Renewable energy experience draws investors towards ag

PGIM’s Shehriyar Antia says investors and policymakers see the food system as ‘where the ESG puck is going’ and will draw on recent experience in energy in developing their approach.

When the National Intelligence Council published its Global Trends 2030 report in 2012, it highlighted increasing connections among the food, water and energy systems as one of the four most important forces at work in the world.

The decade since has seen the US energy system embark on a sustainability drive that has contributed to a prediction by the International Energy Agency that global investment into solar will this year surpass investment into oil production for the first time.

Institutional investors have played a key role in this push for sustainability within US energy and the experience seems set to influence the policy and investment approach to encouraging a similar transition for agricultural production.

“From the perspective of pensions, life insurance companies, sovereign wealth funds – the ones that I’ve spoken to that are really committed to decarbonisation and sustainability – it’s really pretty clear the food system is the next phase of sustainable investment for them. It really is where that ESG puck is going,” PGIM vice-president Shehriyar Antia told affiliate title Agri Investor. “They’re very mindful of meeting their own objectives and there is very strong recognition that the food system is going to play a critical role in that.”

Antia is PGIM’s head of thematic research and lead author of a May report entitled Food for Thought: Investment Opportunities Across a Changing Food System, which highlighted parallels between the current state of agriculture and the US energy markets from 10 years ago. He said experience in fossil fuels over the past decade could provide lessons for ESG and sustainability-minded investors now turning their attentions to ag.

“When it came to fossil fuels, the initial approach by climate-driven, decarbonisation-motivated investors was to divest and disengage completely. Today, investors really need to engage with all segments of the food system, especially if they would like to influence it. Especially if they would like to reduce its carbon impact,” he added. “The food system is too important to simply divest from.”

Traditional meat and proteins such as eggs and whey, along with cold storage and fertilisers, are among the subsectors PGIM’s report lists as standing to benefit particularly from what it called “inherent tensions” regarding ESG in ag.

“Seek out the most forward-leaning, the most climate-savvy, the most decarbonisation-savvy incumbents, support them and help them,” Antia said.

“Work with the industry to develop best practices and share those best practices. Work with these companies to measure their impact, report their impact, help to create standardised systems of data. This is all the hard work that was done in fossil fuels over the last 10, 15, 20 years, and it’s the hard work that needs to be done in the food system as well.”

Agriculture’s existing connections to the energy complex through biofuel production is a natural focus for investors looking to capitalise on any overlap between ag and energy, and the convergence Antia calls for is already happening to some degree.

Macquarie Asset Management, Goldman Sachs and Partners Group are just three private markets investors among numerous GPs to have invested in the space in the last 12 months, while the energy majors have also been busy closing multi-billion dollar deals in the space over the same period. In May, BP said it would build five biofuel plants by 2030 and is considering investing directly in farming ventures and biofuel feedstock producers to secure supplies, according to Reuters.

Meanwhile, Nasdaq-listed Green Plains is an advanced biorefinery platform backed by Ospraie and BlackRock that is in the midst of a reorganisation it says aims to meet demands for sustainability within both ag and energy supply chains.

Such capital-intensive blue-chip projects seem well placed to attract support from the institutions Antia reports are convinced that agriculture is set for a greening – one that will take place in the shadow of an energy sector that has been their focus for much of the past decade.