The UN's sustainability goals are guiding points for investments

We at DNB Asset Management believe so. In some of our equity funds, we work with the UN's sustainability goals as a framework when we hand-pick shares. Out of the UN's 17 sustainability goals, we consider 11 of them to be directly investable.

Can one invest in "zero hunger"?

The first goal we have identified as investable is the UN's sustainability goal number 2: "End hunger, achieve food security and improved nutrition and promote sustainable agriculture"

The UN has estimated that approximately 1.5 billion people are affected by hunger and chronic malnutrition. The positive side to it is that the world contains more than enough food for everyone to eat enough to be full. The statistics indicate that approximately 1/3 of all food produced is wasted. The solutions on the topic are complex, but contain concepts such as distribution and refinement of resources. It is a important to answer questions about what, how, why and where when it comes to food production and ensuring sustainable use and distribution of food.

The problem we now face is about how to work towards the goal of "zero hunger" by choosing the right stocks. How are we thinking? We at DNB ESG LAB define a set of principles, rules and variables within the sustainability goals, which will guide the choices of shares. We call them sustainable investment strategies which consists of three phases.

A. Definition of the Investment Area

We start by defining important words, concepts and contexts. A key investment area for our work with goal number 2 is "agriculture". This is where large parts of the food we consume is grown and produced. The industrialization of agriculture over the last 150 years has led to an enormous increase in efficiency in the form of increased yields and a reduction in manual labor. Machinery, fertilizers, chemical pest control, genetic development, medication, irrigation, economies of scale, storage technology and fast transport of the food produced to consumers are all elements of industrial agriculture. Such efficient and scaled food production contributes to us being able to get closer to sustainability goal no. 2; "zero hunger"

B. Goal Conflicts

On the other hand, we face challenges such as strong population growth and the fact that the middle class, which eats more protein, is growing all over the world. Is it not then natural to think that it must be produced even more efficiently to prevent people from getting hungry?

To answer this question, the goal must be assessed against other sustainability goals and how products and services can contribute both positively and negatively. Basically, we can think, for example, that meat, fish and chicken are equal sources of protein that all fight hunger. If you only look at sustainability goals no. 2, this is the right way of thinking, but since we work from the sustainability goals as a single framework, you have to see things from a different perspective. Although some foods have a positive impact on several of the sustainability goals, they can have a negative impact on others. For example, both the water consumption (No. 6) and the carbon footprint (No. 13) of the three protein sources are very different, as they have different health and nutritional effects. And what about animal welfare? Or chemicals (nitrogen) that increase yields but can destroy soil, groundwater and rivers? Or the downsizing of Amazon's biodiversity (No. 15) towards the production of cheap and filling beef?

Progressively, we see that efficient food production also includes concepts such as nutrient content, ecology, technological solutions to reduce input factors and increased productivity, solutions for food waste and recycling.

We encounter such goal conflicts in our analyzes. They occur when an investment opportunity provides high goal achievement on a sustainability goal (eg. zero hunger), but at the same time gives low goal achievement in other sustainability goals (eg. climate and water). Since we are constantly learning more and more about the relationship between - human, social, climate and nature makes it seem like we are shooting at a moving target.

C. Relevant investment categories for "hunger"

So let us return to our analysis of "zero hunger". Our analysis of companies operating with the sustainability goal of eliminating hunger must take into account more than just food production which is efficient but only temporary. Perhaps even more important over time is what is produced (No. 3 good health, No. 13 climate action), how it is produced (No. 6 clean water, No. 14 life below water, No. 15 life on land), where the food is produced (No. 11 sustainable cities and communities) and why it is produced (No. 12 responsible consumption and production).

In a dynamic world under constant change, there are a number of companies that are embracing the transition from industrial to sustainable agriculture, from high- to low-emission agriculture, from animal- to plant-based food and from broad-based processing to precision agriculture.

We at DNB ESG LAB call this «Agriculture 2.0 and Future Food». And it is precisely here that we, together with other communities, work to find different companies to invest in with the UN's sustainability goals as a framework. In ESG Lab, we work with collecting existing data and in addition to defining our own data on companies' sustainability activities and investments (so-called KPIs) in a database that we call the DNB Integrated Sustainable Development Goal Tool (ISDGT). This means that we can get an overall assessment of each company's contribution to and compliance with the sustainability goals.

If we put sustainability goal number 2 at the forefront, the focus is mainly on three areas; agriculture, animal health and equipment.

1. Agriculture - Listed companies that produce and sell food for consumption

There are a number of large listed companies that produce food within what we have described as industrial agriculture. But the vegetation of alternatives is growing rapidly. Plant-based foods take market share from meat due to several things such as taste, nutrition and less climate emissions. Beyond Meat (USA) is a good example of this. They produce «vegetarian burgers and sausages». Other examples are Oatly (USA), which makes "milk" based on vegan ingredients such as oats or almonds, Whole Earth Brand (USA) which produces natural additives and Vital Farms (USA), which produces organic eggs and butter. We are thus seeing a shift in the way food is produced. The controlled greenhouse's environment is optimized with water, nutrients, energy and space. App Harvest (USA) and Kalera (NO) are two companies that also operate in vertical farming.

2. Animal health - Listed companies that develop and sell medicines and vaccines that prevent or treat disease.

The animal and fish vaccine company Benchmark (ENG), which has a large R&D department for fish in Norway. Several fish farming companies, such as SalMar, have an agreement with this company to ensure the health of the fish. Novartis (Switzerland) is another company within this group where several of the subsidiaries conduct R&D on animal health.

3. Equipment - Listed companies that develop, produce and sell equipment that increase productivity, reduce the use of input factors, reduce transport waste and create efficient distribution solutions.

Within this area we find, among others, the company John Deere (USA) which is the world's largest manufacturer of agricultural machinery. In recent years, the company has developed technology that optimizes the use of input factors down to each individual plant or individual animal, whenever needed. This type of precision agriculture helps to increase the profitability of operations, while at the same time helping to reduce climate emissions.

What are we doing?

We at DNB ESG LAB call companies that are " best in class on the sustainability goals in their industry for "2030 Stars". Some of the companies we have now talked about are such companies.

Nevertheless, there are a number of gray areas. What about meat made in the laboratory and genetically modified food (GMO)? Is it negative with antibiotics? And what about land-based farming versus traditional farmed fish? Gray zones will always exist where there is ethical disagreement, incomplete information, or where one sets a goal higher than others. One of these gray areas deals with fish, and especially farmed fish. The goal conflicts that we have described earlier can also be found here; animal health, climate emissions, hunger, and biodiversity.

We find such goal conflicts in several Norwegian listed companies engaged in aquaculture, such as Mowi, Salmar, Bakkafrost, Grieg and Aker BioMarine. In such conflicts, one must have a trump card. Our trump card in ESG LAB is to help make sustainable proteins (versus non-farming) available, and reduce the climate footprint (versus meat).

We at DNB ESG LAB say neither that it is easy nor at all possible to eliminate hunger by the year 2030. We only say that we must try. Will you join the journey?

UN Sustainability Goals

The UN's sustainability goals are the world's joint work plan to eliminate poverty, fight inequality and reduce climate change by 2030.

The UN's sustainability goals consist of 17 goals and 169 sub-goals. The goals will function as a common global direction for countries, business and civil society.

Read more here: https://sdgs.un.org/goals

Note: The content of this article is not intended as investment advice or recommendations. If you have any questions about the funds referred to, you should contact a financial adviser who knows you and your situation. Also remember that historical returns in funds are never a guarantee of future returns. Future returns will depend, among other things, on market development, the manager's skills, the fund's risk, as well as costs of acquisition, management and redemption. The return can also be negative as a result of price losses.

Disclaimer: The information in this document is not binding. Statements in this document should not be understood as an offer, recommendation or solicitation to invest in or sell UCITS funds, hedge funds, securities or other products offered by DNB Asset Management or any other company within DNB Group or any other financial institution.

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