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Alternative Protein Startups Receive Boost from Investor Coalition Worth $1.25tn

September 28, 2016

The alternative protein movement got a big kick last week when a coalition of large institutional investors joined forces to pressure some of the world’s largest food companies to bring more meat alternatives into their supply chains.

Plant-based and cultured protein alternatives sprung onto the food tech scene a few years ago in the wake of damning data about the environmental impact of animal farming. Investment capital followed shortly after and there’s now a small, but growing ecosystem of startups and venture capital investors — and even a non-profit research association — dedicated to replacing animal-based products with plant-based alternatives.

“The world’s over-reliance on factory farmed livestock to feed the growing global demand for protein is a recipe for a financial, social and environmental crisis,” said Jeremy Coller, founder of secondaries private equity firm Coller Capital and the FAIRR (Farm Animal Investment Risk & Return) Initiative leading the coalition.

“Intensive livestock production already has levels of emissions and pollution that are too high, and standards of safety and welfare that are too low. It simply can’t cope with the projected increase in global protein demand.”

In partnership with responsible investment organization ShareAction, FAIRR brought together the 40-strong investor coalition including Swedish state pension funds AP2, AP3, and AP4, as well as a range of leading global investment firms such as Aviva Investors, Boston Common, Coller Capital, Folksam, Nordea and Robeco.

The coalition, which represents $1.25 trillion in assets under management, is putting pressure on 16 multinational food companies to release plans to address the risks inherent in the factory farming of beef. In particular, the coalition wants to see food companies diversify their sources of protein into plant-based alternatives.

The food companies include Kraft Heinz, Nestle, Unilever, Tesco, Walmart and General Mills.

This is great news for startups producing meat and animal product alternatives, and the investors looking to fund them. Startups producing meat alternatives include Beyond Meat, Impossible Foods, and Memphis Meats, while Ripple Foods and Muufri are manufacturing milk alternatives, and Clara Foods and Hampton Creek are producing egg alternatives.

New Crop Capital, a venture capital fund focused on this burgeoning space and investor in some of the above companies, is a signatory to the coalition.

“Plant-based meat is a solution to the climate crisis and the wastefulness of meat production, and a widespread shift toward plant-based meat would result in plummeting food-borne illnesses and improved health outcomes generally,” Bruce Friedrich, partner at the fund, told AgFunderNews. “All food companies should be focusing more and more resources on plant-based alternatives to conventional meat, dairy, and eggs, and as they do, what is already a burgeoning market sector will become even more profitable. Investors see the writing on the wall, which is why there has never been a better time to either be running or starting a plant-based food company.”

FAIRR was encouraged to form the coalition on the back of a report from the University of Oxford in the UK earlier this year. The report calculated that if global diets reduced their reliance on meat it could lead to healthcare-related savings and avoid climate damages of $1.5 trillion by 2050.

The coalition is not only about doing the right thing; the investors involved also want to ensure they can make returns investing in the plant-based market, said Coller.

“Investors want to know if major food companies have a strategy to avoid [a] protein bubble and to profit from a plant-based protein market set to grow by 8.4% annually over the next five years,” he wrote in the release.

It also wants to ensure its portfolio companies are not at-risk from involvement in what they see as an unsustainable meat farming system.

The announcement coincides with the release of a report about the investment case for protein alternatives from FAIRR and ShareAction. The report details the driving factors behind the plant-based market shift, the policy and regulatory frameworks surrounding the segment, product innovation, and consumer trends.

You can download it here.

This is FAIRR’s second engagement. In April, it formed a similar coalition to put pressure on food companies to reduce the amount of antibiotics used by farmers in their supply chains.

“FAIRR was set up by the Coller Foundation in 2015 to create links between the food industry and some of the material risks investors are looking at in their environment, social and governance policies, such as climate change and health,” said Rosie Wardle from FAIRR. “We want to close the knowledge gap about the impact of factory farming.”

The initiative’s first study on the investment risks associated with factory farming came out in January and identified 28 ESG issues. From here it has identified key issues to engage investors on, and after antibiotic use and increasing plant-based alternatives, FAIRR is likely to look at resource scarcity such as water, according to Wardle.

“We are not advocating for a way forward, but we want to raise awareness of the investment risks associated with the increased intensification of factory farming,” she said. There are lots of different ways to address these issues and they could include promoting sustainable, regenerative or organic livestock farming methods,” she added.

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