How many of you have come across articles about ESG investing? Referring to environmental, social, and governance, the ESG framework considers how sustainable a business is based on those three different categories.
The “environmental” part is straightforward enough and includes actions such as reducing waste and achieving net-zero emissions. The “social” category looks at the business’ impact on the community including their employees and society overall. These activities include donations to charitable organizations, improving working conditions, and promoting racial and gender equality. Lastly, the “governance” category of the framework is about fair play. How transparent is the business? Is an organization operating legally?
What should you look for in a company if you’re interested in ESG investing principles? I’ll cover some innovative companies in this article (and my next article!) as well as three different areas of the plant-based industry investors are flocking to.
What can plant-based companies do to attract investors?
This topic alone can be its own article, but after talking with many plant-based company founders and executives, here are the most common points that come to mind:
One of the key things investors are looking for before they invest in a plant-based company is longevity and growth potential. Every brand wants to be the next Beyond Meat. But as any entrepreneur will tell you, riding on the coattails of an established company can only get you so far. While innovative startups have paved the way into new territory (such as plant-based egg products), you don’t need to be the first in order to be a dominant player in the industry.
Scalability is also a key factor that investors are looking at. Especially in industries that are still in their infancy, such as cell-based or cultured meat, the topic of reaching price-parity is always important. Many consumers are sensitive to price, which will impact their purchasing decisions.
A third point I want to touch on is a company’s capabilities and strategic plan. In the plant-based industry, R&D (research and development) is a capital-intensive operation. Investors may be confident in backing a startup, but only if a company’s leadership team has proven that money isn’t being wasted.
Investing in plant-based food
As part of the increasing trend towards investing in sustainable companies, plant-based foods have become one of the key areas many investors are turning their attention to. In past articles, I’ve talked about how consumers are flocking to plant-based foods because they’re a more sustainable option compared to traditional animal-derived meats.
With a growing consumer base that is hungry for more product options (pun intended), it’s no surprise to me that the industry has seen major growth in terms of the capital flowing into new startups and established businesses. Based on the first three months of 2020 alone, U.S. plant-based companies raised over $740 million.
Of course, while plant-based food is driving a lot of growth and is one of the leading segments, the overall plant-based industry includes more than just food and beverages. For example, I previously covered innovative vegan leather materials used to make clothing and accessories.
One report listed alternative proteins as one of the top technology innovations that will impact global markets over the next decade. That’s a big claim, but not unfounded given the trajectory of the industry. I’ve spoken to both investors and plant-based company executives who see a lot of growth opportunities as the industry matures.
In North America, some of the more innovative companies leading the pack include Beyond Meat, SunOpta, Ingredion, and Laird Superfood in the U.S. In Canada, top plant-based food stock picks include Pontus Protein, Modern Plant Based Foods, Plant & Co., Else Nutrition, and The Very Good Food Company. In fact, while writing this article, I just came across that Pontus Protein completed the second tranche of its non-brokered private placement.
Investing in plant-based fashion
The biggest difference between the plant-based food and fashion industries is that food R&D is generally farther along with products being readily available to consumers. In the plant-based fashion space, I’ve seen a lot of investments go towards developing materials and other research. That’s not to say sustainable fashion hasn’t yet hit the market—it has, especially in the form of major brands like Nike launching vegan shoes.
For example, earlier this year, sustainable shoe brand Allbirds made a $2 million investment in Natural Fiber Welding, a company that is engaged in using clean technology to improve the performance of plant-based textiles.
Investing in sustainable packaging
Over the past few years, I’ve seen more companies in the logistics industry put stronger emphasis on providing sustainable services. They’re also putting more budget into R&D, especially in innovative technology such as electric vehicles and artificial intelligence. Along the same lines, investing in a sustainable supply chain has made more companies think about how they deliver goods from point A to point B.
When it comes to opportunities within the packaging and logistics industry, investors are carefully scrutinizing both regional and international regulations. For packaging in particular, regulatory differences may occur from country to country (sometimes from state to state). An investor in the plant-based space that I’ve talked to echoed something I read in this McKinsey report—they’re not just betting on packaging but the 3Rs as well. Packaging is one play, but what about developing technology that effectively reduces, reuses, and recycles materials?
Here are a few companies that are engaged in some really interesting work:
Notpla: Think of the last few times you had take-out. Did it come in a disposable plastic container? Did you also get a handful of sauce packets? While small, these disposable packets add up. The development of plastic containers can also be quite harmful to the environment. Notpla develops biodegradable packaging materials from seaweed and other plants in an effort to reduce waste.
Invisible Co.: This company developed the #INVISIBLEBAG, a compostable and biodegradable bag. What really made me geek out is that the bag is also fully water-soluble! It dissolves when placed in water and is completely non-toxic.
Noissue: Lastly, noissue produces custom sustainable packaging and other branded goods of all sizes. I like how they’ve built a community around supporting businesses that want to be more sustainable. They’ve created something called an Eco-Alliance that highlights other businesses using noissue products.
A growing trend towards ESG investing
ESG investing continues to trend upwards, with more investors diversifying their portfolio through sustainable stock picks. That being said, the three areas covered above—food, fashion, and packaging—are just some sectors of the plant-based industry. I didn’t cover other major high-growth investment areas such as personal care and cosmetics, eCommerce and other online platforms, and shipping and transportation. For investors, the next few years will be an exciting time as the industry grows!
I highlighted some of the top U.S. and Canadian plant-based stock picks, but I’d love to know if any plant-based companies in your country have caught your attention. Leave them in the comments below!