Investing responsibly in the fast-growing farmed fish sector

As we are urged to eat less animal protein and more plant-based foods, for the good of our health and the planet, what role should fish and seafood play? As the fastest-growing food production sector, aquaculture can be an attractive prospect for investors. However, investing in seafood companies must be considered carefully due to their environmental impact. Investor engagement can play an important role.

In 2019, the EAT Lancet Commission of leading scientists on sustainability, diets and health set out for the first time the nature of a sustainable and healthy diet, in other words, one that can be produced within planetary boundaries and that supports good long-term health. ^[1]

Currently average per capita seafood consumption is optimal at two servings, or around 200 grams per week. As the global population heads towards an estimated 10 billion by 2050, it will generate substantial additional demand for fish and seafood.

The main challenge is to ensure that fisheries are managed sustainably to provide sufficient for everyone. Freshwater fisheries provide critical protein for hundreds of millions of people, but are also under increasing threat from overfishing, pollution and expansion of urban areas. ^[2] Over a third of global marine fish stocks are already fished beyond sustainable limits. Another 60% are exploited to their natural limit. ^[3] As a result, the EAT Lancet Commission concluded that expansion of supply should come from aquaculture.

Already the fastest-growing food-production sector, it is expected to account for nearly 90% of fish consumed by humans by 2030. ^[4] Salmon aquaculture in particular is expanding quickly: Norway already accounts for 50% of global production and is aiming for a fivefold increase between 2014 and 2050. ^[5]

Supporting sustainable seafood

Selected BNP Paribas Asset Management strategies invest in the seafood sector and suppliers that provide solutions to reducing some of the sector’s environmental impacts including biodiversity loss. At the same time, we are aware of the need to engage with companies to encourage them to minimise impacts such as:

Pressure on wild fish stocks: Farmed fish, particularly carnivorous species such as salmon, are fed fishmeal and fish oil (FMFO) which is made from fish caught in wild marine fisheries
Deforestation and habitat loss: Vegetable products including soy are key ingredients in salmon feed. Soy production has contributed to substantial damage to important ecosystems
Greenhouse gas emissions particularly in relation to feed. Exhibit 1 illustrates the GHG emissions of farmed fish compared to other animals
Contribution to antimicrobial resistance (AMR) in animals and humans due to the use of antibiotics
Pollution due to use of chemicals and waste: Fish farms release their waste into surrounding waters. Microplastics in feed accumulate in the fish and pose health risks to consumers ^[6]
Impacts on naturally occurring species: Many types of fish have been introduced into ecosystems far from their origins, which impacts local species.

Competition for feed resources and availability are critical constraints to the sector’s growth. Not only does the current feed mix impose significant environmental impacts, feed accounts for 40% of production costs in the salmon farming industry.

Ensuring a sustainable supply of feed is therefore essential to the sector’s ability to grow. However, it is estimated ^[7] that if current approaches to feed formulation continue, growth will be curtailed by constraints on the availability of feed. This means production in finfish aquaculture will be unable to exceed 14.4 million tonnes globally compared to the seven million tonnes currently produced.

Climate change is also predicted ^[8] to affect production of wild fisheries and aquaculture, with productivity increasing at high latitudes and decreasing at low and mid latitudes.

Engaging with salmon farmers

In line with our commit to be a sustainable investor, BNPP AM engages with food companies to encourage them to address their enviromental impacts. This is the backdrop for our engagement in 2022, together with other investors, with three Norwegian salmon-farming companies: Mowi ASA, Lerøy Seafood ASA and Grieg Seafood ASA – all of them constituents of our blue economy strategy. ^[9]

The engagement was facilitated by FAIRR, the Farm Animal Investment Risk & Return network that assesses and reports on the risks, opportunities and impacts of protein producers in the food sector generated by their environmental, social and governance practices. We joined FAIRR in 2021.

Although FAIRR gave these companies a relatively good rating in its 2021 Protein Producer Index, we believe all three have scope to improve the sustainability of their operations. We focused particularly on urging the companies to reduce their GHG emissions – their carbon ‘fin-print’ – more quickly and to protect biodiversity by reducing their dependency on feed sources with an adverse environmental impact. We sought to secure their commitments to adopting a research-led, science-based strategy to underpin the development and greater use of feed alternatives.

We signed a joint letter to all three companies, and had a call with Grieg Seafood. We concluded that it is committed to addressing the environmental issues associated with fish feed, being proactive and making good progress in understanding both the impacts of, and reporting on, the biodiversity and climate impacts of its feed mix.

Nevertheless, the lack of comprehensive, comparable data, and the ability to trace feed to its source, is hindering accurate corporate reporting and the ability of this and other companies to implement effective sustainability strategies.

As a sustainable investor, we believe that we should use engagement to influence companies and the world for the better. If done well, it can reduce risk, unlock value and make a positive impact.

This is an abbreviated version of ‘Does farmed fish have a place in sustainable, healthy diets?’

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Also read: Clarity for investors and seafood retailers on sustainability and profitability

References

^[1] Food in the Anthropocene: the EAT–Lancet Commission on healthy diets from sustainable food systems, Lancet 2019; 393: 447–92, January 16^th 2019. http://dx.doi.org/10.1016/S0140-6736(18)31788-4

^[2] WWF Position on Healthy and Sustainable Diets, September 2020

^[3] The State of World Fisheries and Aquaculture 2020 (fao.org)

^[4] Food in the Anthropocene: the EAT–Lancet Commission on healthy diets from sustainable food systems, Lancet 2019; 393: 447–92, January 16^th 2019. Page 476, Panel 6

^[5] https://www.fairr.org/engagements/sustainable-aquaculture-engagement/

^[6] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6132564/

^[7] The-Future-of-Food-from-the-Sea.pdf (oceanpanel.org)

^[8] Major New Zealand salmon producer shuts farms as warming waters cause mass die-offs | New Zealand | The Guardian

^[9] These companies are mentioned for illustration purposes only. This is not an investment recommendation.

Disclaimer

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.