Over the past 50 years, consumers have looked more and more to nutritional labels on their food to guide their shopping decisions. What would happen if shoppers began to notice a food's carbon footprint the way they notice calories, carbohydrates, or sugar content?
Recently, some investors have been focusing on companies that consider more than just maximizing shareholder value. And companies that explicitly work to improve the physical and social environment stand to benefit from this revised interest.
Social investing is attracting more and more investment dollars. Witness the latest letter out of BlackRock (BLK 3.69%), one of the world's largest asset managers, which makes the case explicitly: "We believe that sustainability should be our new standard for investing."
A carbon footprint is more than which SUV you drive
When most people think of their carbon footprint, they immediately think of things like transportation or home utilities. But most people do not consider the effect their food choices have on the environment. Greenhouse gas (GHG) emissions from the average beef cow are 26 to 36 times more potent than basic carbon dioxide. A study published in Nature Climate Change found that consumers could benefit greatly from increased carbon labeling of their food choices:
Food production is a major cause of energy use and GHG emissions, and therefore diet change is an important behavioural strategy for reducing associated environmental impacts. However, a severe obstacle to diet change may be consumers' underestimation of the environmental impacts of different types of food. ... energy consumption and GHG emission estimates are significantly underestimated for foods, suggesting a possible blind spot suitable for intervention. In a second study, we find that providing consumers with information regarding the GHG emissions associated with the life cycle of food, presented in terms of a familiar reference unit (light-bulb minutes), shifts their actual purchase choices away from higher-emission options. Thus, although consumers' poor understanding of the food system is a barrier to reducing energy use and GHG emissions, it also represents a promising area for simple interventions such as a well-designed carbon label.
Is carbon labeling the key to growing the market?
The study suggests converting each product's impact into an easily understood metric, such as minutes of light bulb illumination. These labels would make it easier to take into account the carbon difference between an orange imported from South America versus one grown in Florida. It will also help consumers see the difference between a plant-based burger and a conventional beef one. The carbon rating system should help increase the size of the market for plant-based alternatives from the more limited vegan market, which only represents about 2% of the population of the United States.
Increased carbon labeling for food products will directly benefit plant-based companies like Beyond Meat (BYND -2.46%). As plant-based substitutes become better and cheaper, it's projected that more consumers will gravitate toward them for health reasons as well as environmental ones.
While Beyond Meat sports a big multiple and undoubtedly faces increased competition from supermarket private-label brands and new entrants, the company also benefits from an increased investor focus on environmental, social, and governance (ESG) investment strategies.
Beyond Meat and ESG investing
ESG investing (or ethical or sustainable investing) has grown in popularity, particularly with pension funds and university endowments that want their investment dollars to have a larger social impact.
Historically, ESG investing had been primarily a negative investing strategy, where funds would avoid stocks like tobacco, gaming, and certain energy companies. Today, the focus is more on selecting companies that provide affirmative benefits to society.
This is where Beyond Meat has an advantage over many of its competitors. Its mission statement mentions climate explicitly:
At Beyond Meat, we believe there is a better way to feed the planet. Our mission is to create The Future of Protein -- delicious plant-based burgers, beef, sausage, crumbles, and more. By shifting from animal to plant-based meat, we can address four growing global issues: human health, climate change, constraints on natural resources, and animal welfare.
This statement is music to a sustainable investor's ears.
While some companies like Tyson Foods or Kroger offer plant-based alternatives to help reduce their overall carbon footprint, that alone may not be enough to boost their attractiveness to ESG fund enthusiasts. The International Monetary Fund estimates there is currently about $600 billion in assets invested in ESG strategies, up from $200 billion in 2010. As we saw from BlackRock's statement above, that growth should continue. Unfortunately for ESG funds, there simply aren't many investment alternatives out there. You can only buy so much Disney and Microsoft before you become under-diversified.
Beyond Meat has certainly been a trying stock for many investors since the IPO. The company has gone through a massive gain and decline over the course of a year. Since its only direct competitor (Impossible Foods) is privately held, ESG investors who desire pure-play exposure to plant-based alternatives will have to buy Beyond Meat shares. This will give the company a natural base of support while it grows into its valuation, and that could provide some growth opportunities for investors hoping to benefit from environmentally based interest in the company.