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3 Investor Takeaways from the Latest Serving of the Coller FAIRR Index

17 November 2020
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The unique and comprehensive analysis in the Coller FAIRR Protein Producer Index, which released its flagship new data today, has changed the way investors analyse the meat, fish and dairy industry.  It not only provides insight into the sustainability performance of its $330-billion group of 60 constituents. It also throws a spotlight on how exposed the wider $1.5 trillion global protein market is to ESG issues from worker safety to food safety.

For those investors who do not have time to review all 32,820 data points on this year’s new Index, here are three of the most significant findings:

1) The climate is changing faster than animal agriculture.

If factory farms and the wider animal agriculture sector were a country, they would be the second-highest emitter of greenhouse gases (GHGs) in the world. More than the US and UK combined. That’s why climate-conscious investors have for several years urged large meat, fish and dairy companies to act on emissions or face enormous risk as regulators, consumers and shareholders up the pace in the transition to a low carbon economy.

But today’s FAIRR data shows that, despite some patches of climate leadership (the number of Index companies committing to a ‘Science-based targets’ for example has risen from two to seven this year), the sector is not responding fast enough.

Three in four of the 60 Index companies do not declare or set meaningful reduction targets for all GHG emissions (Scope 1, 2 and 3), rising to 86% among just meat and dairy suppliers. Furthermore, 35% of Index companies reported an annual increase in emissions.

That undermines the climate ambitions of high-street brands such as McDonald’s, Nestle and Tesco, and threatens to undermine the ambitions for next year’s COP26 summit in Glasgow.

2) The next COVID-19 may well come from a factory farm… And that’s not a great pitch for investment.

Of equal concern to investors is the sector’s poor response to the COVID-19 pandemic. The data shows that over 70% of these animal protein producers are not doing enough to prevent the creation or spread of zoonotic diseases such as COVID-19. In total, 44 of 60 companies are ‘High Risk’ in the ‘pandemic ranking’ which pulls together the criteria related to pandemics including working conditions, food safety, animal welfare and antibiotic stewardship.

When we finally emerge from the current pandemic, many investors expect significant regulatory and market changes will be pushed through to build a stronger wall between animal-based industries and human health.

From overhauling biosecurity and surveillance practices to limiting antibiotic use that is going to have a major impact on the sector. Earlier this year it led the head of commodities at Goldman Sachs to list livestock alongside oil as one of the two most precarious commodities for investors next year.  Yet the data shows the sector is burying its head in the sand on the issue at the moment.

3) We are seeing plant-based go mainstream.

During my career in capital markets, I have witnessed many examples of megatrends disrupting sectors, making leading companies quickly seem outdated and unattractive**.** The animal protein sector may well be facing such a tipping point. Because while the industry cracks under the weight of its huge sustainability challenges, we see booming investment in alternative protein products…

Perhaps the most interesting data point in this year’s Index is a 47% rise in the number of traditional meat, fish or dairy firms now meeting best practice on alternative proteins. Canadian producer Maple Leaf Foods, for example, scores 100% in the ‘sustainable proteins’ category and is investing $310 million in a dedicated plant-based facility in Indiana. It has also set a target to achieve $3 billion in sales in its Plant Protein Group by 2029 – a huge jump from its current sales of around $170m and above the company’s entire current sales.

The landscape of 2020 offers the factory farming industry the perfect opportunity for innovation. In fact, it is forcing it upon them. The Coller FAIRR Protein Producer Index is the only truly comprehensive tool to help investors determine which companies aim to take advantage of this opportunity to build greater resilience and offer investors relative better risk-adjusted returns—and which will fail to rise to the challenge.

I urge all investors to visit the Index and see for themselves.

FAIRR insights are written by FAIRR team members and occasionally co-authored with guest contributors. The authors write in their individual capacity and do not necessarily represent the FAIRR view.