Key Takeaways From FAIRR’s Assessment
Nearly 60% of the 75 agri-food companies assessed by FAIRR mention regenerative agriculture as a part of their sustainability strategies.
The companies with regenerative agriculture in their sustainability disclosures jointly control or influence around a third of the agri-food sector’s $9 trillion revenue.
71% of those companies cite “improved soil health”, a core tenet of regenerative agriculture, as an expected outcome from regenerative agriculture programmes but discrepancies between nature-related, socio-economic, and practice-related outcomes remain visible.
Just 33% of those companies have quantified targets for regenerative agriculture, with the rest either focusing on pilot projects or general statements of intent, raising concerns about delivering positive outcomes and potential risks of greenwashing.
Investors whose own climate and biodiversity goals depend on portfolio companies are critical to driving the development of outcome-based disclosure frameworks and metrics to fully harness the potential of regenerative agricultural strategies through support and engagement.
Regenerative Agriculture: An Emerging Sustainability Strategy
The term “regenerative agriculture” may be relatively new to most investors, but its potential has been highlighted in academic studies and published literature. These studies show that regenerative agriculture can reduce greenhouse gas emissions, contribute to carbon sequestration/removals, and improve soil health, biodiversity, water availability and quality, as well as resilience to climate change. Holistic strategies such as regenerative agriculture with multiple sustainability benefits is vital for transforming the agri-food sector, given the agricultural sector is responsible for 30% of greenhouse gas emissions, it’s the primary driver of biodiversity loss and the largest user of freshwater globally while simultaneously being the most vulnerable to climate and nature-related impacts. The goals of the Paris Agreement and the Kunming-Montreal Global Biodiversity Framework won’t be met without reducing and eventually reversing the food sector’s demands on climate and nature.
Regenerative agriculture is already firmly anchored in agri-food companies’ sustainability strategies and could become central to initiatives around climate and nature-related risks and opportunities across the sector. FAIRR’s baseline assessment of 75 of the largest listed companies with exposure to meat and dairy1 found that nearly 60% of the companies mention regenerative agriculture in publicly available filings, with an additional 8% mentioning regenerative practices. These include companies such as Walmart, Nestle, Costco and McDonald’s, whose combined annual revenue of $2.3 trillion represents around a quarter of the revenues from the agri-food sector2. When adding large, privately held peers (such as Cargill and others) and companies outside FAIRR’s universe that don’t have exposure to meat or dairy (such as PepsiCo and others), the figure climbs closer to $3 trillion.
Source: FAIRR
It’s no surprise that regenerative agriculture is referenced in various climate and nature-related corporate standards. For instance, the Task Force on Nature-Related Disclosures (TNFD) highlights regenerative agriculture as a potential nature-related opportunity to improve biodiversity. From a climate perspective, both Science-based targets for Forest, Land and Agriculture (SBTi FLAG) and the soon to be launched Greenhouse Gas Protocol Land Sector and Removals Guidance (Q3 of 2023) acknowledge the carbon reductions and removals from regenerative agricultural practices in greenhouse gas inventories to meet climate targets.
A Lack of Transparency and Consistency Causes Headaches for Investors
Despite this uptake among companies and attention from corporate sustainability standards and frameworks, investors still need more transparency and clarity to dispel doubts and uncertainties about the effectiveness of regenerative agriculture. For instance, the absence of a definition of regenerative and guiding principles makes it difficult for investors, whose own climate and nature goals often depend on the actions of their holdings, to track progress and identify leaders, enablers and laggards in their investment or stewardship processes. Building an improved understanding of potential merits and shortfalls in disclosure could help investors better assess the scale of potential positive impacts and gain confidence in their engagement with companies.
The outcomes sought by companies seem to be scattered across the board
Our assessment reveals six major themes that cover the outcomes sought by the 42 companies mentioning regenerative agriculture in their corporate disclosures. We observed significant variability in the nature of these themes and their distribution across company commitments. The most popular themes congregated around climate and nature and were closely distributed across carbon removals/sequestration (74%), improved soil health (71%) and biodiversity improvements (71%). This is in line with a vast majority of peer-reviewed journal articles that put soil health and associated metrics at the core of any nature-related benefit regenerative agriculture can deliver3. Non-environmental themes such as Socioeconomic factors, including farmer livelihoods, farm profitability or productivity (including yield increases), are also commonly mentioned as benefits by 57% of the companies. The final theme was the reduction of agrochemical inputs (fertilisers and pesticides). This was different from the rest of the themes since this was more of an abatement method rather than an outcome.
Source: FAIRR
These six themes could be used to form a rough definition of regenerative agriculture from a corporate perspective, but there is still considerable variance on the extent of coverage across these themes. While we found it encouraging that nearly half of the companies assessed discuss 5 or 6 of the outcome themes, it was concerning that 36% omit half or more. More than half of the companies congregate around climate and nature-related goals of carbon removals/sequestration, soil health, biodiversity, and to a lesser extent, water quality and availability. In fact, 3 of the 12 companies that don’t include soil health neither have biodiversity nor carbon sequestration/removals in their disclosures. They instead focus on socio-economic factors such as farmer livelihoods, farm profitability or productivity (including yield increases).
FAIRR’s takeaway from this analysis of the regenerative themes covered by the companies is that while there is some consensus forming among companies around certain nature-related themes, overall, the understanding of what regenerative agriculture can achieve at scale appears to remain unclear. The mixing and matching across the six themes identified within company disclosures might not be best suited to tap into the multiple benefits of regenerative agriculture.
Source: FAIRR
Target setting remains non-existent and ambiguous
As some consensus begins to form around what corporate regenerative agriculture programs should seek to achieve, it could be expected that target-setting would follow suit. Yet, somewhat worryingly, our analysis showed that almost two-thirds of the companies only referenced unquantified and general statements of intent and/or pilot projects to reflect their commitment to regenerative agriculture. While pilots with a credible partner are a noteworthy step towards ground truthing and better practices, companies should elaborate on how they plan to deploy these at scale across their supply chains. Most companies reviewed as part of this analysis provided no information regarding the scale of their regenerative programmes and how key stakeholders, including farmers, will be supported. This could be partly due to the emerging nature of regenerative agriculture or management waiting on frameworks like the TNFD and Science-based targets for nature (SBTN) to be finalised. However, this lack of clarity can create confusion among investors and stakeholders regarding the coverage and impact of such claims and leads to a risk of greenwashing (or pilot-washing).
Source: FAIRR
Just 33% of the 42 companies have quantified targets, which FAIRR categorised as related to area (acres to be converted or equivalent, 9.5% of companies), sourcing (% ingredients, spending or revenue, 17% of companies), and financial (monetary investment in supply chain transition, 12% of companies)4. Just one company, Mondelez, has targets spanning area, sourcing and financial, while Tyson Foods and Nestle have targets covering two categories (area and sourcing, sourcing and financial, respectively). While any quantification of targets is better than none, area-related and sourcing targets without discussing how farmers will be financially supported for achieving regenerative targets could raise doubts about the fairness and viability of these initiatives and projects.
Note: Some companies have targets spanning more than one category
Source: FAIRR
Investor Engagement and Support Are Critical to Harnessing the Potential of Regenerative Strategies
To meet global climate and biodiversity goals, corporate regenerative agriculture programmes must be driven by an overarching sustainability strategy guiding actions and breaking down the silos of climate, biodiversity, water scarcity, deforestation, land use, waste and pollution, and invasive species, with a focus on just transition for farmers. Yet, as described above, FAIRR’s baseline research identified several inconsistencies in how the market is approaching regenerative agriculture, raising doubts as to what can be achieved systemically. This also creates a complex task for investors who are serious about meeting their own nature or climate goals. This is equally true for active investors identifying transition leaders and enablers and for passive or universal investors who rely on systemic change, justifying their involvement in discussions around investing in regenerative agriculture.
The findings of FAIRR’s baseline analysis discussed above indicate that there is much for companies to clarify about their regenerative agricultural strategies, from seeking the right outcomes to identifying accurate metrics for target-setting and progress measurement. Without this transparency from portfolio companies, it will undoubtedly be difficult for investors to engage and support companies to go beyond pilots and vague statements of intent and deploy regenerative agriculture at scale across the food system. This makes investor engagement on this topic critical in driving the development of outcome-based disclosure frameworks and metrics to scale and harness the potential of regenerative agricultural strategies fully. FAIRR aims to facilitate such a collaborative dialogue between investors, companies, farmers and organisations involved in regenerative agriculture. We plan to synthesise our findings in a technical report due to be released in September 2023. Please contact Max Boucher if you are interested in participating and shaping this dialogue.
Footnotes
[1] FAIRR’s analysis was conducted in February 2023. The sample of 75 companies was identified using the GICS sectors Agricultural Products, Packaged Foods & Meats, Food Retail, Restaurants and Food Service, and removing companies with less than 50% exposure to the sector (for example, convenience store retailers selling fuel) or no connection at all with meat and dairy. A $5 billion market capitalization cut-off uses 2021-2022 averages.
[2] The total annual revenue from the agri-food sector was $9.4 trillion in 2022, based on Statista data.
[3] The categories are broadly based on the findings of the textile exchange’s review of 25 practitioner websites and 229 journal articles https://textileexchange.org/app/uploads/2022/01/Regenerative-Agriculture-Landscape-Analysis.pdf
[4] The percentages add up to more than 33% because some companies have targets covering more than one category.
