The crisis on our plates: finding potential in failing food systems June 2022 The war in Ukraine has highlighted that the current way of producing and consuming food is unsustainable. As the rising global population places greater demands on our food system, there is an urgent need to build a resilient and inclusive food ecosystem, meeting both planetary and social needs. Opportunities exist for investors across the value chain of global food production and distribution to help mitigate these risks. Melissa Bourassi Sustainability Analyst Key takeaways – As highlighted by the invasion of Ukraine, pressures on the global food system are reducing availability, affordability and resilience – A radical rethink is required to sustain rising populations and increasing consumption in a way that is fair to all, without simply producing more food – A long-term view is crucial but complex, and the recent stresses on food systems have amplified the need for investors, businesses and policymakers to act Food is more than a simple source of nutrition – example being trade prices for vegetable oil it supports human health, development and jumping by almost 30%. well-being. The challenge is that current food Without a systemic transformation, we risk failing systems are failing on two fronts. They neither to meet the targets set by the Paris Agreement sustain the global population equitably and the UN Sustainable Development Goals nor maintain the natural regeneration of (SDGs). Not only is the sector a high emitter of our ecosystem. greenhouse gases (GHGs), but there is also the Millions of people are undernourished at a time social impact of needing to feed an estimated when roughly one-third of food produced is population of 10 billion by 2050, more equitably 1 lost or wasted. Adding to this, the UN currently and with greater resilience. Investors can play a anticipates a global food crisis due to the situation role in directing capital towards building a more in Ukraine. This comes amidst the most rapid sustainable food ecosystem and supporting the inflation hikes for 20 years in some countries – one shift towards a more inclusive, equitable future. 1UN Environment Programme

The crisis on our plates: finding potential in failing food systems Greater inclusivity as core to a resilient and sustainable food system Enough food is produced globally to meet the is essential to create a more inclusive food system that needs of an expanding population, whose benefits everyone. average daily caloric intake has increased by Achieving a deep transformation of food systems involves 34% since 1947.2 Yet around 800 million people globally suffer from hunger and three billion cannot afford the recognition of their central role in contributing a healthy diet.3 We are currently off course to achieve towards most of the 17 SDGs. Through powerful levers the UN’s 2030 Zero Hunger target which stems from the for transformation, sustainable food systems provide 4 5 the opportunity for progress in achieving the SDGs by universal right to adequate food. By 2030, 840 million are connecting society, environment and the global economy. expected to suffer from hunger. At the other end of the spectrum, an estimated two billion are overweight or obese and at high risk of non-communicable diseases (NCDs). “G lobal food production threatens The global imbalance is clear. climate stability and ecosystem The challenge is not new but the Covid-19 pandemic, the resilience. It constitutes the single invasion of Ukraine and increased frequency of extreme climate events have exposed the fragility of our food largest driver of environmental supply chain, and ultimately food insecurity. Ukraine is the degradation and transgression source of millions of tonnes of maize and wheat that are key staples, especially in more vulnerable areas, such as of planetary boundaries.” South Asia and sub-Saharan Africa. Furthermore, women and young people are also disproportionately lacking in Source: Professor Dr Johan Rockström, EAT-Lancet Commission, access to healthy and affordable food. Empowering them January 2019 Exhibit 1: the central role of food – touching upon each of the 17 SDGs Environmental Sustainable food systems Social Economic Source: Allianz Global Investors and UN Sustainable Development Goals 2Food and Agriculture Organization of the United Nations (FAO) via Our World in Data 3FAO 2021 4The right to food is recognized in the 1948 Universal Declaration of Human Rights 5Sustainable Development Goals – Goal 2: Zero Hunger 2

The crisis on our plates: finding potential in failing food systems Sustaining a food system within planetary limits Scientists in 2009 named “planetary boundaries” estimates that our food systems will have to produce 50% as the limits within which humanity can more food by 2050 but with fewer resources. 6 safely operate, develop and thrive. We have The existing food system is caught in a trap of trying to overstepped six of these nine boundaries increase agricultural productivity, while damaging soil (see glossary) yet far fewer than half of the world’s 8 billion people have access to a balanced diet. A critical question is and incurring reduced crop yields. To reverse this, we how do we feed a further 2 billion people by 2050 without must minimise harm from food production, while placing additional pressure on climate and planetary accelerating practices that actively restore habitat, boundaries? The challenge is immense: the Food and protect diversity and lower emissions. This is the concept Agriculture Organization (FAO) of the United Nations of regenerative agriculture. Exhibit 2: feeding the world is taking a toll on the planet The global food system is responsible for Livestock emissions (from one-third Around 80% manure and gastroenteric of human-caused of soy is used to feed releases) account for roughly 2 greenhouse gas emissions animals which is the 32% leading cause of Agriculture accounts for 3 of human-caused global deforestation methane emissions1 70% of freshwater use worldwide, three times 4 as much as 50 years ago 60% Agriculture of global biodiversity is threatening loss could be attributed 3 Producing a kilogram of beef 86% to the food we eat takes an average of of at-risk species6 15,415 litres of water versus 4,300 litres 5 for chicken meat Sources: 1. UNEP.org; 2. FAO; 3. WWF; 4. OECD; 5. WEF; 6. New Chatham House report, supported by the UN Environment Programme (UNEP) 6Stockholm Resilience Centre, Stockholm University, 2009 3

The crisis on our plates: finding potential in failing food systems Global shifts in food consumption and diet A key element to feeding the world’s rising healthcare resources. In 2019, the EAT-Lancet Commission population sustainably is what and how outlined a universal reference diet to “nurture human much we consume. This touches upon three health and support environmental sustainability” and to key topics: food loss and waste, healthier 9 consumption and alternatives to higher-emitting flag the risks of failing to adapt. A year later, the commission food products. addressed the topic of affordability of this universal 10 reference diet. The key finding comprises three areas of Globally, around 14% of food produced is lost between focus: transitioning to a predominantly plant-based diet, harvest and retail, and an estimated 17% of total global halving sugar consumption and halving meat consumption. 7 food production is wasted. Food loss and waste is This last objective leads us to the need to consume protein estimated to contribute to 8-10% of total global GHG emissions.8 Furthermore, the estimated annual economic, differently. Global demand for protein is rising and is environmental and social cost of food waste, according predominantly sourced from animal-based foods – meat, to the FAO, is USD 2.6 trillion. It is therefore legitimate dairy and eggs. These are more energy, land and water- to ask whether we need to significantly increase food intensive and less calorie-efficient than plant-based proteins. production. Instead, how can we establish the even and For every 100 calories fed to animals, only 25 calories are equitable production and distribution of food, and direct produced in meat or dairy products. Lastly, overconsumption any possible waste to those in need? of meat is linked to rising levels of obesity and higher risk Lack of food for some people, and the consumption of of NCDs, resulting in significant and rising financial costs excess calories for others, are twin pressures on global to governments. Exhibit 3: from current diets towards healthy and sustainable diets Current global diet* 45% 14% 8% 7% 7% 6% 1% 12% Total = 2927 kcal. Ideal global diet (2050)** 32% 18% 4% 13% 20% 7% 1%5% The change in diet profile requires a substantial 14% reduction in total Total = 2503 kcal. calories. Cereals Fats & oils Meat Roots, tubers Fruits and Dairy and eggs Fish and Sugar, beverages and pulses vegetables (excl. butter) seafood and others Source: Allianz Global Investors, *Food and Agriculture Organization of the UN (2018), **EAT-Lancet Commission planetary health diet (2019) The planetary health diet does not prescribe an exact diet. The composition of a balanced and healthy diet varies according to individual needs, cultural context, locally available foods, and eating habits. 7https://www.un.org/en/observances/end-food-waste-day 8UNEP Food Waste Index Report 2021 https://www.unep.org/resources/report/unep-food-waste-index-report-2021 9https://www.thelancet.com/commissions/EAT 10https://www.thelancet.com/journals/langlo/article/PIIS2214-109X(19)30447-4/fulltext 4

The crisis on our plates: finding potential in failing food systems Investing in food: three key opportunities Investors can play a critical role in sustainable environmental and social impacts that we intentionally food transition and meeting global cause outside of our footprints. Below are some investment sustainability goals. The World Economic sub-themes attracting interest from investors: Forum estimates a USD 15.2 billion funding – Precision farming solutions 11 gap for food system innovation that would support ending hunger, keeping emissions within a 2°C rise and – Circular economy – reducing waste through the reducing water use by 10%. Innovation is essential for redistribution of surplus edible food, recycling waste all 17 of the SDGs as well as the core priorities of the UN for animal feed and energy generation 12 2030 Agenda for Sustainable Development. – Flexitarian diets, and alternatives to meat protein There are opportunities to direct capital to a sustainable and dairy food ecosystem in line with different investment objectives: – Alternatives to existing commercial fishing Materiality of non-financial information – Food-packaging solutions 1 For investors seeking unconstrained universes, it will – Affordable, nutritious and high-quality products be important to identify evolving material ESG risks Additionally, food has direct and indirect reach into many relating to the food ecosystem, including: of the SDGs. As a result, the sustainable food theme lends – Water intensity – rising scrutiny on water usage and itself to impact-focused SDG investment strategies that management, especially for regions at high risk of drought are fully transparent and intentional. – Health regulation – public health and food safety are rising Food for thought for investors concerns for consumers and politicians alike. In addition, The current challenges around food availability and as obesity-related healthcare costs rise, companies could inflation could be a taster of more sustained threats in be at risk from new regulations, advertising restrictions, the long term, and they should urge us to reconsider our labelling requirements, product recalls and bans, and food ecosystems in a just and collaborative way. Economic even higher taxation. policy, government policy and regulation must support this Screening – positive and negative re-evaluation with a coordinated agenda of innovative Evolving regulation is likely to drive a focus on policies. This intervention needs to be a high priority for 2the sustainable food transition within sustainable several reasons, including: influencing consumer behaviour investment offerings. For example, under the forthcoming and buying decisions, improving food provenance and MiFID regulation, there will be reporting requirements governance, impacting pricing to better reflect the true on Principal Adverse Impacts. PAI 8 covers “emissions to all-in cost of food options, motivating a just transition for water,” meaning water pollution by emissions generated the agricultural sector and the development of targeted by investee companies. Additionally, many companies are financing programmes. under pressure to disclose data for water-management The transformative climate, health and geopolitical events strategies and for water-use intensity. seen in recent years have exposed the lack of resilience Impact-focused investing in the various value chains – with food production and 3The triple challenge of providing safe, affordable distribution systems among the most notable – that are and nutritious food for a growing population creates core to economic and social welfare. As we anticipate significant innovation opportunities. The potential to further unpredictable global events, now is the time to invest in “handprint” solutions are broad and expanding. invest in a far more robust food ecosystem by contributing While footprints are the environmental impacts of the towards opportunities and innovations that embrace processes that sustain us, handprints are positive changes – a sustainable, equitable and inclusive future for all. 11https://www.weforum.org/agenda/2022/03/food-systems-innovation-transformation/ 12 https://sdgs.un.org/2030agenda 5

The crisis on our plates: finding potential in failing food systems Glossary of key terms Food safety – the conditions and Planetary boundaries – based practices along the entire food supply on a scientific approach from the Food security – all people, at all chain that preserve food quality and Stockholm Resilience Centre, the times, need physical, social and prevent contamination and food- planetary boundaries concept, economic access to sufficient, safe borne illnesses, with the assurance introduced in 2009, defines the and nutritious food that meets their that the food will not cause harm to environmental limits within which food preferences and dietary needs the consumer. humanity can safely operate for an active and healthy life (1996 and continue to develop and World Food Summit). Food security Food systems – all interactions and thrive for generations to come. encompasses four main dimensions: activities along the whole food value Nine planetary limits have been – Food availability: the availability chain, from the production and identified as regulating the stability processing to the distribution and and resilience of the Earth system: of sufficient quantities of food consumption of food. climate change, biosphere integrity, of appropriate quality, supplied ocean acidification, ozone depletion, through domestic production Healthy diets – a diet that provides or imports enough of each essential nutrient, atmospheric aerosol pollution, – Food access: access by individuals high in fruit, vegetables, legumes, freshwater use, biogeochemical nuts and grains, but lower in salt, flows of nitrogen and phosphorus, to adequate resources for free sugars and fats. Healthy diets land-system change, and release of acquiring appropriate foods for a help maintain or improve overall novel chemicals. nutritious diet. health (WHO). 2030 Zero Hunger target – Zero – Food utilisation: adequate Hunger is Goal 2 of the 17 UN diet, clean water, sanitation Malnutrition – the condition Sustainable Development Goals. and healthcare contributing to resulting from getting inadequate It seeks to eradicate hunger by individuals reaching a state of or unbalanced nutrition and improving access to food, ending all nutritional well-being where all encompasses both under-nutrition forms of malnutrition and developing physiological needs are met (lack of enough nutrients) and agricultural productivity sustainably – Food stability: to be food secure, a over-nutrition (getting more nutrients by 2030, through eight sub-targets population, household or individual than needed). Malnutrition results in and 14 indicators to measure progress. must have access to adequate poor health conditions. food at all times. They should not Flexifood/flexi-diet/flexitarian – risk losing access to food as a a plant-based diet allowing consequence of sudden shocks (eg, occasional meat dishes in order to an economic or climatic crisis) or reduce environmental impact and cyclical events. improve health. 6

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