Food-tech: the green investment

8th October 2020  

by Sammy Squatriti

With an impressive acceleration imposed by the pandemic, the food revolution is assuming a central role in sustainability-oriented investment strategies. This is a winning choice not only for ethical reasons but also for the prospect of solid financial returns. Sustainability dominates the financial debate today, but until a few years ago it was a niche issue, although some had already glimpsed the extraordinary prospects - both in terms of impact and returns - of this type of investment.

Fourteen years ago, the former US vice president - and convinced environmentalist - Al Gore joined forces with David Blood, a former top manager at Goldman Sachs, to create a London-based sustainable investment group called Generation.

Though Gore is the owner, the investment strategy is driven by conventional asset managers. Generation has easily raised nearly $20 billion in assets and achieved excellent returns. Some Mercer advisors recently told their retirement clients that Generation is one of the best of this year's 400 long-only global equity funds. This means it has outperformed many traditional funds.

This is surprising but also highly symbolic. When the idea of "sustainable" or "green" investments emerged a couple of decades ago, it was associated with strong morals but low returns. Especially in that kind of investment designed to solve a problem that is certainly tangible but often judged in the light of idealistic rather than economic drives, that is the need to feed the world.

Today there are billions of dollars of funding in public and private markets dedicated to new sustainable investments and the demand of the population for a more knowledgeable economy and capitalism has never been so strong.

While there is a growing awareness of sustainability in America among founders and investors, it is clear that some areas will require hardware, software, and business model innovations.

Some of these areas have been in the spotlight in recent years and others are starting to catch the attention of investors, but they all have something in common: investors' appetite for new businesses in the food supply chain; energy management and housing and office construction; carbon capture and offset management and monitoring; new biomaterials, packaging processes and industrial chemicals substitution is stronger than ever.

And if we want to feed the world, as you can imagine, we have to start from the food chain.

Covid has exposed significant gaps in food supply. AppHarvest, which agreed to list on the stock exchange through a SPAC earlier this year, is just one of a number of companies that are redesigning agriculture through the application of technology. There are also Plenty, Bowery Farms, Unfold, BrightFarms and Revol Greens, who are working to redesign the agricultural supply chain. If those companies are looking for new ways to grow crops, companies like Apeel Sciences and Hazel Technologies are trying to find ways to preserve food from deterioration. Treasure8 is looking for ways to use food waste for new edibles and ingredients, and they are not alone.

Then there are protein substitution companies like Impossible Foods, Beyond Meat, Memphis Meats, Mosa Meat, Nuggs, Future Meat Technologies and Shiok Meats, which are devising ways to create proteins that are less dependent on animal husbandry. Perfect Day and its competitors are doing the same for the dairy industry.

There is also a huge need for new protein sources to feed the animals that people around the world still love to eat. That's why there are companies like Ynsect, which provides insect proteins for industrial fish farms, or Grubly Farms, which provides food for families raising their own chickens.

For these initiatives, which are raising hundreds of millions of dollars in funding, there are some that require the kind of high-margin software solutions that have yet to be developed. These include visual technologies to track, monitor and manage food production; sensors to improve the storage and supply chain; and software to manage production and traceability of products from farm to table. Venture Capital investors are also starting to invest in these companies.

Katrin Burt, executive director of Wheatsheaf, which invests in food and agricultural companies on behalf of the UK property group Grosvenor Estate, says she has seen venture capitalists show interest in sustainable food and agricultural companies for the first time since the pandemic's increased awareness of the food supply chain.

“It’s actually a sector where the underlying fundamentals are very, very strong,” Ms Burt says. “People need to eat, and the number of people is increasing” she concludes.