A Sustainable Investment in Journalism

A sustainable business requires diverse revenue streams. ESG Investor now operates a subscription service as of Tuesday 14th May. To find out more please get in touch with our subscription team on subscriptions@esginvestor.net


After the First Bite

Xiaoyin Shen, Head of ESG and Data Privacy at BTP Law, considers the risks and opportunities for investors in alternative proteins.

That night, I was invited to a dinner event by one of my clients to taste cultivated chicken meat grown from a single animal cell in a bioreactor in Singapore.

To be honest, the first thing I did was to check the recently updated requirements of the Singapore regulatory body, the Singapore Food Agency[1] (SFA). ‘Is it really safe to consume? Will there be some mysterious long-term side-effects from that one bite of gastronomical adventure?’ That was paranoia from my sheer ignorance. After reading more literature and actually understanding the cultivation process from the host’s mouth, there was in fact very little to fear.

It has been a decade-long tangent trajectory since plant-based Impossible Foods gained significant presence and became synonymous with alternative proteins. While I have only recently learnt about the other varieties of alternative proteins – i.e. micro-organism and fermentation based, animal-cell based and hybrid – private sector investors, including my client, who has been active in this space, are more than conversant. I share their excitement on the investment and impact potential in the general sector of food technology: potentially hundreds of billions of dollars of emission savings can be realised, and at least three times greater impact on capital employed than other abatement investments in other high-emitting sectors.[2] Apart from climate-related and food security motivations, strong economic reasons are drawing the investors.

Regionally in Asia, we have seen growing interest in investing in alternative proteins. For example, Upside Foods, an animal-cell-based company from the US, raised US$400 million from Singapore’s Temasek Holdings and Abu Dhabi Growth Fund. Asia-Pacific investment generally increased by 92% from 2020 to 2021[3], which follows the global trend of record capital invested in alternative proteins in the recent two years, rising at an annual rate of 124%.

Regulatory developments and challenges

On the regulatory front the landscape is fragmented and evolving fast. Israel announced that its novel framework for regulating food safety would apply to alternative proteins in 2015. Since then, other regulators followed suit, including but not limited to Canada, US, Japan, UK, Germany, China, Singapore, which all have taken steps to some extent or another in developing regulations and guidelines for the industry.

In the APAC region, Singapore is leading the pack with the SFA being the first regulatory body to approve the sale of lab-grown meat products. This may be due to the own food security concerns of the island, which currently imports more than 90% of its food. The country has recently declared its ambition for 30-by-30, i.e. to produce 30% of its food locally by 2030. This makes the country an attractive place for investments. Thailand’s CP Foods is setting up Meat Zero brand of alternative proteins in Singapore and Hong Kong for expansion throughout Asia.

While this is certainly a significant regulatory step forward, there remain challenges to overcome. The regulatory process generally takes time, especially when the process is as novel as the products. An alternative protein product application to the SFA would currently take about two years end-to-end for the regulator to assess the new product, its production process and technology. A similar timeline applies in the US if not longer. Certain countries and states, e.g. EU, US, India, Turkey, South Africa etc. have also been in a state of flux in terms of adding restrictions and bans on labelling of alternative protein products which have had a dampening effect on the adoption of such alternatives.

As growth in alternative proteins sector may help in localising the food supply chain, hence making it less vulnerable to global supply chain disruptions, the challenging aspect of regional and global trade has often been overlooked. When international trade agreements are concerned, harmonisation of classification and treatment food safety of alternative protein products from a food safety perspective is outstanding. In the APAC region, it may be particularly challenging given the vast diversity of its various societal trends, food ethics and cultures. This may lead to difficulties for the companies in their scaling and distribution in the near future.

Meanwhile, international sustainability disclosure frameworks, such as the Sustainability Accounting Standards Board (SASB) standards, have begun to include alternative protein metrics. SASB published the proposed metrics in June 2022 and is now pending completion. Industry organisations such as FAIRR and the Good Food Institute have been working collaboratively with the industry over the past years, including the development of sector-specific disclosure guidance tools known as the ‘Alternative Proteins ESG Reporting Frameworks’ and introducing an umbrella term ‘Climate Transition Proteins’ to provide more clarity on foods that can be considered part of the protein transition.[4]

Consumer preferences and education

Considerations of health and climate impacts weighed on my mind as I took my first bite of the alternative protein chicken satay that night. It does feel good to be openly embracing the possibilities of eating our way to a sustainable future, but at the same time, when buying decisions are concerned, factors of taste and price still dominated my mind.

My sentiments are apparently commonly shared and supported by market studies as well as investor understanding. As Anuj Maheshwari, Managing Director and Head of Agri-Food at Temasek Holdings has said, “It is not a given that consumers will switch to alternative proteins for the sake of climate impact, unless expectations for taste, texture, cost, and nutritional value are met.”

According to studies by BCG and Blue Horizon, consumers are not prepared to pay a premium for alternative protein products that offer only taste parity. Additionally, it is interesting to note that income is not a determinant when it comes to the willingness to pay a premium.

It seems that the alternative proteins would have to become a superior substitute to traditional meat in every way to have a real chance at winning over the hearts of mass consumers who are entrenched in their traditional taste preferences and price sensitivity.

Concluding thoughts

It may not be an altruistic act to invest in alternative proteins, as the potential financial rewards could be extremely attractive. Nevertheless, it is also not for the faint-hearted when there are huge risks to the investor due to the many uncertainties facing the sector.

With the benefit of hindsight, everything would seem like a given, but for now, individually and collectively, the key task is to focus on doing the next steps well, which may be a matter of learning more about novel foods to have the requisite technical knowledge to conduct relevant due diligence or establish firmer and consistent regulations, For regulators, investors and other stakeholders alike, constantly learning and accepting the benefits and risks of new technology, to devise and implement updated strategies and practices as the industry evolve, is a never-ending work in progress.

After taking my first bite at alternative proteins, I would never look at food again without imagining the possibilities of our future.

[1] ‘Requirements for Safety Assessment of Novel Foods and Novel Food Ingredients’, 26 September 2022, Singapore Food Agency

[2] ‘The Untapped Climate Opportunity in Alternative Proteins’, July 2022, Food for Thought report, Boston Consulting Group and Blue Horizon analysis

[3] The Good Food Institute; Pitchbook; Boston Consulting Group analysis

[4] ‘Climate Transition Proteins: Flavour of the Future’, October 2022, FAIRR

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap