By Jane Sydenham, Investment Director, Rathbones
Feeding the world’s roughly 8 billion people has a huge impact on the environment, accounting for about a quarter of all greenhouse gas emissions contributing to global warming. With the global population projected to grow to 9.8 billion by 2050, the nations of the world won’t be able to reach their climate targets without radical change to the food system.
We all want to produce food in a more sustainable way but it’s hard to know where to start and what exactly ‘good’ looks like.
It isn’t just a question of how we produce food, the type of food we eat matters too. It’s becoming increasingly difficult to meet the protein needs of a growing global population with food sourced from animals — such as meat, dairy products and eggs — and we need alternatives.
A May 2018 study on the environmental impact of food production, published in the journal Science, declared that avoiding meat and dairy products was the single biggest thing an individual could do to help reduce environmental harm — more than reducing air travel or buying an electric car. Consumers are paying attention and changing their eating habits. The rise in popularity of Veganuary is evidence of this growing trend for meat– and dairy–free diets.
As well as the personal health benefits of reducing red meat and dairy consumption, there are concerns about the impacts of industrial meat production on wider consumer health. Transmissible bacterial infections, such as salmonella and campylobacter from contaminated poultry can quickly spread through large farms, while intensive livestock production has been implicated in a series of global health scares.
Antibiotic resistance is also a risk, with intensive livestock–rearing reliant on routine doses of antibiotics to prevent diseases. The overuse and misuse of antibiotics in cattle farming (accounting for 75% of all antibiotics sold in the US and around 55% in the EU) has contributed to the development of antimicrobial resistance, or AMR. What we eat and how we produce it matter, but how it’s packaged matters too. Plastic packaging is everywhere, because it is cheap, lightweight and durable, and serves a wide range of important functions.
Plastic waste will impact our environment for generations to come. Research in the July 2017 edition of the journal Science Advances showed that the vast majority of synthetic plastic produced from the early 1950s to 2015 — 6.3 billion of a total 8.3 billion tonnes — was highly durable waste. UK consumers alone were discarding about 35 million plastic bottles a year, which will take an estimated 450 years at least to degrade. But solving this problem isn’t simply a case of avoiding companies with any kind of exposure to plastic — plastic use is a complex issue and focusing too narrowly on the product could simply replace one problem with another.
As an example, plastic wrapping on a cucumber extends product life from three days to 14. Removing plastic in this scenario would therefore generate an offsetting increase in food waste. There are nevertheless many cases where we can identify and challenge unnecessary or excessive packaging. Single–use plastics, such as disposable coffee cups and plastic cutlery, are all common sources of waste. Governments are stepping in — plastic straws are now banned in the UK — and we can all encourage companies to eliminate the unnecessary use of plastic and ensure that reusable, recyclable, or compostable alternatives are used wherever possible.
Consumers are now taking steps to ensure their actions are having a positive impact and this means making more sustainable choices about where they spend and invest their money. Rathbone Greenbank Investments, the dedicated ethical, sustainable and impact team of Rathbones undertook some research in December 2020 which showed that 37% of people had reduced their consumption of single–use plastic in the last 12 months, and 23% are trying to buy fewer consumer products.
This growing awareness of the power of the consumer is having a direct impact on the businesses serving them. Of those surveyed, roughly a quarter said that investing in companies having a positive impact would be an important route to recovery.
There is a lot that businesses can do too, and some are committing to huge change in the drive to reduce packaging waste and the environmental damage it causes.
A reduction in consumption could especially help where we’ve gone into ‘overdraft’ in terms of climate change, biodiversity loss, land conversion and agricultural expansion. If we continue to live beyond our planetary means, these environmental risks will inevitably translate into financial and social risks. Consequently, there are huge opportunities for reducing this risk and improving the outlook for long–term social and financial returns through innovation.
One big challenge is finding alternatives to plastics. Very little of the plastic packaging produced in Europe is reused and only around 40% is collected for recycling. A report published in 2019 by DS Smith (a leading producer of recycled paper and packaging) in partnership with White Space Strategy found that 1.5 million tonnes of plastic (of a total of 20 million) could be replaced each year from just five areas of supermarket packaging across Europe. Replacing plastic punnets for fruit and vegetables with paper–based alternatives alone represents an annual £2 billion market opportunity. Of course, increased use of paper could present another set of problems, unless the extra supply can be sourced from recycled materials or through sustainable forest management.
Increasing consumer demand is a crucial factor in encouraging businesses to make the transition to more sustainable practices, and for that we need to be patient. Deeply ingrained habits will take time to change. As investors we need to relieve pressure on companies to deliver quick returns and maximise short–term profits. Businesses, policymakers, investors and consumers need to work together to develop a system that relies less on physical resources, better serves the needs of all stakeholders and takes responsibility for the full lifecycle of what it produces.
In response to the pressing issue of waste in general — and plastic waste in particular — a growing number of government and business initiatives are encouraging a shift away from linear ‘take, make and dispose’ business models towards more circular examples of production and consumption.
Many see the circular economy as a key solution to resource scarcity, as well as being instrumental when tackling other challenges such as climate change, food security and habitat preservation. Companies can support circularity either through their products and services or the way they operate. For example, some retailers have committed to ‘whole crop purchasing’ — taking the parts of a crop which may not meet specifications for fresh produce and incorporating them into processed product lines.
Rathbones’ Greenbank team has raised the circular economy issue in meetings with companies and has also supported collaborative engagement projects focused on plastics.
Overhauling the food system will be crucial as we work towards a more sustainable future for our planet, and therefore a sustainable future for investors. We are seeing growing evidence of the links between good management of environmental, social and governance (ESG) risks and financial returns.
There are opportunities for companies that react quickly and lead the way in sustainable food production and packaging, resulting in a healthy bottom line and a healthy planet. And together we can take a bite out of climate change.