Meat sector ‘facing ruin’ as climate change set to cripple earnings
The increased impacts of climate change coupled with rapid growth of alternative proteins will put "billions of dollars at risk" in the meat sector, as a new study warns that companies are failing to disclose climate-related data or examine how they would perform based on numerous climate pathways.
The $20trn investor network FAIRR has examined 43 of the world’s largest listed meat companies, many of which supply to companies like McDonald’s and Burger King. The assessment found that some meat suppliers could lose as much as 45% of earnings before interest, taxes, depreciation, and amortisation (EBITDA) by 2050.
The main risk is a sense of inaction as other businesses and entire nations move towards the IPCC’s scenario of limiting global to no more than 2C by 2050. However, the emergence of the alternative protein market will also impact earnings, with the study predicting that alternative proteins will command at least 16% of total meat market by 2050, potentially rising up to 62%.
FAIRR’s founder and chief investment officer at Coller Capital Jeremy Coller said: “Climate change is real and so are its financial impacts. The cost of powering poultry sheds, of sourcing feed for livestock and veterinary care will all rise as global temperatures do. This ground-breaking financial model has done the maths.
“Investors can see the inescapable truth for the meat sector is that it must adapt to climate change or face ruin in the years ahead. Conversely, there is also an appetising prospect of enormous upside if the world’s meat companies shift their protein mix to align with a climate-friendly path. It’s not an acceptable strategy when it comes to this level of climate risk for the food industry to bury its head in the sand.”
The assessments were made using the Coller FAIRR Climate Risk Tool, which provides investors with a model to assess the risks and opportunities for meat companies in a 2C future world. The tool is based on scenario analysis aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
Investors such as Allianz and Aberdeen Standard have been involved with the development of the analysis and are expected to use it in their investment processes.
The assessment identifies seven risks that will impact profitability in the meat sector, including increased electricity costs due to carbon pricing, higher feed costs due to poor crop yields and increased livestock mortality due to heat stress. These, coupled with the burgeoning alternative protein market, suggests that meat companies need to act to disclose and act on climate data.
In fact, only two companies, Tyson Foods and Marfrig, representing 5% of the 43 firms assessed have publicly disclosed a climate-related scenario analysis. In contrast, 23% of oil and gas, mining and utility companies have undertaken this sort of climate scenario analysis.
FAIRR found that Brazilian beef firm JBS could lose up to 45% of EBITDA by 2050. However, there are opportunities to be garnered from the low-carbon transition. Canadian firm Maple Leaf, which has made investments into plant-based proteins, could see EBITDA rise by 77% by 2050.
More recently, a report commissioned by the Dutch True Animal Protein Price Coalition (TAPP) suggested that retail price of meat does not reflect the environmental costs associated with its production, and called for a “sustainability charge” on meat.
Of the alternative proteins front, food manufacturers and retailers such as Tesco, Unilever and Nestlé are “seizing the opportunity” of a thriving plant-based market to assist with the low-carbon transition. A report by FAIRR noted that the alternative protein market is expected to be valued at $100bn in the next 15 years.
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