17 AUG, 2021
By Constanza Ramos
Investing in sustainable food has become an option to meet the needs of a population that is growing fast. The Global food systems are already struggling to meet the dietary needs of the world’s 7.8 billion-strong population. Investing in Sustainable food to meet those needs as well as reduce the carbon footprint of the food industry are some of the interest behind the two ETFs that we are going to look at in this article.
We have spoken to Carmine de Franco, Head of Research at Ossiam (Natixis IM) and to Rahul Bhushan, Co-Founder at Rize ETF to analyse their Sustainable food ETFs and how they are investing in sustainable food.
Carmine de Franco, Head of Research at Ossiam (Natixis IM)
The Agriculture and Food sector is considered to be one of the most important drivers of this loss of natural capital, a trend that should be reinforced by population growth. In big numbers, the sector is responsible for 26% of global GHG emissions; it uses 50% of global arable lands and 70% of global freshwater; 78% of water pollution is related to the sector and, finally, 94% of animal stock on Earth is for human consumption. Ossiam has therefore decided to tackle biodiversity loss through a quantitative strategy that focuses on reducing the footprint of the food sector on biodiversity. That is the objective of the Ossiam Food for Biodiversity fund (Article 8 of the SFDR), an actively managed ETF which was launched in December 2020 and is listed on the German stock exchange platform Xetra. The benchmark for this ETF is the Solactive GBS Developed Markets Large & Mid Cap Index, but the investment universe is only made of stocks from the Agrifood sector.
The ETF achieves in practice a 99% reduction in the impact on MSA (Mean Species Abundance) compared to the universe. MSA measures the state of biodiversity in a particular area relative to its undisturbed natural state. The advantage of MSA compared to other metrics for biodiversity lies in its global framework, which could make it the equivalent of carbon tons for the climate issue, as disclosures on natural resources consumed by corporates improve.
Other key defining features of Ossiam Food for Biodiversity are its specific voting and engagement policies to influence industry practices in favour of biodiversity and the fact that the portfolio has an enhanced UN SDG score and is aligned with a two degree scenario. Finally, the portfolio's ESG profile has an ambitious target of a 30% reduction in carbon footprint compared to the benchmark.
The investment universe of the fund comprises both large and mid-cap companies in the Agriculture and Food sector, within a selected list of developed countries. All parts of the food supply chain are represented, including agriculture, manufacturing, retailers, distributors, restaurants and food packaging producers. The reference universe, comprising some 250 stocks, is reduced to a portfolio of approximately 70 stocks, in which retail outlets, packaged food producers and restaurants are the most represented sectors.
There can be no short cuts if we are to make the necessary dramatic changes required by the global economy. If Agriculture and Food sector is not considered strategic by all stakeholders, including the financial sector, then there will be no sustainable economy and no sustainable society.
Rahul Bhushan, Co-Founder at Rize ETF
Unless something changes, these problems are only going to get worse. After all, the global population is on track to hit 10 billion by 2050. More and more of us are realising that the world is truly at stake. And today, swathes of companies are forming and repositioning to meet our growing demand for healthy, affordable and nutritious food made using environmentally-friendly methods.
This makes complete sense from a business perspective. The products and practices that surround sustainable food collectively represent an enormous frontier growth market that is here to stay. Getting in on the ground floor not only allows companies to give something back to the earth, but it could also stand to make them huge multiples of long-term returns. Alongside the electrification of vehicles and the rise of renewable energy, we see today’s food revolution as one of the investment opportunities of the century.
So how did we get here? Put simply, conventional food systems have been, and continue to be, unable to keep up with rapid population growth.
With so many more people to feed, the focus has been forced away from nutrition and towards the supply of as many calories as possible for as little cost as possible. This “economies of scale” approach has given rise to countless dire consequences. Take the soaring use of inexpensive fossil fuels, mechanised agriculture, chemical fertilisers, food processing and unsustainable packaging practices as an example.
The health implications make for just as unpleasant reading. The focus on quantity rather than quality has hit the quality of food around the world and caused a great uptick in related illnesses. Roughly 463 million people now live with diabetes globally, and this figure is set to soar to nearly 700 million by 2045.
But things are changing, A marked, global shift away from conventional food systems and towards sustainable food systems has emerged in recent years.
Sustainable food systems do what they say on the tin: they provide healthy food to people while also protecting and improving the environmental and social networks that surround food. Companies aligned with these goals present the perfect blend of responsible operating practices and vast investment potential.There are several ways to gain this exposure such as plant-based foods, vertical farming, food safety, precision farming and sustainable packaging.
These areas might seem ‘futuristic’, but like it or not, the food revolution is here to stay and could deliver outsized returns as sustainable alternatives begin to dominate the world.
The Rize Sustainable Future of Food UCITS ETF (FOOD) seeks to invest in companies that potentially stand to benefit from the accelerating transition to more sustainable food production systems and consumption patterns and thereby safeguarding our nature and ecosystems, promoting transparency and safety and encouraging mindful consumption in order to help reduce greenhouse gas emissions. FOOD seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Foxberry Tematica Research Sustainable Future of Food Index. FOOD is classified as Article 9 SFDR.
The security of our food system is one of the world’s most pressing challenges. With dwindling natural resources, the challenge of providing healthy, affordable and nutritious food to a growing global population – all while reducing greenhouse gas emissions and environmental harm – is intensifying. The food industry has started to respond, expanding plant-based protein options and increasing sustainability of farming and aquaculture, and improving supply-chains and packaging. Consumers too, have become more concerned about food safety and the provenance of what they eat. The global food system now requires urgent transformation if we want to avoid the sorts of planetary damage that awaits if we do nothing – loss of biodiversity, freshwater depletion, pollution of our rivers and oceans and enduring damage to our soils. The good news is that system-wide and holistic change comes with new opportunities. Our pioneering investment strategy and ETF – Europe’s first sustainable food ETF – provides investors with exposure to companies that are innovating across the food value chain to build a more sustainable, secure and fair food system for our planet.
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