Sharyn Murray, Investment Engagement Manager at the Good Food Institute, discusses how ESG frameworks can help plant-based businesses communicate their positive impact data to the outside world. It’s a strategic knowledge drop in today’s Plant Based Business Hour with Elisabeth Alfano.
In particular, they discuss,
- What exactly are ESG frameworks and what do they set out to do with the GFI and FAIRR frameworks? Why do sectors need ESG reporting?
- Who does the framework serve/benefit?
- Is hiring the framework an offensive move or a defensive move for the company?
- How difficult is ESG framework to employ? How long do they take to implement and how expensive are they to implement?
Below is a short clip and transcript from their conversation. Here is the podcast.
Elizabeth: This may seem burdensome to some small companies, and they may think, “Ah, why do I really have to do this?”
Pressure is coming. So, we are going through a global food system transformation and this is because our current global food supply system is showing its stress cracks. It is susceptible to epidemics, it uses too much land and water, it emits too much, and it uses natural resources poorly and inefficiently so that we have trouble feeding our growing population. If you can’t feed people, you’re talking about war and political instability. It only grows from there.
So, you’re seeing pressure from investors to respond to that; You’re seeing pressure, as Sharyn said, from the Securities and Exchange Commission to focus on people’s supply chains and scopes 1, 2, and 3 to push them to implement better practices. It’s not really going to be optional, I don’t believe so, I would say short order by 2025. Do you want to do something there? Can you respond to the optionality vs necessity of this in the near future?
Sharyn Murray: Yes, so the SEC has a draft sustainability report. They got a lot of comments on this, and we’ll see what they do. I hesitate to predict the future with respect to US regulations. This seems much more certain in Europe. So, there are different rules regarding funding. Funds must meet certain requirements to call themselves an ESG impact fund. There are concepts of an article eight and article nine. Here are the green classifications that industries fit into. All of this is still being developed but some of it has already been enacted and continues to work. So, it’s more certain, and it affects multinational companies, so even if they have a US headquarters and they need a certain revenue or manage revenue in Europe, they will be affected by it.
All of this is really important. Companies need to do this, and investors and others care, and it’s important to our future. In terms of carrots, it can help companies reduce their cost of capital. We’ve seen things like green bonds, especially in Europe, but globally these are bonds that companies are issuing for sustainability-oriented projects. That interest rate is lower than it would otherwise be and so we can apply that concept to equity as well. Companies that can show these positive ESG characteristics will likely be more sought after by investors, precisely because our ESG investors have these implications. They actually have a lot of capital to work with.
There’s something in the pitchbook, I’ll have to look at the exact numbers, but something over $100 billion that the Impact Fund will have to work with until last September when we released this structure. So, when you have more demand for your round, you’re either going to raise a higher valuation or you’ll have more money that you can raise. It’s going to reduce that cost of capital.
So, we talk about the cost that companies have to report on this data. Hopefully they’ll get a lot back from a financial standpoint for doing it, too.
Elizabeth: Well, as well from a marketing perspective. They’ll have those positive stats to show at the front of the pack and they’re going to be more competitive in that grocery store aisle and that’s going to bring in more capital as well. And that’s going to bring more distribution potential because when you, as a product, do good environmental, social or governance statistics, that grocery store wants to carry you because you make their numbers look better. Everyone is looking to better their sustainability numbers and so when you’re ahead with good numbers, you’re ahead and there’s a lot of equity in being first.
So, I’m thrilled that FAIRR and GFI have worked together to put these frameworks out as tools so that plant-based innovation and alternative protein companies can start collecting that data and reporting their statistics because I think it’s going to be huge. Meaningful for the sector as a whole.
Elysabeth Alfano is CEO of VegTech™ Invest, a VegTech™ plant-based innovation and climate ETF, advisor to EATV. He is the founder of Plant Driven Consulting and the host of Plant Based Business Hour.