Put Your Money Where Your Mouth Is: Vegetarian and Vegan Investing

The meat industry has a terrible carbon footprint. While diet is a personal choice, could funding vegetarian products be the game changer that moves our consumption habits in a more sustainable direction?

It might very well be. Vegetarian-related investments have evolved from a fringe idea into unicorn territory. Once the sole domain of impact investors, it is now becoming mainstream with the development of the food technology sector. At SustainFinance we believe investors should pay attention.

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Vegetarianism has grown in popularity. While concerns about the associated environmental degradation, health implications and ethics of meat consumption are the main motivators, the rise of vegetarianism is also driven by a desire for a more equitable distribution of food and to protect communities long-established rural areas. In fact, data shows that vegan and vegetarian food production is more resource efficient and less burdensome on the environment.

Animal food production and agriculture are among the main contributors to climate change. If the average American were to replace their meat intake with plant-based alternatives, for example, they would reduce their food-based carbon footprint by 96%. If the entire world made the switch from beef to vegetarian options, up to a quarter of the planet’s ice-free surface and up to 15% of global freshwater use could go to other uses, or not to use them at all. Think about it: one kilogram of fruit requires one-fifteenth the amount of water to produce an equivalent weight of meat.

Enough food is produced for everyone in the world to eat well, but because of our dietary habits, meat is overproduced and overconsumed in rich countries. This in turn eliminates our ability to grow the grains and produce needed to ensure healthy nutrition in emerging markets. Global agricultural supply chains are also getting longer; Many food products travel hundreds of kilometers to reach our plates, further expanding our carbon footprint.

Big Food is big business and not easily disrupted. By convincing consumers to consume more and more calories, global agricultural companies have achieved their bottom line. But the diets they have promoted have led to widespread obesity and an associated health crisis. They impose a social cost that we are just beginning to calculate.

Our diets are addictive. Although our bodies require nutrition, Big Food designs products with precise combinations of sugar, salt, fat and other additives that can lead to habits like tobacco or alcohol. In fact, the food supply chain has some parallels to that of prescription opioids in the late 1990s and early 2000s. Big Food incentivizes food retailers and outlets to serve demand despite social costs in the same way that drug manufacturers incentivized doctors to overwrite prescriptions.

Could the agribusiness industry and food retailers finally face regulatory scrutiny? The sugary food and drink industry in the UK already has. The crackdown on high-sugar products was led by government reviews which, in turn, influenced consumer demand. The meat industry could soon face a similar process.

File for the future of sustainability in investment management

Several large, well-capitalized agricultural companies dominate the global food sector, including the production of seeds and grains and animal end products. They make up a powerful oligopoly that dictates what we eat and how we eat it and where and how it is produced. They consume enormous amounts of global resources, greatly influence government policy, and contribute to a wide gap between developed and emerging countries.

Pursuing profits without accounting for the associated social and environmental costs of production leads to short-term decision-making. This has consequences for our natural resources and the health and safety of our workforce. The use of fertilizers and pesticides can increase crop yields, but can also damage surrounding ecosystems. Crop yields decline as the soil deteriorates. The direct consequence of focusing only on short-term growth can cause less developed countries to face the depletion of regional resources, deteriorating public health and increased poverty.

What can we do about the excesses of Big Food? Many, it turns out. As consumers and investors, we have real power to change the current unsustainable model for the better. We need to educate ourselves about the origin of the food we eat and the resources needed to produce it. We need to reduce, not necessarily cut out, foods that harm both us and the environment. Eating less meat, especially beef, or if possible no meat at all, and sourcing more food from local suppliers are big steps in the right direction.

There is definitely a “chicken or egg” element to this whole transition. If there were more attractive and affordable vegetarian and vegan products, more of us would switch to these types of diets. But green shoots are emerging. Change follows money and more money will come as we scale. The more flexitarians, vegetarians and vegans there are, the more the food industry will innovate, reduce costs and make non-animal food alternatives more accessible to more consumers.

This culture change will take time and the investment community has a key role to play. Agribusinesses constitute an important part of retirement portfolios. Fund managers must ensure that this sector is responsible. At a minimum, fund managers should demand good governance and transparency about company carbon policies, workforce practices, and consumer health and well-being. Ideally, this means advocating for a board-level focus on sustainability and a clear roadmap to a less destructive, healthier and more equitable food supply chain.

Of course, the added value of all of the above comes down to risk mitigation and ethical considerations. They are important, but not sufficient to ensure that an investment portfolio meets our clients’ objectives. An investment that ticks all the sustainability boxes but doesn’t generate returns is not a “good” investment in any sense of the word.

So how have vegetarian and vegan investments really performed? Is there a proof of concept that demonstrates its long-term payback potential? Naturally, given the relative novelty, the data is not complete, but the first results are promising. Since its launch two years ago, for example, Beyond Investing’s US Vegan Climate Change ETF (VEGN) has given the S&P 500 a run for its money while avoiding companies that contribute to animal suffering , climate change and the environment. degradation Elsewhere, food tech unicorns Beyond Meat and Oatly benefited from considerable success en route to their successful initial public offerings (IPOs), demonstrating, at the very least, that there is strong investor interest in this type of companies. And this investor interest is fundamental.

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To reduce the environmental toll of food production, investment must be directed towards more sustainable production systems. Historically, access to these investments has been limited. Food technology is still a nascent industry and therefore primarily the preserve of venture capitalists and private equity. But Invest Vegan and other companies are charting a path to help investors better align their investing with their values.

A green revolution is transforming our energy supply and waste management systems. A similar revolution must take place in global food production and in our diets. The investment community can help catalyze this revolution by encouraging Big Food to up its game and become healthier and more sustainable.

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All posts are the opinion of the author. Therefore, they should not be construed as investment advice, nor do the views expressed necessarily reflect the views of the CFA Institute or the author’s employer.

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Paul Smith, CFA

Paul Smith, CFA, is the founder of SustainFinance and the former president and CEO of CFA Institute. He has over 25 years of relevant financial services leadership experience in many aspects of the investment management industry.

Kübra Koldemir

Kübra Koldemir is a sustainability business writer at SustainFinance as well as a sustainability researcher at Argüden Governance Academy. He has written numerous articles on sustainability that have been published in various global publications. Koldemir began his financial career in 2006 working as an investment analyst in New York City, first at a long-end fund and then at a hedge fund with $1 billion in assets under management (AUM) specializing in financial services companies. Focusing on international investments, he evaluated the strategy and results of numerous multinational corporations in various sectors. Koldemir holds a BA in International Relations from Mount Holyoke College and an Executive MBA from the University of Texas at Austin.

Andrea Webster

Andrea Webster is a managing director at Chartwell Capital and a contributor to SustainFinance. With over 20 years of experience in the wealth and asset management industry, he has spent over a decade working with boutique asset managers on business expansion.

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