Why System-Level Investing matters?

As part of the course on sustainable investing research consultancy, I am working with a team of four on regenerative agriculture. Our objective is to research best practices followed by companies and farmers, identify ways to measure their progress and help our client realign their goals in regenerative agriculture. Over the past month, through interactions with the client, we’ve identified two primary use cases for the project:

1. While the client invests in top S&P 500 companies, they engage with these companies continuously to encourage a just transition. They would like to use our research to strengthen their arguments for transitioning to regenerative agriculture.
2. The client seeks better metrics and data sources to measure the progress their clients are making in this area.

To meet these objectives, the team is focusing on two key stakeholders: farmers and companies. We’ve developed separate research questions for both and are now conducting secondary and, where possible, primary research with specific farmer associations, non-profits, and companies.

My efforts to understand how companies in the food and beverage sector are shifting to regenerative agriculture have yielded interesting insights. It is inspiring to see that companies are starting to set regenerative agriculture goals as part of their broader sustainability initiatives. As we delve deeper, some companies are also sharing clear plans, along with the necessary financial commitments, to achieve these transitions.

One company that I would like to discuss is Unilever, which is considered as an industry leader in this space. Unilever has not only defined its regenerative agriculture goals but has also linked them to its scope 3 GHG emissions reduction targets, which are driving transformations in their supply chains. They have a detailed plan to invest financially in farms and also support the farmers through capacity building. The company has a focus on social goals to promote human rights and have a farmer-centric approach. They are also working with the farmers to actively collect data on soil health, fertilizer use, and impact on yields and profitability. The company, through its systems change approach, where a system is affected by its business, say in this case, agriculture and forests, works such that it continues to get economic returns and achieves environmental, social, and political outcomes. It is very clear that for us to continue living on this planet (given climate change and increased geopolitical instability), we need to think of holistic solutions that take into consideration the dependency of different systems on each other. Hence, system-level investing becomes key in such a situation and investors must rethink their investments accordingly. 

However, there are challenges for the sector to fully embrace system-level investing. As one of my professors in another class pointed out, “Until the ‘value’ (profit) and ‘values’ align, this will always be seen as a side project and not become business as usual.” Since profit maximization for shareholders is the core objective of most companies, either this goal needs to evolve, or companies must demonstrate that a system-level approach will not adversely affect profits.

In the meantime, the steps that companies like Unilever and our client are taking toward a just transition, using a systems-level approach, are crucial in shaping the future of the industry.