View | Smart protein — A frontier for climate tech investors

Despite these scientific facts, and overwhelming evidence that investing in reimagining meat production will yield better results than other climate tech solutions, the latter continues to hold the attention of the scientific community and subsequently receive more funding.

It’s no secret that protein sourced from animals is unsustainable. For instance, animal agriculture is the single largest contributor to the ecological and climate crisis — accounting for more emissions than from all forms of transport combined. And yet, as the world shifts toward other sustainable technologies like renewable energy and electric vehicles, demand for meat continues to grow and is projected to double in production by 2050. With countries like India set to disproportionately contribute toward this increasing demand, diversifying protein sources can have several advantages.

A growing number of startups, nonprofit organisations, academic researchers, and investors are working toward reimagining a food system with smart protein at its centre. Smart protein has the potential to mitigate human-caused environmental degradation and build resilience in agriculture production. In the last half a decade alone, India has seen over 50 companies come online in the smart protein sector, producing over 200 products across the country, and over 80 ecosystem players supporting the sector across the value chain.

For the uninitiated, smart protein — also known as alternative protein globally — has all the sensory and cultural resonance of animal-derived meat, eggs, and dairy, but uses vastly less land, water, and energy, has significantly lower greenhouse gas emissions, and creates far less risk to public health. It is a fast-growing sector that combines food science, biotechnology, agricultural integration, and next-generation manufacturing to offer sustainable alternatives to conventional, industrially-farmed protein.

These smart protein alternatives consist of three different modalities – plant-based, fermentation-derived, or cultivated from animal cell-culture. Together, these innovative production methods can help supplement the global demand for animal-derived protein — without the negative side-effects of antimicrobial resistance and zoonotic diseases otherwise posed by conventional systems.

A new report by Boston Consulting Group (BCG) states that “investment in plant-based proteins has the highest (carbon dioxide emission) savings per dollar of invested capital of any sector”, but “despite the favourable economics and attractive potential, including ready consumer interest, investment in sustainable foods is only a fraction of that committed to other sectors".

The question then becomes - why have smart protein solutions received only a minuscule share of climate-tech investment?

In evaluating food and meat companies, investors must assess the need for an accelerated protein transformation, given that smart protein offers solutions for 9 of the 17 Sustainable Development Goals — addressing a call to action for urgent environmental, social, and economic progress. Investments in smart protein stand to address multiple climate-tech funding concerns:

Unlocking financial opportunities stemming from a rapid land use transition: As an outcome of COP26, 150 countries pledged to halt and reverse deforestation by 2030 with profound implications for our food system and the companies at the heart of it; developing and tapping solutions for a net zero, nature-positive, resilient food system could generate up to USD4.5 trillion annually of new business opportunities.

Building resilience to address supply-chain shocks: A diversified agri-system, with a focus on indigenous crops such as pulses, millets, and hemp stands to make our food system more resilient against supply chain disruptions due to storms, droughts, wildfires, flooding, and disease outbreaks, while supporting the diversification of livelihoods. There is an opportunity for building self-sustaining end-to-end value chains for high-value “novel” crop ingredients for smart protein foods.

Addressing growing demand for low-carbon, green products: For the early adopters who are opting to eat plant-based foods, environmental concerns are among the main drivers of consumption. Sustainability as a deciding factor for consumers’ food choices stands to magnify, as time goes on and concerns around climate change continue to grow. A company’s ability and willingness to transition to a low-carbon economy is rising on investors’ agendas. Bloomberg Intelligence estimates that by 2025, a third of global assets will be managed according to Environmental, Social and Governance (ESG) investing strategies.

Costly risks stemming from concentration in the industrial animal agriculture supply chain: High-carbon-emission products are becoming less popular with consumers, dampening investors’ forward-looking financial forecasts. Investors may underweight or divest from such companies based upon their weighted average carbon intensity metrics and/or carbon footprints across all three scopes of emissions, among other factors.

While the smart protein industry attracted over $5 billion in funding globally in 2021, virtually none of this trickled into India. India's investment total for 2021, coming in at just $10.34 million, was a negligible fraction of the global sum. Countries like the US ($3.3 billion), Israel ($526 million), Chile ($254 million), the UK ($201 million), and Singapore ($74 million) all hold just a sliver of the population that India does — and given that we have to feed one-sixth of the world’s mouths, we need to integrate smart protein into our food supply through rapid growth in public and private investment.

That being said, we are seeing Indian smart protein startups successfully raise their first rounds of funding and we saw deal counts more than doubling in 2021. Some of the most notable fundraises in 2021 and 2022 include Proeon Foods’ securing Rs 17.7 crore as seed capital in a round that saw participation from Peak Sustainability Ventures; Shaka Harry raising $2 million in a round led by Better Bite Ventures, Blue Horizon, and Panthera Peak Ventures; and biotech startup String Bio raising $20 million (nearly Rs 160 crore) in a round with participation from Woodside Energy Group, Ankur Capital, Dare Ventures, Redstart, Zenfold Ventures and others.

Ultimately, we know that countries like India will disproportionately bear the consequences of climate change, public health risks, food insecurity, malnutrition, and more. To steward planetary health, benefit farmers and local communities, prevent the next pandemic, and provide sustainable, nutritious and delicious food to our growing population, we need to come together with other critical markets and build a smart agrifood ecosystem for the future. And that will be impossible without more concerted effort and capital investment in smart protein technologies.