The negative impact of the meat industry on the environment is widely acknowledged. Whether consumers like it or not, the costs of eating meat in terms of water usage and pollution, as well as greenhouse gas emissions, are much larger than their plant-based equivalents. This is before the conversation on animal rights has even started.

As environmental, social and governance (ESG) credentials grow in importance for both investors and consumers, the problems caused by the meat industry are becoming more and more apparent. In a conversation with Kirsten James, senior programme director of water at Ceres, a sustainability non-profit organisation, she says: “Increasingly, investors are recognising the financial material risks associated with the meat industry’s failure to address critical ESG issues such as water and climate impacts.”

This awakening is translating into investors actively voicing their concerns when it comes to any associations with meat production, according to Sofía Condés, senior investor outreach manager at the FAIRR initiative, a collaborative investor network that raises awareness of the ESG risks and opportunities brought about by intensive livestock production. 

“Awareness of the ESG risks posed by intensive animal agriculture has rocketed in recent years,” she says. “As an indication of this shift, FAIRR’s investor network, which focuses on addressing these risks, has grown from $800bn in assets under management in 2016 to $55trn [in 2022].”

Condés adds that this awareness has translated into investor action aimed at addressing these risks in the food industry. “FAIRR-coordinated investor engagements have driven positive change at global food companies in areas including reducing antibiotic use, diversifying into alternative proteins, and in setting science-based emissions targets," she says. "Such action is a strong indicator of investor appetite for addressing a range of material ESG risks in meat production.”

It seems that for meat producers the future does not look rosy in terms of ESG. The latest Coller FAIRR Index found that “protein producers are largely unprepared to meet the climate-related demands of their customers and incoming regulation”, says Condés.

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The top seven risks identified by the Coller FAIRR Climate Risk tool to impact meat companies’ profitability are the rise of alternative proteins; a CO2 price on meat; increased veterinary costs; a CO2 price on electricity; increased feed costs; increased energy costs; and increased mortality rates in livestock. CO2 is a by-product of the fertiliser industry, which has seen prices soar in recent months, affecting the food industry as it has an impact on the price of electricity and of the gas used to stun animals before they are slaughtered.

Are plant-based alternatives the answer for ESG-compliant investments?

With those risks in mind, plant-based meats could sound like a straightforward alternative for ESG-minded investors, but when it comes to food production, nothing is that straightforward. Plant-based alternatives to meat also come with issues in regards to ESG.

“Plant-based proteins are a promising alternative to meat, given the extremely high resource intensity of feeding and raising animal protein," says James. "However, the sustainability of the ingredient supply chain for the alternative products must also be assessed to ensure we aren’t trading one set of impacts for another.”

Even though addressing issues along the supply chain is of paramount importance to ensuring the sustainability of plant-based meat alternatives, many studies have already shown that plant-based alternatives have dramatically lower environmental footprints than their animal counterparts.

Claire Smith, CEO of Beyond Investing, a vegan investment platform, points this out but also stresses that “there are societal benefits in terms of reduced antibiotic use (which becomes unnecessary when you do not have thousands of confined animals) and the risk of zoonotic diseases and worker safety (since humans do not need to interact with the animals nor the sharp blades needed for butchery)”.

Smith also highlights the health benefits of eating plant-based alternatives. “Generally society benefits from a lower risk of diseases that are associated with meat consumption, such as heart attacks, cancer, stroke, diabetes,” she says. She adds, however, that plant-based meats must have a high nutritional content for these benefits to be truly felt. 

Plant-based investments can bring profits too

The latest reports by the UN’s Intergovernmental Panel on Climate Change found that “diversification into sustainable proteins such as plant-based, cellular and insect products would enable the industry to reduce exposure to key risks”, according to Condés. 

For investors, this actually presents an opportunity, she adds, as “analysis has found that alternative proteins could amount to 64% of the global protein market by 2060”.

"As evidenced by the expansion in brands and investments, the listed animal protein space is paying attention to the growth opportunities offered by alternative proteins, and investors are taking note," says Cordés. "FAIRR research found that, in 2021, investment in alternative protein reached $5bn, 60% more than in 2020."

For Beyond Investing’s Smith, the main challenge for plant-based alternatives is challenging the perception that “the processing of plant-based meats – which involves mainly a breaking down of plant matter, mixing of ingredients, heating, steaming, drying and forming shapes – is in some way damaging to nutrition or involves the addition of unwelcome chemical additives”.

Smith adds: “For the most part, this is coming from efforts by the meat industry to disparage plant-based meats as in some way 'unnatural' or to highlight concentrations of fat or salt in particular products.”

She does admit that certain additives should be avoided and “the plant-based meat companies are working strenuously to remove them”, but she goes on to say that “the vast majority of ingredients in plant-based meats are healthy and consumers should of course take advantage of the information on nutrition labels to ensure they are not consuming high levels of fat or salt”. 

Other concerns regarding plant-based alternatives tend to revolve around deforestation or the use of agrochemicals to support the production of plant-based meats, “which is ironic since the amount of crops needed to feed animals is far larger and the main cause of deforestation and monoculture farming”, stresses Smith.

Whether meat producers like it or not, it seems that this increase in the importance of ESG credentials is going to make a dent in their profits in the long term. Fossil fuels have been on a similar journey, and consumers are now realising that meat is comparable in the damage it does to the environment. Every investor in the energy game now wants to be involved in renewables. Before long, those in the food industry will be reacting in the same way to plant-based alternatives.