requirements will align with Government targets. In reality, they may be much more stretching.

Farmers, rather than being the problem, are the solution in this regard. However, the supply chain will require evidence and data proof points, such as Bord Bia’s Origin Green, of verifiable farm-level progress.

The focus is much broader than reducing emissions and it needs action by all farm suppliers on each unit of output. Stakeholders, in particular processors, need to provide clear, targeted actions that will align farmers to supply chain requirements and that financially rewards progress.