Inclusive Capital takes a stake in Bayer — 3 ways it may build value with a sustainable focus

As an impact-focused investor, Inclusive’s portfolio companies always have a dual mandate of being a compelling value proposition and generating a measurable positive impact on the environment and society. The firm’s thesis at Bayer is no different. Inclusive believes that Bayer, as a leader in the global agribusiness industry, is well-positioned to develop and proliferate technology which addresses humanity’s challenge of boosting food supply in the wake of increased global demand while also decreasing environmental impact.

Crop farming is a large contributor to global greenhouse gas emissions. Bayer’s crop science division accounts for approximately 25% of global crop farming. Bayer has been doing a good job at its core value objective of increasing crop yields and agricultural productivity by using innovative technologies and developments in crop science that also offer substantial positive environmental impact. For example, their short-stature corn adds 15% more productivity while also retaining more carbon in the soil and resulting in less waste than standard tall corn varieties that are more easily knocked over by the wind. Also, dry rice seed has the potential to increase yield per acre and produces less methane emissions than wet rice. Additionally, Bayer is working to advance gene-edited crops using CRISPR technology, which Inclusive believes will be more accepted and faster to move to market than genetically modified crops. Emerging crops, including those that are gene-edited, are expected to offer a myriad of benefits, such as improving yields, thus decreasing agricultural land demand and deforestation and reducing reliance on pesticide and fertilizer. Ultimately, these crops result in increased food security and yields of staples like corn, wheat, rice and soy.

Inclusive highlights Bayer’s incumbency in crop science exemplified by the company’s size, talent, significant cashflow and a $2 billion R&D budget. All of this can be used to acquire, develop and scale emerging technologies with the potential for systems change. Inclusive’s focus on impact at scale is why the firm sees the conventional ESG approach to “reject and replace” imperfect incumbents as insufficient to address global challenges.

Often Inclusive invests in companies where ESG improvements drive shareholder value. In this case, it is almost the opposite: Creating shareholder value in the form of a higher stock price and a lower cost of capital will allow Bayer to finance additional ESG opportunities that will also increase crop yield and profitability.