An Important Industry Overlooked in ESG Investing — Agriculture
ESG investment is an emerging sustainable investment concept in recent years, which refers to incorporating environmental, social and governance factors into investment strategies. Agriculture is facing a $3 trillion challenge in the new world of ESG. That’s based on current estimates of the environmental costs of feeding the world, from greenhouse gas emissions to pesticides, fertilizers and freshwater use.
To be clear, farmers have long been stewards of the earth’s land and environment. However, as the population continues to grow and the scale of demand for food increases, there is a heavy pressure on the environment. In recent years, up to 17% of global greenhouse gas emissions have come from agriculture. With the help of new and existing technologies, farmers can increase their productivity while reducing their environmental impact. More importantly, the new technology is able to show and quantify this shift with hard data.
In fact, as an industry that touches everyone on the planet, agriculture can be one of the world’s strongest ESG investments, and it’s becoming increasingly clear.
Agriculture isn’t just about pleasing investors
The ESG investing or impact investing movement is led in part by Larry Fink, the CEO of BlackRock Inc., known as the “Godfather of Wall Street”. In 2019, he set out to reshape the concept of global capital markets, focusing on sustainable development and social issues. ESG investing has grown rapidly in 2020 and is arguably one of Wall Street’s fastest-growing investment themes this year. This year, Fink wrote in a letter to shareholders: “Every company and every industry will be transformed by the transition to a net-zero world. The question is, will you lead, or will you be led?”
In agriculture, we are already seeing an impact, as large multinational corporations prioritize relationships with suppliers committed to reducing their environmental footprint, more and more farms are investing in technologies that support data-driven decision-making, allowing them to optimize resources use. For many farmers, however, improving sustainability is not only a matter of investor sentiment, but also an operational imperative.
The entire farming world must figure out how to produce more with less, and farmers find themselves in the midst of a never-before-seen “perfect storm” scenario. Fertile land is dwindling, and the demand for fresh water far exceeds the supply. Meanwhile, the global population is projected to approach 10 billion by 2050, the equivalent of adding a city of about 1.5 million people to the planet every week for the next 28 years.
So when we talk about the impact of ESG investing on agriculture, it’s important to understand that these changes are not just driven by investor responses, but many farmers are now deeply committed to improving sustainability and leveraging technology to reduce investment and costs.
Innovation at the forefront
When one thinks of sustainable agriculture, an idyllic vision may be imagined, or perhaps an organically grown farm. But as great as these visions are, they do not have the ability to scale to feed a growing population under the conditions we face today.
In fact, some of the most significant gains associated with ESG investing come from integrating new technologies, and better data, into large-scale commercial farms. Methods such as precision farming, facility farming, and regenerative farming allow farmers to increase yields while reducing inputs such as water, fertilizers, and pesticides. Globally, even small energy efficiency gains translate into huge environmental savings.
So it’s no surprise that last year saw record investment in agtech. $5 billion in VC funding backed agtech startups throughout 2021, a 50% increase from the previous year. These figures reflect the magnitude of the agricultural challenge on the one hand, but also imply the potential impact of advanced agricultural technologies in supporting ESG while helping to feed the world.
Agricultural data fights ‘greenwashing’
Despite the lofty goals of ESG investing, the field has a serious Achilles heel: “greenwashing.” Even agriculture is no exception.
As the corporate and business worlds scramble to make promises to impact investors, many of them exaggerate the truth. In fact, a recent poll in the US found that 68% of executives admit that their companies are “greenwashing” their sustainability commitments. Even the United Nations has joined in, creating a panel of experts to sift through corporate commitments and hold companies accountable.
In agriculture, even investors have no way of knowing whether a company’s commitment to ESG has actually been fulfilled, and is being “green” just a show? That’s not to mention end consumers. This is where data-driven agricultural technologies show their real power. Today, field sensors and record storage platforms are capturing details ranging from water usage to pesticide use, enabling farmers to clearly quantify their ESG impact and representing greater efficiency.
Feeding a growing population and maintaining the environment are not conflicting goals; instead, they are inseparable from each other, fueled by technological innovation in agriculture. Look forward to the next generation of agtech that can absolutely quantify the impact of agriculture on air, soil and water. Agriculture is evolving from a $3 trillion ESG liability to a $3 trillion ESG asset, and the impact of ESG investment is becoming more and more important. Obvious.
With the goal of “carbon peaking and carbon neutrality” being put forward, Chinese society’s attention to clean energy, green economy, and the resulting green finance has risen sharply, making ESG investment the focus of the market. If any asset management company doesn’t know how to invest in ESG, then invest in agriculture!