As nations get to work on their climate pledges following the conclusion of COP26, they'll need to tackle the massive carbon footprint of the food system, which accounts for a third of all human-caused greenhouse gas emissions.
The sum total of the food system's emissions from energy consumption, land-use change, and waste management — along with food spoilage and ruminant animals' potent methane burps — poses a multifaceted problem, though there have been revolutions in agriculture before.
"With many companies providing innovative solutions to make food production more sustainable, this is an area with abundant opportunities for investors," UBS analysts wrote in a note.
The note argued that addressing the climate crisis in the food system could yield the private sector and investors chasing high-growth startups ripe opportunities for returns.
For investors looking to gain exposure to climate-related food system solutions, UBS suggested they look elsewhere than the public equity markets, where there may be less flexible investment openings and higher valuations to contend with.
"Private markets through venture capital or co-investments remain the purest way to access the sector, since many agri-food companies are at the early startup stage," the analysts stated. "Such funds are best equipped to identify promising companies and to provide the necessary capital to help them grow revenues and achieve profitability, in our view, before exiting their investments via an initial public offering or a sale at higher valuations."
Climate-focused farm tech
One approach the UBS note mentioned was to find companies that weed out inefficiencies in the food system. One of the greatest inefficiencies, for instance, is the staggering amount of food that gets wasted each year.
Barclays estimated that 1.3 billion tons of food are wasted each year, costing the global economy $1 trillion — a figure that is expected to rise to $1.5 trillion by 2030.
Tech innovations can help cut down on waste at the farm level, such as deploying drones that assist with harvesting crops when labor shortages threaten to leave crops in the ground, the note said.
More advanced sensors can also be used to detect the optimal time to harvest, fertilize, and water crops, which could cut down on the resources used and increase production.
Additionally, the analysts suggested that engineering nitrogen-fixing grains could lessen the need for fertilizers.
When it comes to solving the climate crisis, regenerative agriculture offers another option for sequestering carbon and reducing agriculture's impact on the environment, though it does so primarily by changing farming methods: intercropping, forgoing fertilizers, and abstaining from tilling.