Case Study

Sonen Capital: Investing in Agriculture to Create Impact

Sonen Capital is a dedicated impact investment management firm based in California. It is a signatory to the UN-supported Principles for Responsible Investment (PRI) and an early member of the FAIRR Initiative. The firm believes that investing to generate financial returns and lasting social and environmental impact are not only compatible, but mutually reinforcing objectives.

Deploying investor capital to meet development challenges

Sonen directs capital to investment opportunities that are designed to help meet large-scale social and environmental challenges. As such, its investment process includes simultaneous impact and financial evaluation, combining the discipline of institutional investment management with a systematic process to measure relevant environmental and social indicators. As part of its investment services, in addition to providing its clients with financial reporting, they also provide quarterly impact reporting. As part of its efforts to help grow the impact field, Sonen publishes and makes publicly available on its website a comprehensive annual impact report as well as thematic “impact frameworks” that articulate specific, intended social and environmental impacts that inform its investment decision making process. To date, published frameworks cover energy, water, green real estate, sustainable infrastructure and sustainable agriculture.

Will Morgan, the Head of Impact at Sonen explains: “We look at both what a company does and how it does it. ESG data on how a company does business includes indicators such as board diversity or whether employees are paid a living wage. What, on the other hand, comes back to our investment themes. A good example of this distinction is Nike. They have made progress in the sense that they have improved working conditions in their supply chain and their environmental footprint. But ultimately, what is their business? They make sports apparel and equipment. Individual investors often decide if “what” is more important than “how,” or vice versa.”

Pursuing positive impact in agriculture

Within agriculture, Sonen believes that a small number of key interventions can help improve global food security, meet future nutritional needs and improve environmental concerns such as water scarcity and climate change.

Sonen’s impact framework for Sustainable Agriculture outlines the types of agricultural opportunities it seeks to invest in, and the objectives of those investments. Sonen believes that conventional agriculture techniques designed to meet growing worldwide demand for food and high-protein diets often result in soil degradation, water pollution and high levels of greenhouse gas (GHG) emissions. Along these lines, Morgan notes, “We have articulated overarching goals that we want to support with our investments, such as increasing food security and environmental sustainability. This gives us the latitude to make investments that contribute to these objectives”.

The firm has outlined six key objectives in its Sustainable Agriculture framework:
• Reducing the agricultural yield gap;
• Promoting proper management of agricultural nutrients;
• Reducing GHG emissions;
• Reducing crop-production for non-food use;
• Reducing water use; and
• Reducing food waste.

In line with this framework, Sonen seeks to avoid investments in companies that employ factory farming of animals or livestock and do not employ high animal welfare standards.

Sonen’s position on antibiotics

Sonen undertakes various forms of shareholder engagement and advocacy and participates in campaigns to improve sustainability performance and corporate transparency. The firm joined FAIRR’s engagements on sustainable protein supply chains and antibiotics misuse in the food industry. Asked about the rationale for joining the engagements, Morgan says, “Animals in confined spaces need antibiotics to remain healthy because they are so close to their peers. That is not a practice we support. With antibiotics, there is also the issue of growing antibiotic resistance which presents a serious problem that we believe will only amplify over time. The FAIRR antibiotics  engagement is part of a similar vein of industry initiatives that we have joined, such as the Chemical Footprint Project, to promote corporate disclosure of the chemicals used in their supply chains and their possible side effects.”

Aligning impact with the UN SDGs

Sonen maps the contribution of its investment strategies to the UN Sustainable Development Goal (SDGs). The firm’s 2015 Annual Impact Report was the first of its kind by an investment manager to attempt to align its impact with the SDGs. Morgan says, “It wasn’t enough for us anymore to simply describe what we were doing. The SDGs provided a credible framework and a tool for us to show what impact our investments are having and how they align with the global agenda.”

“It’s easy to say that investments in agriculture align with the SDGs, but in actuality you have to be specific: just because you are investing in agriculture doesn’t mean that you are contributing to the goal of zero hunger.” – Will Morgan, Head of Impact at Sonen

For example, the agriculture-oriented investments Sonen has made are aligned with SDG 2: Zero Hunger. Sonen thinks critically about these investments to ensure that they are in line with its goals, as Morgan explains. “You would think that any investment in food production would align with SDG 2, and while in a broader sense that might be so, it’s more important to extend food security to regions that currently do not have it, and to help small-scale farmers improve sustainability. Simply by investing in soy or corn production for example, which is grown primarily to produce livestock feed, you’re doing very little to improve food security or prevent malnutrition. It’s easy to say that investments in agriculture align with the SDGs, but in actuality, you have to be specific: just because you are investing in agriculture doesn’t mean that you are contributing to the goal of zero hunger.”

Alternative protein as a source of returns

Looking ahead, Sonen sees alternative proteins as a possible means to achieve its objectives within agriculture. The challenge is identifying suitable opportunities at the right scale. Morgan concludes, “Alternative proteins can be a good investment in terms of impact and financial returns if the risk and reward profile makes sense. For example, we are aware of the production of an insect-based protein to produce fish feed. These solutions are very early stage, but alternative proteins like insects could be part of the food scarcity solution.

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