Risk factors explained

Sustainable proteins

Animal protein producers face a range of sustainability risks. By diversifying into sustainable proteins, these businesses can hedge these risks and enter a fast-growing market.

It is evident that traditional meat, dairy and seafood producers are under considerable sustainability pressures, and that these are likely to intensify as demand for animal protein grows around the world. Some of the risks assessed in this benchmark can be mitigated with the appropriate technology or a change in management practices. However, natural resource constraints such as freshwater and arable land availability will eventually curtail the sector’s expansion.

At the same time, innovation in food technology is accelerating and is creating protein production opportunities with the potential to disrupt the incumbent industry. For intensive animal protein producers, a failure to engage with this innovation is a risk. Diversification into producing alternative (i.e. non-animal) proteins is therefore key for both managing the risks of resource-constrained supply chains and for seizing opportunities for market growth.

For these reasons, investor interest in this issue is expanding. FAIRR has identified four key drivers that will shift the food system from its dependence on animal proteins towards alternative protein sources:

  • growing market opportunity to meet demand for plant-based foods;
  • accelerated innovation in food technology;
  • increasing awareness of ESG impacts linked to intensive livestock production; and
  • advocacy and regulation to moderate growth in the animal protein sector.

For this iteration of the Index, we did not formally assess the 60 companies in this area, but we did assess whether companies had any product exposure to alternative protein sources. Our analysis showed that only five of the 60 companies accounted for the emergence and growth of the alternative proteins sector.