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Is AgriTech the next ESG frontier?
Food security has been under the spotlight. Egg shortages, droughts, the war in Ukraine, energy crises, growing populations and high prices have put a strain on the world’s food supply.
Sustainable and secure food production must be the center of attention to avoid a global food crisis. However, this cannot come at the cost of the environment. Thus, efforts in creating a reliable food supply while reducing agriculture’s high emissions must become more efficient.
Three major solutions could be the key to getting this right:
(1) Genetically Modified (GM) food.
Developments have been made in genetically modified seeds and plants. A 2023 UBS report predicts that industries providing environmentally- friendly food security could make $1.3 trillion of annual revenue by 2050. Given the ability to boost yields, GM seed and plant production is a top contender. There are limited players in this market. Monsanto, Corteva and Syngenta are the current 3 GM seed producers.
However, we may be a long way from GM foods becoming mainstream. Outside the US, GM companies are highly controversial and face stringent Genetically Modified Organisms (GMO) regulations particularly in Europe.
(2) Precision farming equipment manufacturing.
Precision farming uses techniques and tools that allow farmers to target specific areas and optimize crop productivity. Equipment include GPS guided tractors, satellite crop monitoring systems, field sensors, water level sensors. The data collected by such innovations could accurately assess the health and productive state of land and predict crop yields.
Currently valued at $9 billion, this is a bigger market than GM foods and is projected to reach $19.24bn by 2030. Right now, the biggest players are German Bayer CropScience AG, American John Deere, and American AGCO.
However, a few small to mid-scale software companies beginning to lead the agricultural innovation scene are Precision.ai, Regrow Ag and Agtech Logic.
Long term investment in this sector could see high returns.
(3) Potash production.
Potash (a type of potassium mineral) is a fertiliser that improves plant durability and resistance to drought disease, weeds, parasites, and cold weather by encouraging water retention.
Crops that receive potash are often higher yielding and better quality. The top potash producers are currently Canada (16 million MT), China (6 million MT), Russia, Belarus, Germany, Israel, Jordan and Chile. Canada is particularly well positioned, having the world’s largest potash deposits, with only a small fraction currently tapped. Sanctions against Russia and its ally Belarus, which together account for 40% global production, means producers elsewhere will have to fill this gap.
OUR TAKE: Although investing in GM foods remains cautionary, demand for technology that improves farming efficiency such as precision equipment and fertilizers is likely to surge.
‘Anti-ESG’ states are paying the consequences
US states are beginning to backtrack on their anti-ESG bills after the rise of the movement a few months ago.
Earlier this February, North Dakota has downvoted the legislation for the state treasurer to boycott ESG investment firms like BlackRock. The vote was 90-3.
Sponsor of the bill, Rep Rep. Mitch Ostlie stated that "This bill, while well-intended, had too many unintended consequences that would have hurt our own Bank of North Dakota and other main street banks that do support our state's [agriculture] and energy businesses,".
Following this, Kentucky's $7.9 billion County Employees Retirement System opposed their State Treasurer’s bill too, stating that the bill would be “inconsistent with the fund’s fiduciary duty and responsibility”. Indiana faced a similar result in the same week. The bill sought to prevent the state’s $42.4 billion public pension fund from using asset managers that consider ESG criteria in investments have hit a roadblock. The pension fund’s fiscal analysis showed that the bill would cost the pension system more than $6.7 billion in lost returns over 10 years.
Kevin Brinegar, president and CEO of the Indiana Chamber of Commerce, highlighted reasons for the bill opposition:
“If the funds earn less money, the state has to put more tax dollars into the system to make up the difference. This is an apple cart that we don't see [as] needing to be upset."
OUR TAKE: Despite the claims of ESG hurting returns, even the anti-ESG states are now realising the costs of boycotting.
J.P. Morgan discards Adani from ESG fund
Amidst Adani Group’s stock manipulation and fraud-claims scandal, J.P. Morgan’s asset management arm has purged Adani stocks from its ESG funds.
J.P. Morgan has cleared them from its two funds: JPMorgan Global Emerging Markets Research Enhanced Index Equity ESG UCITS ETF (ticker: JREM LN) and JPMorgan AC Asia Pacific ex Japan Research Enhanced Index Equity ESG UCITS ETF (ticker: JREA LN).
JPM’s non-ESG funds have continued to hold Adani shares. BlackRock and DWS continue to have them in their ESG funds. Adani’s MSCI ESG Rating also remains unchanged.
Adani’s Chairman Gautam Adani lost his title as Asia’s richest man following the $90 billion market cap loss this week.
This has forced scrutiny on fund monitoring. Journalists have called for regulators to stay on top of “the biggest systemic risks, and to me, one of the big systemic risks is the index funds and the lack of clarity and regulatory definition.”
OUR TAKE: For a company that has been fought guilty of blatant governance violations, funds may not get away with holding its stocks in ESG funds for too much longer.
84% of Pension Funds want exposure to Social Care Investments
UK pension funds are a large institutional force responsible for over $120 Billion assets under management. Out of the 50 funds assessed, 84% wanted to increase investments in social care. They believe (1) the current ageing demographic trends coupled with (2) increased willingness of older generations to pay for private high quality healthcare makes this an attractive sector.
Additionally, 100% of respondents agreed that social care investing supports ESG credentials by improving the ‘S’ in ESG. With ESG climbing higher on pension investors’ priority list, increasing amounts of pension funds are incorporating ESG as an important aspect of their mandate.
Australian pension funds have also shown similar interest with Treasurer Jim Chalmers expressing the need to channel pension savings towards ‘nation building’ investments in clean energy and social care.
High quality private senior living, senior healthcare providers and high end nurseries have received heavy attention from asset managers and private equity funds including Goldman Sachs Asset Management, BlackRock, Macquarie. LoneStar Funds and M&G in the past year.
PWC’s 2022 report shows that senior living and senior care are major emerging trends in the US and Canada. This week, Vice-President of Investment Research at Marcus Millichap confirms the ‘wave of demand’ for senior living continues in 2023 with 44% of institutional investors wanting exposure.
Although capital markets and interest rates are still significant concerns over the next 12 months, the revenue growth of senior housing is anticipated to grow 46% in the next 10 years. Therefore, despite pricing uncertainties in the second half of 2022 which may continue at least until H1 2023, interest in seniors housing still remains strong as investors seek higher yields from alternative asset classes.
OUR TAKE: Keep your eyes peeled for social care investments.
Pfizer expands ‘Healthier World’ Medicines Program for 1.2B people
In response to UN Sustainable Development Goals, companies are now taking on more social corporate and global responsibility.
Pharmaceutical giant Pfizer has committed significantly towards this since the launch of their ‘An Accord for a Healthier World’ program last May. In recent weeks, they have expanded the program by providing access to 500 medicines and vaccines from the previous 23 products to reach 1.2 Billion people in 45 developing countries on a ‘not for profit’ basis.
This now includes treatment for life-threatening diseases such as cancer (with chemotherapies and oral cancer medication), malaria, rabies and other infectious and inflammatory diseases.
Currently under talks with organisations in Rwanda, Senegal, Malawi and Ghana, Pfizer hopes to play a major role in advancing healthcare and development in lower-income countries.
OUR TAKE: Consumers and the media respond well to companies with a large commitment to global social issues. Providing vital resources particularly in healthcare and development programs in lower income countries may have significant positive impacts for companies as those countries experience improvements.
Note:
All opinions are the author’s own. This is not investment advice. Please consult your financial advisor before making investment decisions.
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