Unpriced climate risk threatens to wipe billions off food and agriculture businesses

Individual firms at the centre of the global food supply system could lose up to 26% of their value by 2030, with a sector average hit of over 7%. This is equivalent to USD$150bn in losses to investors.

In a “groundbreaking” report published today (20 September), the UN-backed campaign highlights the land transition as a “major blind spot” for investors and business.

The report modelled the financial impact of realistic nature and climate transition risks for 40 systemically significant food, land and agriculture companies worth $2trn.

Published during New York Climate Week (19-25 September), it warns that markets are “failing” to adequately price in the financial impact of an “inevitable and accelerating”  transition in land use as profound for key investee companies as the energy transition.

As part of New York Climate Week, banks and investors have been called on to end deforestation and nature loss to protect shareholder value and deliver on their net-zero commitments.

COP26 President Alok Sharma and UN Climate Change High-Level Champions Nigel Topping and Dr. Mahmoud Mohieldin together urged all financial institutions to use best efforts to eliminate commodity-driven deforestation from their portfolios. They also insisted institutions must report on credible progress by 2025, as well as increasing investment in nature-based solutions for climate change.

Sharma is expected to say: “Due to the unique role of deforestation in driving emissions, and the role of the standing forest and terrestrial ecosystems in mitigating carbon, the financial sector must front load its transition to net-zero, with a swift move away from deforestation-related emissions.

“Signing the Financial Sector Commitment Letter on Eliminating Commodity-Driven Deforestation sends an important signal to your supply chains, and harnesses the power of collective action. The physical risks to finance given the decline of both natural assets and ecosystem services are acute. The benefits of action are transformative. The right choice to protect our precious planet is clear.“

The Race to Zero report outlines five actions investors should take now:

1. Eliminate commodity-driven deforestation from their portfolios by 2025
2. Understand wider portfolio risks and opportunities arising from the land transition
3. Conduct company engagement to improve practices and drive a shift to deforestation and conversion free sourcing (DCF)
4. Invest in high integrity Nature Based Solutions (NBS)
5. Advocate for just land transition policies

The analysis reinforces research published by the Race to Zero earlier this year which revealed an urgent need for companies in the forest, land and agriculture (FLAG) sector to make progress on deforestation.

The study found that without much greater action, over 90% of major forest, land and agriculture companies that have committed to net-zero risk missing their targets because of a lack of progress on tropical deforestation, which is central to reducing emissions from these sectors.

Responding to the research and call to action, Schroders Group’s chief executive Peter Harrison, said: “Today’s new research underscores the critical role nature must play in how we – as investors – understand risk and spot opportunities. The reality is stark: nature risk is fast becoming an integral factor to investment risk.

“That’s why accelerating a deforestation-free and nature-positive future goes to the heart of our fiduciary duty to our clients. As an active manager, we’re determined to use new insight, our influence over the real economy and to innovate new solutions, to have a tangible impact on nature, while we deliver robust, long-term returns.”

editor’s note: edie is an official Race to Zero media partner and accelerator. You can read more about what this entails here.