THE DOUBLE POSITIVE

Tell us about impact investing and how Blue Horizon is embracing it.

Friederike Grosse-Holz (FGH): At Blue Horizon our goal is to achieve a double positive, which means making a return on investment, as well as a tangible positive impact. Sustainable food is a great way to achieve this double positive: the more revenue you generate, the more impact you have. Every alternative burger or alternative egg purchased by a consumer has both a positive impact and creates returns for this sector.

In terms of impact, we look at three aspects: human, animal and planetary impact. We are also focused on ways to quantify impact in dollar terms, value the investment on the impact and return side, and maximize the potential for a double positive across returns and impact. For example, when it comes to the planetary impact of the protein transformation, we look at how much emissions are avoided by making the transition to plant-based food. We then translate these emissions into a dollar value using a carbon price set by the market, generating a financial metric: impact on capital employed, IoCE™. IoCE works just like a financial return on capital employed (RoCE), and can be determined not just for planetary, but also human and animal impact. Metrics like IoCE™ allow us to use similar tools to quantify and manage impact and returns.

We use this method across our entire investment process. Similarly, when working with a portfolio company, we co-develop financial- and impact KPIs.

Is now the right time to invest in the alternative protein market?

FGH: Absolutely. The underlying drivers of the protein transformation have only gotten stronger. We are all aware of the climate crisis we face as a species; this is a global problem that we need to solve – and food is a major contributor, unfortunately. Food systems account for 24 percent of global annual emissions, second only to energy. In fact, food-related emissions have a 70 percent greater impact than the transport emissions generated by all cars, airplanes, trains and ships globally. That means we have an amazing opportunity to reduce emissions by transforming the food system.

So now is a very interesting time. Alternative protein technologies have matured to the point where they can now be scaled, although the sector has yet to take off as much as we believe it can. Product market fit is proven and now being improved further with cleaner labels and a more diverse array of products. So now it’s about scaling up, so these products become mainstream. At this point, more growth capital needs to flow into this sector to facilitate the scale-up of technologies.

Which countries are furthest on this journey?

FGH: Key centers have emerged where the sector is more commercially mature. A lot of startup activity is happening in the U.S. and Israel, for example. Singapore is pushing for greater food sovereignty and has championed the shift towards alternative proteins for the last several years. Generally, the very large consumer base in Asia Pacific is traditionally more familiar with “first generation” alternative protein products like plant-based milk. We are keeping a very close eye on this region, and Blue Horizon recently made its first investments in India. Another interesting region is Europe, where consumers are very concerned about the environment. France has an active startup base, for example.

But really, we see fascinating technologies coming from every corner of the world, often stemming from different motivations and cultural preferences – just like the different flavors found in food. Local innovation is fundamental since cuisine is shaped by cultural norms. We need people developing products based on an understanding of what their neighbors want.

What is the role of regulation and how will it need to evolve?

FGH: Regulation plays an important role in enabling a smooth transition to alternative proteins. In our view, regulators will make this transition feasible, especially for the people who have to do the work, namely farmers. As we grapple with the financial side of this transformation, we cannot forget the farmers. They are the bedrock of our food system, and for them, the shift will be doubly challenging given the already slim margins for agricultural products. Historically, farmers have received subsidies that favor animal agriculture, so upfront investment is needed to help them reshape their operations.

Regulators are also key to making sure consumers continue to trust in the safety of the food they buy and can choose what’s best for them based on clear labelling. So, if companies want to bring innovation to consumers in a timely fashion, open and collaborative communication between regulators and companies is critical.

How do you identify the companies you invest in?

FGH: Blue Horizon has deep expertise and technical know-how in the sustainable food sector. Based on this, we built a proprietary quantified market model (QMM). Our QMM maps where value creation occurs along the food value chain – and which technologies could be game changers for the food system. We continuously update and refine this model with market data, expert discussions and technical research. This provides us with key insights on which technologies will be most valuable once scaled. We focus our deal sourcing on these value pools. We then look for strong teams who are ready to execute on their stated mission and who share our values.

"We see fascinating technologies coming from every corner of the world, often stemming from different motivations and cultural preferences – just like the different flavors found in food."

Dr. Friederike Grosse-Holz
Director, Blue Horizon

How closely do you collaborate with companies after investing?

FGH: This varies and depends entirely on what is most valuable for the company. One thing we always do is work with our portfolio companies on impact and on financials, which most companies find very useful. For example, our quantitative impact reporting helps them tell their impact story in a concise, convincing way to their customers, partners, and employees. But there’s a whole range of support we offer – everything from providing warm introductions to international retailers in our network, to giving feedback on their next pitch deck.

Looking at the entire field, where do you see the greatest potential going forward?

FGH: Moving forward, all types of alternative proteins – whether plant-based, cell-based or fermentation-based – will have to work together. Hybrid products are a good example of this; they will be key to getting alternative proteins to market sooner. We already see numerous hybrid products in the development stage incorporating a bit of cell-based technology to achieve specific mouthfeel and desired flavor. Nutrients such as B-12 or omega-3 generated from cultivated cells can be added to plant-based products to boost their nutritional value. And we see hybrid products that combine fermentation-enabled and plant-based proteins. A notable example here are plant-based burgers which incorporate heme protein, like the Impossible burger. Another example is plant-based cheese fortified with casein, which confers the much desired stretching and melting behavior of traditional cheeses. Hybrid products will enable fermentation and animal cell-based proteins to come to market much sooner than if they relied 100 percent on cultivated meat or 100 percent on fermentation-enabled product.

What key innovations would foster even greater uptake of alternative proteins?

FGH: One is the need for more bioreactors to scale up production processes. This would certainly help solve the massive bottlenecks on the fermentation side, where there is simply too little fermentation capacity.

Another barrier that is not often discussed is the shortage in human capabilities. We need more people who can design and operate plants that produce alternative proteins. At the moment, there are too few companies like GEA, who have the expertise required by this growing sector. A lot of companies today can make a very interesting product on the scale of 500 milliliters, but now face the challenge of scaling up to 500,000 liters. This requires a completely different skill set.

It’s a situation that is ripe for more industry collaboration and an injection of growth-type capital, particularly where a technology is mostly de-risked and ready for scaling up. There are more and more of these kinds of opportunities emerging. And when leveraged, this will propel the industry to the next step and bring fermentation-enabled products, hybrid or purely fermentation-based, to the mass market.

Header image: BlueNalu