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It’s not just about fossil fuels

A changing economy represents investment opportunities in many sectors. Agriculture is one area that’ll face major disruption.
With livestock farming producing high levels of emissions, the focus will move towards more efficient foods – including plant-based meats. Image: Siphiwe Sibeko, Reuters

Whether you think that Greta Thunberg is a brave visionary or a hysterical brat, there’s no question that she has captured the current zeitgeist. It has become impossible to escape the conversation around climate change.

Even as recently as two years ago, it was not a major political agenda item, but now it is a key topic in elections around the world. Its significance is also considered to have become central to how asset managers go about making decisions.

Read: The biggest challenge facing the investment industry

Predominantly, this has been about assessing the risks to business models and assets that climate change presents. And those risks are substantial. However, there is also another side to the issue.

“In terms of our estimates, climate change puts 15% of the value of global investments at risk in terms of what companies might have to do to offset their carbon footprints,” says Charles Prideaux, the global head of investment at Schroders.

“But there is also an opportunity,” he adds.

“$2 trillion of investment is needed in climate solutions to meet the Paris Accord commitments.”

There’s more to it

Under the Paris Agreement, nearly 200 countries committed to keeping global temperature increases to well below two degrees from pre-industrial levels. That requires reducing greenhouse gas (GHG) emissions by 80% per capita around the world.

The discussions around how this will be achieved tend to centre on fossil fuel industries, particularly power generation. However, electricity and heat production only account for 25% of global GHG emissions, while industry accounts for a further 21%.

Source: Intergovernmental Panel on Climate Change (IPCC) (2014), EPA

It is therefore not just the most obvious parts of the economy that will have to go through a transformation to meet the Paris goals. Many other areas will face major disruption as well. Most prominent among those is agriculture.

“It’s clear that a monumental shift is required in the way we produce and consume food,” says Isabella Hervey-Bathurst, an equity analyst at Schroders. “By the middle of this century the global population will reach almost ten billion people, and because of rising incomes, the demand for calories will be rising even faster than that.

“Over the next 40 years, we need to produce more food than we produced in the last 8 000 years.”

Sacred cows

That would mean a 95% increase in beef production by 2050. However, current models of agriculture won’t allow for this.

“Livestock farming accounts for about 15% of GHG emissions,” Hervey-Bathurst explains. “And it’s an inherently inefficient way of producing calories. For every 100 calories [of] feed you put in, you get one calorie out.”

The focus, therefore, has to be on more efficient plant-based foods.

Source: GlobalAgri model (land use and greenhouse gas emissions), author’s calculations from Mekonnen and Hoekstra (2011, 2012) (fresh water consumption), and Waite et al (2014) (farmed fish freshwater consumption), Schroders.

Specifically, there is growing interest in ‘alternative meats’.

“Innovation is advancing the range of animal-free proteins available,” says Hervey-Bathurst. “For example, there is a company called Memphis Meats growing meats in the lab using cell cultures at a fraction of the environmental impact. That technology is probably 10 years away from being commercial, but there are already companies like Beyond Meat and Impossible Foods, which are creating plant-based meats.”

These are products that look and taste like meat, but are made from textured vegetable protein.

“These products are commercial today and the consumer response has been very positive so far,” says Hervey-Bathurst.

“These products are not targeting vegetarians,” she adds. “They are targeting meat eaters.”

The global market share of these alternative meats is currently below 1% of global meat consumption. However, Schroders’ analysis shows that if they grew to just take the same market share as plant-based milks currently enjoy, it would be a $140 billion market from less than $14 billion today.

Wear it well

Another sector facing potentially major shifts is the textile industry. It isn’t widely seen as a target in the transition to a low carbon economy, but the global textile industry produces more carbon than the international aviation and maritime shipping industries combined.

“For every one ton of textiles produced, 17 tons of CO2 equivalent are released,” says Hervey-Bathurst. “And it’s not just carbon that we have to worry about in the textile industry – it also uses roughly 4% of global fresh water.”

As the graph below shows, the fibres that have the highest carbon intensity are synthetics. Natural fibres on the whole use more water, but to varying degrees.

Source: www.commonobjective.co (How to choose the most eco-friendly fabric for your garment), Schroders

“Cotton is incredibly water-intensive to produce, but the wood-based cellulosic fibres like viscose and lyocell have a very minimal water impact,” Hervey-Bathurst points out.

“So, overall, these wood-based cullulosic fibres screen as the most sustainable fibres.

“They are produced from cellulose from wood in a closed-loop process, which maximises the reuse of water and minimises waste,” she explains. “The best-in-class producers in this industry are also fully vertically integrated – they own and maintain their own forests from which they source the wood.”

An example is JSE-listed Sappi, which has largely reinvented itself from a paper company into a producer of cellulose.

“We are quite excited about the potential for this particular kind of fibre, and it is only 6% of the global textile industry today,” says Hervey-Bathurst. “We think that share could probably be a lot higher.”

Profit from change

It is these sorts of changes that will present significant opportunities for investors over the next few decades.

“Ultimately our job as active managers is to make returns for clients out of change,” says Prideaux. “The dynamic we have now is that a good company today doesn’t necessarily always make a great investment. Great investments come from change, and we need to be able to identify where a company is going to be a winner by embracing more of what’s going to become more important.”

Patrick Cairns attended the Schroders International Media Conference in London as a guest of Schroders. His travel and accommodation were covered by the host company.

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Maybe the same gusto should be put into curbing population growth.

Especially in Africa that can afford it the least. 34 out of the 46 countries with a population growth of over 2% is African countries.

This could make the biggest contribution to climate change by far.

7.7 Billion Humans and yet 70 Billion Animals are reared for food each year. Animals that need vast amounts of food, water and land. The human population problem pales in comparison to the farmed animal overpopulation problem.

I encourage everyone reading this to do their own research into the environmental impact that rearing animals for food supply. (And also read how the World Health Organization has been adapting their recommendations too over the years.) Go ahead! Read arguments for and against. Don’t make snap judgements based on one article or because your Vegan cousin is a hippie. Research the cold hard facts. And then make your consumption and investment decisions with a clear conscience that all facts have been considered.

South Africans are always a little behind the curve…

Good on you stanleyb. Nice to have a voice of sober reason amongst the clutter of objection and unreason. Fact is the current lifestyle of modern man is not sustainable in the long term – be it in relation to population growth, industry, commerce or whatever.

Reason dictates moderation in what we do and how we do it. The key word is moderation. Hopefully the broader population can at least agree with the urgent need for change and not fear it.

All these efforts arise ONLY because of the EXCESSIVE human overpopulation on this PLANET.

While these efforts may be helpful, they are superficial, and will only barely scratch the surface.

The prime intervention has to focus on reducing the humans. Urgently.

Ruminants have been around burping since the year dot.

Clean up power generation, yes pay more for wind and solar if needed, curb population growth especially in Africa so we can produce less to feed the masses.

if you are going to target livestock, then remember all the wildlife that are ruminants. The end of the pure wool jersey.

frankly this is just some useless scientist barking up the wrong tree just because he can.

Ruminants are not the problem.
They have been part of the plants carbon cycle as you say : “Since year dot”

The unnatural part is having thousands of cows in feed lots eating what is partly chicken poop, in no natural setting would cows have ever reached their current population level without us maintaining it.

Personally I am quite excited about the future as a meat eater, I would prefer lab crown meat over cow meat any day of the week, it only takes one trip to a “Voer kraal” to know that there is no such thing as “clean” meat.

Brush up on your voerkraal rations.

almost no chicken litter is used in the commercial voerkraals, yes maybe a touch in the plotter fattening 2 oxen.

Karan, Sparta, Beefmaster all use grain and silage and no hormones.

Humans and the animals we raise account for 96% of all mammal mass on earth and 70% of birds. And in growing food and clearing land for these we are destroying the last 4% of wild that is left. The problem isn’t the naturally occurring animals that have been around “since year dot”. The problems is that we have artificially inflated the numbers to such an extent that it is completely out of balance to what is even vaguely tenable. The last 150 years (Anthropocene) is nothing like any previous age in history.

Does the above picture represent the greenies.

Oh wow,
the punters of this “anti-cow” business are the same that sold sugar to the world!

“And it’s an inherently inefficient way of producing calories.”

ignore anybody still doing calories comparison, they are clueless and have no regard for your health.

Targeting meat eaters? I don’t think a meat eater will fall for this vegetable cr@p.

Agree, ruminants have been burping away for years. While they at it get rid of all wildlife that are ruminants, ie all buck, end of leather shoes and woolie jumpers.

Just about all of human endeavor is aimed at ‘putting food on the table’. It, therefore, suggests that it is rather important for humans to have food. But not just to have food; also to have a source of nourishment that is affordable. I wonder what it will cost to produce 1 kg of lab grown ‘meat’, as compared to the cost of 1 kg grass fed mutton? What is the cost of 1 kg of cellulose as compared to 1 kg of cotton? From what I’ve seen so far, all organic foods and ecologically friendly solutions are extremely expensive (try a little snack from your local Kauai, if you are in doubt). As a binary choice, the question is whether we want to keep earth in a pristine condition, in the process wiping out a good portion of the population because they just can’t afford to live anymore, or do we produce stuff at a cost that makes living possible for most of the population, even though earth takes a beating. Perhaps it should be a compromise between profit chasers and tree huggers that will produce a sustainable solution.

Lab grown meat will, with time easily be cheaper than cow meat.

There is no innovation left for cow meat (Basically the same thing that is killing ICE cars now)

Yes there is climate change, and there always will be, but there is nothing humans can do about the cycles of the Sun. Another scheme to defraud the plebs and make the globalists richer.

We can’t even keep our own sh!t out of our natural water resources. Now the poor cows must be blamed for global warming. If we are producing more food than what we need, why are there so much hunger around the world?

As at the middle of last year, the cost of Memphis Meat was’below $5280 per kg’. That equates to about R77668 per 1 kg. Don’t think I’ll be popping into a friendly Spur for a Memphis Meat burger anytime soon.

Hi Clairvoyant, I would recommend you check out the work by Amartya Sen who won the nobel prize for economics. Much of his work is about developmental economics and how increasing capabilities and choice increase freedom, but his work into why food production does not convert into hunger free societies is impressive.

We currently produce more than enough food to feed the world, but billions go hungry due to poor logistics, distribution and management. Sen helped India implement solutions to prevent malnutrition and starvation in India, however the farming/(food production) model in India remains inefficient and small scale trapping hundreds of millions into subsistence (a womb gambling trap).

This is in large part due to the legacy of the colonial British, which subdivided land into dwarf pieces and introduced an exploitative sharecropping system to farmers in order to generate revenues. However this does not explain why 70 years into its independence India and much of Asia still retains this structure. Its strange but lessons around share cropping is a warning as to the structure of land reform, too small farm lots can eventually force farmers to sell their plots due to: intensive farming, lack of insurance and no economies of scale, exploitive interest rates on small loans used to smooth farmers consumption and income, poor technology adoption.

What is the issue with cows? I would assume they are taking in current carbon by way of say grass. Some gets eaten and some gets farted but in annual terms there should be no net addition to the atmosphere. Most animal feeds are grown so it is not as if that grass would have sucked a kg of carbon and peacefully sequestered it 100%

It is a bit like a braai’s emissions are hopefully from recent wood, burning returns most of that wood to the atmosphere.

Burning coal or oil in contrast adds ancient and sequestered carbon to the current atmosphere.

What am I missing?

Hello Johan

The problem with cows is not Co2, its Methane.
They belch (Basically a burp) and in the process they release methane, methane is also considered a greenhouse gas, because it too can trap heat in the earths atmosphere.

There have been studies into giving cows different kinds of diets to reduce the amount of methane produced, and some early studies have shown reductions in methane released from cows on these diets.

Your braai analogy is spot on though 🙂
That is why burning bio-mass (wood chips in most cases) is considered green, you are not adding new Co2 into the cycle you are simply returning the Co2 that was already part of the cycle, also like you said, unlike burning coal and oil where you introduce new carbon into the cycle.

Methane is a greenhouse gas but those familiar with basic absorption spectra will know that its absorption bands coincide with that of water vapour which are effectively saturated i.e. the addition of more methane will not cause more outgoing radiation to be absorbed. The half life of CH4 is about 7 years and it oxidises to CO2 and water. The fall of the Soviet Union led to a drop in atmospheric methane as capitalist companies plugged leaks in natural gas pipelines that the soviet era engineers ignored. I notice that there is suddenly a lot of interest in the coming grand solar minimum which will lead to drastic cooling along the lines of the Maunder and Dalton minima. This effect is already being felt as we enter cycle 25. Record cold in the USA and crop failures in northern states. The mechanism for cooling and the effect of solar activity is well understood by the likes of Hendrik Svensmark, Nir Shaviv and Valentina Zharkova. During the solar minimum, the sun’s magnetic field will fall off drastically, sunspots will be reduced or absent and the solar wind will die down. The earth will then be bombarded with cosmic rays (high energy particles) which induce cloud formation, especially low level clouds. This will cause global cooling. These solar cycles are preserved in cosmogenic isotopes e.g. 10Be and 14C in ice cores.

@Richard

It is true that we are heading a solar grand solar minimum, and like I have said before, the sun has not been ignored.

a paper by Jones et al (2012) found that a Maunder like minimum would have a 0.26C like cooling effect, not even close to offsetting the 1-4.5C heating projected by 2100.

Hendrik Svensmark himself pegged the cooling effect at 0.2C, saying he would be very surprised if it was 1-2C

Anet et al (2013) also found that a grand solar minimum would cause no more than a 0.3C cooling effect in the 21st century.

“An example is JSE-listed Sappi, which has largely reinvented itself from a paper company into a producer of cellulose.”

Eish; school me but I doubt SAPPI would turn one sod in a first world country considering its environmental practices at SAICCOR. Using pretty much the total flow of the Mkomazi River in dry periods and then discharging toxic (as far as I know) untreated effluent using a pipeline into the sea. It is a third world gift.

End of comments.

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