Listen to the full interview with Greg Heckman below, as well as the analysis from Fidelity’s investment team. You can subscribe to the podcast on your mobile device by following this link or search ‘Fidelity Answers’ in your podcast app.
“Food security … is an issue of price, not availability.”
Bunge, a global agriculture company, has its hand in many stages of the global food supply chain, from transporting produce to developing specialised oils and fats. That puts it at the centre of the relationship between food producers and the end consumers, and by extension some of the world’s most pressing questions around sustainability and food security.
In the eyes of its chief executive, Greg Heckman, the problem for food security today is distribution: “One of the important roles that Bunge plays in our industry is getting things from the areas where they are in surplus to the areas where they are in deficit. Today, this isn't about the volume, it's about the economics.”
Gita Bal, Global Head of Fixed Income Research at Fidelity, agrees that there are glaring mismatches in terms of the world’s food supply: “We clearly do not have sufficient food in the right places, at the right price for all the people of the world. We know we have problems with malnutrition in many parts of the world. We know we have problems with food waste and obesity in many parts of the world. Ultimately, I think we’re going to need better answers on how we provide food to those who need it.”
This is a multifaceted problem. Fidelity analyst James Richards recognises the extent of the challenge a company like Bunge faces: “You're trying to feed a world that is growing. You're trying to ensure that you do so in a way that doesn't lead to further deforestation. And then, what’s even more difficult, you're tracking that down not only through your direct purchases from farmers, but also through your indirect purchasers through traders. And you've got to get some money to pay for the whole thing. It is an incredibly difficult task.”
For Heckman, the solution is efficiency. He’s happy to invest in the right technologies now to see a payoff in the long run: “As we get to scale, we believe some of those investments will get paid back in the long term by growing our business, by helping our most important customers at both ends of the supply chain grow their business.”
But is there a trade off to be faced in bearing those costs now and lessening the company’s ability to reinvest for future growth? Gita and James assess this tension below:
How much will customers pay for sustainable crops?
Given Bunge’s complex role within the food industry, most of its carbon emissions are deemed ‘scope 3’ - those emitted not by the company itself, but through Bunge’s wider value chain. Scope 3 emissions are more difficult to manage than those the company is directly responsible for. Yet their impact is just as profound.
As James notes, “it’s common to see companies not giving scope 3 targets because they’re not fully controllable… I am trying to push companies to get more active on scope 3 because they are a hugely more material issue to solve.”
Because of the current difficulties associated with tracking scope 3 emissions, Bunge is one of the companies that has not set its own net-zero targets. It prefers to lean on the framework the initiative provides and focus on reducing its scope 3 emissions. As Heckman says: “One thing we’ve been very careful about here at Bunge is ensuring that we deliver on what we say we’re going to do. And the thing we like about science-based targets is that there is an organisation; there is a methodology. There really is no equivalent to that for people making net zero pledges.”
Not setting net-zero targets remains controversial as scrutiny over companies’ environmental policies increases, but Gita and James find many aspects of Bunge’s approach refreshing: “Of all the 4000-plus companies that we look at as an investment analyst team on sustainability, it is a small minority that have scope 3 targets,” says Gita. “It's really good to see companies leading the way in saying that our real impact is in those scope 3 emissions and that's where we're going to focus our energies.”
Bunge shuns net-zero targets
Fidelity: What's your personal sustainability trade off?
Heckman: I don't drive an electric car, but I recycle more.
Fidelity: What's the biggest challenge facing governments in the next five years?
Heckman: I think the biggest challenge for governments is putting the globe and humanity ahead of getting re-elected.
Fidelity: Where will we be in five years’ time when we meet again?
Heckman: I think we’ll be much more aligned.