Disclaimer: Views in this blog do not promote, and are not directly connected to any Legal & General Investment Management (LGIM) product or service. Views are from a range of LGIM investment professionals and do not necessarily reflect the views of LGIM. For investment professionals only.

Land use: the other piece of the decarbonisation puzzle

Agriculture, forestry, and other land use account for almost a quarter of all human-caused greenhouse gas emissions. Neither investors nor policymakers should ignore this issue.

The International Energy Agency recently announced that global energy emissions stayed flat in 2019, even as the world economy expanded by nearly 3%.

The sudden halt in emissions growth was attributed to declining emissions from electricity generation in advanced economies, as renewables expand and power plants switch from coal to natural gas.

Maintaining this momentum, turning the carbon plateau into a valley, will now be crucial. The measures for decarbonising the global energy system are already familiar to many: build out renewables and battery storage; roll out electrical vehicles; and phase out coal-fired power generation.

As challenging as this will be – especially as it has to be done at breakneck speeds – there is another piece of the decarbonisation puzzle which is less discussed: the emissions associated with agriculture, forestry, and other land use (or AFOLU for short).

Today, AFOLU accounts for 23% of total anthropogenic (human-caused) greenhouse gas emissions.[1] The Paris Agreement target is unlikely to be achieved without reducing these emissions to net zero by the middle of this century.

This matters to investors as well as policymakers: the gross value of global agricultural production is about $6 trillion.[2] 

Everything and the carbon sink

Reducing AFOLU emissions to net zero would imply a drastic departure from business as usual for the global food and agriculture industry. Last year, the IPCC special report on climate change and land use set out the available mitigation tools.

Some eyebrow-raising items included a reduction in global crop land and pasture land by about the sizes of Mexico and the European Union respectively, to help make room to reforest an area the size of India.[3]

A majority of crop land today is used to grow feed for livestock, rather than food for humans. In order to reduce the area of crop and pasture land by the magnitude required, a shift in land-use planning and diets is most likely necessary.

Agricultural practices on the remaining farmland would also need to change. Today, agriculture is a net emitter of greenhouse gases but we know from examples of innovation around the world that it has the potential to be a net carbon sink via the sequestration of carbon in farmland soils – and the world urgently needs all the carbon sinks it can get.

In simple terms, this means transitioning agriculture from being dependent on high levels of inputs and intensive tillage that undermine life in the soil to a system where the natural fertility of the soil and health of the farm ecosystem are regenerated to a level where these inputs and interventions are less necessary. Combining principles such as minimising tillage, systematic use of cover crops, reduced synthetic inputs, and designing much more diversity into cropping rotations will play a key role.[4]

However, there are significant roadblocks to farmers making changes to both land use and agricultural practices.

The kind of transition described here is knowledge intensive and so the quality of the advice that farmers receive matters. Yet in many markets, the people giving farmers advice on farming practices are employed by companies with sales target to meet for agrochemical inputs such as pesticides and fertilizers. This inherent conflict of interest can lead to the systematic overuse of such products. By contrast, the annual Rural Business Survey in 2018 found that every one of the top 25% of the most profitable farms in England were advised by independent agronomists.

France has already mandated the separation of agronomic input and advice, but to date there has been little regulatory action to encourage dietary shifts towards food products with smaller land-use footprints – even as global meat consumption continues to grow.

Food for thought

At LGIM, we are engaging with some of the largest food companies in our portfolio to understand both how they are adapting their product strategies in light of the land-use changes necessary under a 1.5°C scenario, and how they are working with their suppliers to improve agricultural practices.

To some, talking about soil health and pesticides might sound like an investor getting too far into the weeds, if you’ll pardon the pun. But without robust regulatory action to tackle this lesser-known quarter of global emissions, the 1.5°C target will remain out of reach. We urgently need both investors and the wider food and agriculture sector to begin speaking with one voice on this issue.

 

 

[1] https://www.ipcc.ch/site/assets/uploads/sites/4/2019/11/03_Technical-Summary-TS.pdf

[2] FAOSTAT, LGIM analysis.

[3] https://www.ipcc.ch/sr15/chapter/spm/ (assuming an approximate middle point in the ranges provided by the IPCC report.)

[4] https://ec.europa.eu/info/files/190618-sustainable-finance-teg-report-taxonomy_en 

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