Sustainable aquaculture provides impact-investment opportunity

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By:
Helen Avery
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A recent report from The Nature Conservancy and Encourage Capital aims to support demand for sustainable aquaculture and conservation finance.

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Credit:The Kampachi Company

A recent report from conservation investment manager Encourage Capital and The Nature Conservancy (TNC) points to sustainable aquaculture as an opportunity for growth that meets investor demands for both returns and positive impact.

Aquaculture, an alternative to wild-caught fishing, has become a huge industry. It is now the fastest-growing form of food production on the planet, expanding at an annual rate of almost 6% globally. The report says it is already a $243.5 billion global industry, bigger than beef, pork and chicken.

Some aquaculture businesses, however, are not sustainable. Indeed, aquaculture’s rise has come with significant environmental impacts – impacts to wild stocks, water pollution, habitat degradation and disease, says the report.

Alternatives

Recirculating aquaculture systems and sustainable offshore fish production systems account for less than 1% of all aquaculture business. Yet sustainable aquaculture can create responsible alternatives to overfished wild species and offer environmental benefits to land-based animal farming, according to the report, entitled Towards a Blue Revolution. As the global population grows from 7 billion to 9 billion by 2050 – 3 billion of which currently rely on seafood as a primary source of protein – alternatives are urgently needed.

Says Rob Jones, global aquaculture lead at TNC and co-author of the report: “We can’t get more wild fish – some 90% of fish stocks are fully fished or overfished, so we need to seek alternatives. Also, if done well and sustainably, aquaculture is one of the most resource-efficient ways to produce animal protein that we have – better than land-based agriculture.”

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Jason Scott,
Encourage Capital

Jason Scott, co-managing partner at Encourage Capital, says that investor demand for sustainable aquaculture is already here from private investors, particularly family offices who see the macro-economic opportunity. 

“There’s a lot of private capital chasing opportunities related to sustainable food as consumer preferences change and retailers recognize that there are now certain standards that consumers want to see in terms of healthy foods, and also foods that do not negatively impact the oceans and environment," he says.

"Seafood is high on the list from a healthy diet perspective, and aquaculture is high in demand to provide an alternative to depleting and overfished stocks. Now in that evolution from food to seafood to aquaculture, emphasis is being placed on sustainable aquaculture.”

Encourage Capital and TNC teamed up for the report to explore ways to support the investor appetite. Says Jones: “Traditionally investors have been challenged to invest in new production systems. They may have been perceived as risky, have been highly capital-intensive, or the returns may not have been obvious. Our report, however, points to the macro-economic support underlying investments and highlights ways to mitigate risk.”

Debt-financing opportunities in secured loans, project loans and unsecured loans offer opportunities for capex investments, although each come with their own challenges, the report points out.

Scott adds: “We’re not saying it is easy but we are saying it is possible to deploy significant capital to sustainable aquaculture systems.” With more creative financial structuring, risks can be minimized and returns maximized, he says. The report also points out that some production systems have reached a level of maturity where they are ready for investment capital at scale.

“Much of the capital into the sector could benefit from better fundamental research into the nature of successful aquaculture businesses that already exist, and investments into these new production systems could be better financially structured to meet both financial and impact objectives,” he says. The report hopefully tackles these points.

Competitive advantage

Encourage Capital has two seafood investments in its portfolio of conservation investments, and is evaluating several more. The first is in a wild-caught seafood company in Oregon, and the second in Chile that sources a third of its supply from sustainable aquaculture. 

Both companies are vertically integrated seafood businesses which have helped Encourage see the commercial value of wild caught seafood companies expanding into sustainable aquaculture, where predictability of volume and quality can be a competitive advantage versus sourcing from wild stocks.

In terms of geography, Scott says Canada, Mexico, Chile, the US, Norway and the UK are all hubs of innovation around sustainable aquaculture. In Europe, freshwater and land-based sustainable aquaculture is also increasing. “As regulation and higher standards around aquaculture are introduced, that too will increase the demand for sustainable aquaculture,” he says.

There are also opportunities for mainstream investors to access opportunities in aquaculture thanks to the Oslo Stock Exchange (OSE). In October last year the OSE executed a formal agreement with Chile’s Santiago Stock Exchange to pursue dual listings across both exchanges. 

The authors of the paper say that the partnership should make the marine aquaculture sector more attractive to mainstream investors, not only for salmon, but for a range of species, products and farming methods.

The report concludes that if early movers deploying these solutions are financially successful, it can pave the way towards global scale-up of these production systems in an environmentally impactful way, and also drive improved governance and standards for aquaculture.