From the outset, tilling soils and raising livestock seem to be quite natural and environmentally harmless activities. Yet, food and agriculture are responsible for 25-30% of all greenhouse gas emissions, making it one of the most emissions-intensive sectors on the planet.¹

Livestock farming is mostly to blame, and beef producers in particular. Compared to plant-based products, beef uses 20 times more land and emits 20 times more greenhouse gas emissions per gram of edible protein (see Figure 1).² Cattle production alone is responsible for 10.15% of total man-made emissions.³

Combating upstream emissions from agri-activities will be critical in reducing portfolio as well as real-world emissions, especially with growth in populations and beef demand. With this in mind, Robeco designed the sectoral decarbonization pathway for beef.

The SDP will help our investments teams to:

• Anticipate the future impact of climate-related issues on the beef sector

• Assess the progress of companies in decarbonizing against science-based targets

• Seize the risk-return opportunities associated with leaders and laggards in the beef sector

• Decarbonize investment portfolios while maintaining diversified positions across sectors

In short, the pathway model will help us identify and invest in the firms which are leading the transformation of the beef sector a low-carbon future.

Populations and incomes are growing in emerging markets, stoking demand for Western-sized portions and Western-styled diets. Globally, beef production has nearly doubled since 1990 and is expected to increase by another 30% through 2050. Growth left unchecked threatens to derail the 2050 climate targets outlined in the Paris Agreement.

Until now, food sector companies have lacked frameworks that help guide emission control efforts. But that is quickly changing. Last year the SBTi (Science Based Targets initiative) introduced its first-ever guidance, equipping beef producers with tools to identify, measure and ultimately reduce major sources of emissions across their supply chains and operations.

Robeco’s own SDP-beef framework draws on the SBTi’s framework as a reference guide to help standardize our analysis across beef producing companies.

Nearly all (97%) of the beef industry’s emissions stem from raising livestock prior to slaughter and meat processing post-slaughter. As a result, our SDP model’s analysis considers Scope 1, 2 emissions from processing but also Scope 3 emissions associated with raising the cattle. Emissions generated stem primarily from:

1. Deforestation, which destroys trees, plants and soil and robs the planet of carbon storage sinks. It also releases carbon stock from burned/decomposed organic matter into the atmosphere.
   
   

2. Fossil fuel-based fertilizers, which enrich grasslands as well as crops needed for additional feed stock. Fertilizer is produced using natural gas. It is also packed with nitrogen which, when placed on soils, reacts with oxygen in the air to produce nitrous oxide (N₂O), a greenhouse gas (GHG) that is 273 times more potent than CO₂.
   
   

3. Excess animal manure applied to crops and land as well as inappropriately stored or discarded. Manure is also rich in nitrogen, plus when stored in the open, generates methane (CH₄), a GHG that is 27-30 times more potent than CO₂ over a 100-year horizon.
   
   

4. Methane gas, which is emitted from cattle’s digestive tracts. This process, known as enteric fermentation, is the single biggest source of livestock emissions (see Figure 2).
   

Using 2019 as our starting point, we compare companies’ current and future emission reduction plans to SBTi’s science-based emission reduction pathways for the food sector. According to SBTi guidance, beef companies must reduce their carbon emission intensities by 2.4% per year through 2030 to achieve the overall 24% reduction required from the beef industry. Measuring the gaps between company commitments and SBTi’s reduction requirements powerfully signals to investors which companies are serious about enforcing emission reductions and mitigating future transition risks.

In addition to reviewing company pledges, the SDP-beef model also evaluates the how companies intend to reduce emissions. That means reviewing current and planned capex investments into technologies or practices that improve the efficiency of breeding, feeding, and caring for livestock.

We also look at how beef producers are adapting their business models, for instance, by diversifying into synthetic meat and plant-based protein products.

Robeco’s beef SDP assessment framework is built and ready for use but application is still limited due to incomplete data from many beef producers.

Until now, food and agricultural companies have had little reason to act. Consumers, especially in emerging markets, spend a considerable amount of income on food and food-related products, so imposing costly regulations on producers is politically unpopular. As a result, agriculture has largely escaped regulatory pressure. As the political climate changes, we will incorporate the monetary impact of stricter policies into the beef SDP assessment model, accordingly.

Moreover, food sector decarbonization efforts are still quite new. The SBTi model was released only in 2022 and is currently the sector’s only source for scientifically backed emissions measurement guidance. Many companies are still digesting the requirements and collecting data from across fragmented supply chains. In order to perform credible, in-depth assessments, Robeco relies on multiple data sources including Bloomberg, CDP, Trucost, and MSCI.

The framework is the latest in a series of investment frameworks designed to measure the decarbonization performance of companies across high-emitting sectors. It is already being applied to investments to help analysts distinguish the beef industry’s likely leaders based on the quality of current data and projections.

Footnotes

¹ Our World in Data, food and greenhouse gas emissions
² World Resources Institute
³ United Nations Food and Agriculture Organization, 2020