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The impact of ESG on the retail and consumer industry: emerging opportunities for plant-based food products

Bernd Jung and Carlo Meyer-Miethke
April 28, 2022

Today, perhaps in part because of COVID-19, people care about more than products and services. They also care about a company’s purpose and its culture, and that’s increasingly true whether we’re thinking about purchasing decisions, investment choices, or career moves. So, with this reality in mind, it’s no surprise that environment, social, and governance (ESG) topics have risen to the top of most leaders’ agendas, in almost every industry around the world.

Particularly when it comes to the retail and consumer goods (R&C) sector, which has been hard hit by the ongoing pandemic, people are extremely interested in ESG issues. Personalized, healthy nutrition as well as increasing concerns about the negative externalities of climate change have become even more important in purchasing decisions. Hence, the demand for environmentally and socially sustainable consumer goods has experienced a significant growth among consumers, translating into a huge growth opportunity for certain subsectors, such as plant-based food.  

Plant-based food is an ESG front runner

We recently conducted a “where to play” ESG impact assessment, aiming to shed light on 15 subsectors within the retail and consumer goods industry and to highlight those that were most affected by ESG factors. We found that certain subsectors, like those related to meat and dairy products have been hurt by some ESG considerations, largely things like concerns related to their CO2 footprint. On the other hand, other subsectors such as plant-based food products have benefitted significantly.

Our methodology

When conducting our assessment, we identified 15 subsectors of the retail and consumer goods industry, and then we gave them each an ESG impact score. This score indicates how positively or negatively we believe a subsector is impacted by ESG and its underlying trends. Naturally, these trends materialize differently for the different subsectors. The value of the score is the sum of all trends, each of which have different impact values. The value of -2 indicates a negative tipping point of a trend while +2 shows a positive one. Subsequently, the values are weighted with the trend probability: 20% indicates an unlikely occurrence and 100% a certain occurrence.

Following this methodology, our ESG impact score for plant-based food amounts to 3.4. The subsector plant-based food positions the R&C industry best to benefit from the increasing attention on ESG, due to three key drivers accelerating growth in this market:

  1. Consumer’s focus on health: People around the world are increasingly becoming more aware of the health impacts of meat and animal-based products. In addition, a stronger awareness on nutrition during the pandemic has shifted consumers’ focus toward healthier food alternatives. With plant-based alternatives now being on the agenda as part of a healthier food supply for society, consumer demand for alternatives is the key trend behind plant-based foods.
  2. Sustainability impact: With the general increase in sustainability considerations, consumers are becoming increasingly aware of the environmental impact of meat consumption. In addition, regulatory bodies are getting up to speed, passing new laws and regulations for livestock farming and net-zero emission in the meat industry, which also accelerates companies’ shift towards plant-based alternatives.
  3. Enabling technologies: As new technologies are emerging in the food industry — such as 3D printing — new meat alternatives are emerging too, making plant-based alternatives a more viable alternative for consumers who don’t want to give up on the texture and taste of real meat.

These drivers have led to an accelerated growth of the plant-based food market, amounting to ~$38 billion globally in 2021,1 and that market is composed of six key segments, with the first two being the largest:

While the European meat alternatives market is still relatively small with $2 billion2, there’s a large opportunity for future growth due to an expected CAGR of 7-19% until 2030. The global market size is therefore expected to reach €11-28 billion depending on the scenario.

Because of the significant market growth, the demand for plant-based proteins such as soy, peas, and lupins to produce meat alternatives has skyrocketed. The plant-based protein production capacity and the supply for plant-based meats, therefore, go hand in hand, putting the plant-based protein market in the spotlight of manufactures and investors.

The importance of plant-based proteins for the meat alternatives industry

Plant-based protein, derived by dry or wet fractionation from protein-rich seeds, is the raw material of most plant-based meat alternatives, which means that these proteins have the potential to be the decisive force in making or breaking the market. The most typical plant-based proteins are soy, wheat, and peas, though other niche types, such as chickpea, rapeseed, and lupin, are also becoming more common. And the need for these proteins is growing fast.

In fact, according to analysis from The Good Food Institute3 plant-based proteins manufacturers will need to produce 25 million metric tons per year to meet the anticipated demand for plant-based meats by 2030, which will amount to 6% of the total meat consumption. However, today’s manufacturing capacity is too low to match expected demand. Therefore, market experts estimate $27 billion of capital expenditure for the construction and operation of new manufacturing facilities to increase total manufacturing capacity.

Sustainable pictogram

Today’s manufacturing capacity for plant-based meat alternatives is too low to match expected demand.

Currently, 62% of plant-based meat products include wheat, 16% use peas, and 14% use soy. While wheat and soy are already being produced at large scale and only 2% of the annual global production will be needed for plant-based meats, peas are likely to cause supply constraint as only a small part of the pea can be extracted for protein sources. Considering current yields, the plant-based meat industry will need 10 times the projected global supply of enriched forms of pea protein and 34% of the global production of peas by 2030. To meet that need, it will require greater investments in processing facilities and industry R&D partnerships to stabilize volatile pea prices and satisfy customers’ growing demand for peas.4

Already, global companies have started to make these kinds of moves, highlighting the increasing momentum in the peas market. For example, Cargill invested $100 million into Puris (Beyond Meat’s pea protein supplier) in 2018- 2019.5 Givaudan and Buhler also made a joint investment in an innovation center dedicated to plant-based foods in Singapore in 2020.6 Moreover, more alternative emerging plant proteins sources such as lupins, chickpeas, and rapeseeds are also experiencing growing attention, highlighting their potential as legitimate alternatives to the most widely used ingredients today. Some venture capital and private equity funds already see the value and are searching for targets or close investments (e.g., European VC Munich Venture Partners, Capricorn Partners, and Novax with their investments in plant-based protein producer Prolupin in 20207).

Clearly, plant-based meats are an attractive market and one that has become a viable alternative to meat, which may also mean a coming reduction in CO2 emissions. Switching to plant-based alternatives is expected to promote biodiversity and food security by 2035, and it may even save as much CO2 emissions as Japan produces in an entire year.

How to capitalize on the plant-based food momentum as a general partner?

Overall, the plant-based foods market is highly attractive and private equity companies have started to notice. Plant-based meat, eggs, and dairy have enjoyed record investments, with $2.2 billion in funding in 2020.8 So, as investments in the plant-based food products themselves are already maturing and seem like a story of the past, the question arises if the next big thing might be investments into plant-based protein sources as well as their processing technologies and facilities. With the current demand forecast, a market entry in expanding production capacities for commonly used plant proteins, such as soy, wheat, or peas might be an initial step to get involved. Moreover, more alternative, emerging plant-based protein sources (e.g., lupins) might be a more niche but also attractive investment approach given its growing demand.

Conclusion

In conclusion, the global plant-based food industry, and particularly the plant-based meat subsector, is predicted to grow substantially over the next decade. Plant-based alternatives can play a vital role in reducing carbon emissions and therefore contribute to global sustainability targets. Especially plant-based protein sources as well their processing technologies and facilities are attractive niche markets to invest in. Whether an investor is currently active in this sector or not, including plant-based protein sources into the screening process is becoming increasingly important to investment strategies.

Marius Lorenz and Antonia Kalusche co-authored this article.

Contact us

Bernd Jung

Bernd Jung

Partner, Strategy& Germany

Carlo Meyer-Miethke

Carlo Meyer-Miethke

Director, Strategy& Germany

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