Perspective

Why is “sustainable food and water” a worthwhile theme to watch?


Since the beginning of 2022, financial markets have been experiencing heightened volatility against a backdrop of rising interest rates, inflation and peaking economic growth. As of end-July 2022, the MSCI All-Country World Equity Index has recorded a 15.5% drop, with the Bloomberg Barclays Global Aggregate Bond Index also down by 2.7%.

Whilst the persistent supply-chain bottlenecks and the Russia-Ukraine conflict aren’t in any way helping to ease inflationary pressures, we believe that themes that can withstand the impact of these headwinds are likely to gain traction. In fact, some quality companies are presenting interesting opportunities for investors after the global equity and bond sell-off seen in recent months. Investors who are taking a thematic approach may find themselves inspired by structural trends, and hence are looking beyond traditional geographies and sectors for opportunities.

Today, there is no denying that ESG has been a crucial investment theme for some time, and food and water has been one core component. The system alone is responsible for around 25% of global greenhouse gas emissions, and 65% of fresh water usage, according to UN data. It also accounts for approximately 60% of the 2 billion tonnes of waste produced globally each year, be it directly or indirectly.

We are also closely watching the energy transition investment theme. The sharp rise in gas prices in the aftermath of the Russia-Ukraine conflict and the relatively lower cost of other viable power sources has made renewable energy even more attractive to end-users and investors. Investors recognise the need for vigorous action to mitigate the risk of climate change so immense opportunities can emerge from across the green value chain.

Why “sustainable food and water” in today’s world?

Nordic seafood companies, for example, have demonstrated their tenacity in an unprecedentedly challenging environment that we are facing today. Despite supply chain disruptions stemming from geopolitical concerns, the stock prices of many of these companies continued to surge as investors shifted from growth to value in 2022.

As discussed earlier by my Global Resource Equities colleagues Mark Lacey and Felix Odey, it is estimated that US$30 trillion needs to be spent across the different food and water value chains by 2050 in order to make our current system sustainable. The imperative to achieve this goal creates the potential for new sources of growth in companies from mature sectors that many investors may have written off as old economy.

Shift in consumer behaviour supports a long-term growth story

Meanwhile, consumers nowadays do care about whether or not food producers and stores are sustainable in the ways they produce, package, and sell products.

As consumers become increasingly aware of their impact on the environment, the likes of bamboo straws and paper takeaway boxes have become more and more common in our day-to-day food purchases, while single-use plastic is becoming less so. This is creating a huge demand for companies that focus on sustainable food packaging.

The food packaging industry is expected to grow from US$338.3 billion in 2021 to US$478.1 billion in 20281. Looking back to the sector’s performance in 2022, we noticed that some leading companies in this niche market actually performed extremely well. We believe those that are able to address sustainability related issues could well be riding on the expected rapid growth.

Three characteristics in potential winners

Market volatility and uncertainty will likely continue in the near term. However, some investments can still generate positive return and, more importantly, have a positive impact on the environment. Investors may discover these hidden gems by focusing on companies that are attractively valued, relatively resilient, and can combat inflation. We believe that “sustainable food and water” and other ESG-related themes possess all these characteristics, making them worthwhile to watch in the months and years to come.


1 https://www.fortunebusinessinsights.com/industry-reports/food-packaging-market-101941

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