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Leslie Swynghedauw

Leslie Swynghedauw
Vice President, MSCI Research

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Is the Food Industry Ready for Kunming? The Short Answer Is No.

  • Almost 200 countries are set to ratify a “Paris-style” agreement for managing nature through 2050 at COP15 next year in Kunming, China. The COP15 draft framework suggests the food industry may face dramatic changes.
  • Only a handful of food companies have comprehensive programs to reduce the biodiversity pressure of their packaging, product portfolio and agricultural supply chains.
  • Investors may also soon have to report on their portfolios’ biodiversity footprints and alignment with biodiversity targets.

Over the past two years, an increasing number of governments, including those of the G7 countries, have stepped up their plans to protect biodiversity, which is declining at rates unprecedented in human history.1 Global policymakers’ increased focus on protecting vulnerable species is also tied to efforts to limit global warming, as was seen at the recent COP26 climate meeting.2 What is the most affected industry? Food products, which is widely considered the main cause of biodiversity loss.3 Institutional investors may want to know how food companies could be financially impacted by increased regulatory costs and reduced fiscal subsidies, as well as ensure that their exposure to biodiversity loss is aligned with national and international goals and comply with emerging requirements to report on their biodiversity footprint.4

Agriculture is responsible for the conversion of 80% of natural land globally,5 with more than 60% of tropical deforestation driven by cattle ranching, soy and palm-oil production.6 Food products is also one of the hungriest industries for other natural resources, using 70% of the earth’s freshwater sources7 and overfishing a third of all fish stocks.8 Agriculture also emits more than a quarter of global greenhouse-gas (GHG) emissions,9 is a significant contributor of air and water pollutants through its intensive use of pesticides and fertilizers and is the largest user of plastic packaging — the most abundant component of marine litter.10 Scientists believe these uses and emissions significantly contribute to species’ disappearance.11
 

Biodiversity Impact of Food-Production Systems

Source: MSCI ESG Research LLC; IPBES; Food and Agriculture Organization of the United Nations; Intergovernmental Panel on Climate Change; WWF; Haile, Mekbib G., Wossen, Tesfamichael, Tesfaye, Kindie, and von Braun, Joachim. “Impact of Climate Change, Weather Extremes, and Price Risk on Global Food Supply.” Economics of Disasters and Climate Change, June 2017.


The 15th Conference of the Parties (COP15) of the Convention on Biological Diversity aims to dramatically lower these adverse impacts.12 The post-2020 draft biodiversity framework13 to be negotiated and adopted at the second part of COP15, in spring 2022, seeks to ensure that “all areas under agriculture, aquaculture and forestry are managed sustainably.” This includes specific targets, such as the halving of nutrients lost (e.g., fertilizer and animal manure), reduction of pesticide use by two-thirds and complete elimination of plastic-waste discharges by 2030.

Is the food industry ready for such change? So far, it does not appear to be. Less than a third of food-product companies in the MSCI ACWI Investable Market Index (IMI) had implemented programs with their agricultural value chain to reduce their GHG emissions or use of freshwater and chemical inputs (e.g., fertilizer and pesticide). Also, only a small proportion of these companies have committed to cutting their use of virgin plastic, as of Nov. 30, 2021.
 

Food-Product Industry’s Efforts to Reduce Biodiversity Impacts Remain Sparse

Percentage of food constituents that implemented biodiversity-related initiatives




The universe consists of food-product companies (only packaged-food and meat companies for packaging and carbon-emissions metrics, as per MSCI ESG Ratings coverage) in the MSCI ACWI Investable Market Index, as of Nov. 30, 2021. Source: MSCI ESG Research LLC


While these are not the only initiatives to watch when assessing the industry's efforts to combat biodiversity loss, they may serve as a proxy for where the food companies stand in regard to COP15 targets. Unfortunately, they are not very far advanced.

The global food-production system may also need to change its diet to align with all of the proposed COP15 targets, including ensuring that 30% of land areas are protected by 2030. Livestock is the primary contributor of biodiversity loss within the food industry, responsible for 80% of all agricultural land use14 and representing a higher source of GHG emissions, water use and nitrogen pollutants than other food counterparts.15 While land-based-animal proteins accounted for less than one-third of revenues generated by the food-product constituents of the MSCI ACWI IMI, as of Nov. 30, 2021, they have typically accounted for more than two-thirds of the biodiversity footprint of food consumption.16

 

Land-Based-Animal Proteins in the Food Industry: Revenue vs. Biodiversity Footprints
 

Total revenues generated by the food-product companies in the MSCI ACWI IMI, as of Nov. 30, 2021. Source: Left pie chart: company disclosures, MSCI ESG Research LLC; right pie chart: Crenna, Eleonora, Sinkko, Taija, Sala, Serenella. “Biodiversity impacts due to food consumption in Europe.” Journal of Cleaner Production, Aug. 1, 2019. This calculation refers to the basket of products (BoP) based on the EU food consumption through a product-based life-cycle analysis. The EU market is used as a proxy here, though BoP may vary from one geographic region to another.

 

Yet, the shift toward plant-based diets has been modest so far. Among the food companies in the MSCI ACWI IMI generating revenues from land-based-animal proteins, only half have started to invest or begin generating revenues from plant-based and alternative proteins (i.e., plant-based, cultured meat or mycoproteins), as of November 2021, and less than 5% generated more than 3% of their total revenues from such products.

Should the COP15 draft framework be adopted in 2022, and then ratified into national regulations, food companies could face considerable new pressure from these new requirements. In addition to industrywide regulatory change, company-specific risks could also increase, as not all food-industry players would be equally affected, depending on differences in their product portfolios and their actual mitigation practices.
 

Brondizio, Eduardo, Diaz, Sandra, Settele, Josef, and Ngo, Hien T. “Global Assessment Report on Biodiversity and Ecosystem Services.” Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services, May 4, 2019.

At the COP26 climate meeting, more than 140 nations vowed to reverse forest loss by 2020.

Kurth, Torsten, et al. “The Biodiversity Crisis Is a Business Crisis.” Boston Consulting Group, March 2, 2021.

Under Article 29 of the French Law on Energy and Climate, French financial institutions will have to disclose their biodiversity-related risks and their strategy to reduce their impact and align with biodiversity goals, from 2022 onward. The EU taxonomy on activities’ contribution to the protection and restoration of biodiversity and ecosystems will apply from 2023 onward.

Campbell, Bruce M., et al. “Agriculture production as a major driver of the Earth system exceeding planetary boundaries.” Ecology and Society, 

Pendrill, Florence, Persson, Martin, Godar, Javier, and Kastner, Thomas. “Deforestation displaced: Trade in forest-risk commodities and the prospects for a global forest transition.” Environmental Research Letters, March 2019.

“Water in Agriculture.” World Bank, May 8, 2020.

“The State of World Fisheries and Aquaculture.” Food and Agriculture Organization of the United Nations, June 2020.

“Special Report on Climate Change and Land.” Intergovernmental Panel on Climate Change, Aug. 8, 2019. 

10 Eight million tons of plastic end up in oceans every year, according to the International Union for Conservation of Nature.

11 Brondizio, Eduardo, et al.

12 The first session of COP15 took place in October 2021 and will be followed by a second session in April and May 2022, where the post-2020 biodiversity framework and targets will be negotiated and agreed upon.

13 The first draft of the Post-2020 Global Biodiversity Framework was released on July 12, 2021. 

14 Brondizio, Eduardo, et al.

15 Poore, Joseph, and Nemecek, Thomas. “Reducing food’s environmental impacts through producers and consumers.” Nature, June 2018.

16 Crenna, Eleonora, Sinkko, Taija, Sala, Serenella. “Biodiversity impacts due to food consumption in Europe.” Journal of Cleaner Production, Aug. 1, 2019. This calculation refers to the basket of products (BoP) based on EU food consumption through a product-based life-cycle analysis. The EU market is used as a proxy here, though BoPs may vary from one geographic region to another.
 

Further Reading

ESG now podcast: Biodiversity Comes to Kunming and Taiwan’s Semiconductors are Thirsty

2021 ESG Trends to Watch 

Unpacking the Soy Value Chain