Lila Preston | Generation Investment Management
Impact investor Lila Preston explains Generation’s system-positive approach and the five questions to ask when assessing the sustainability credentials of food and drink companies
Lila Preston’s career in the business arena is a testament to her passion for environmental activism and expertise in impact investing. The co-head of growth equity at Generation Investment Management lived for two years in Chile on a Fullbright fellowship, getting her hands dirty in a conservation forestry project at El Cañi reserve in the southern region of Araucania. She moved back to San Francisco during the dot-com boom and started to work in the non-profit sector. After a two-year tenure at VolunteerMatch, she went to business school to gain the full skill set. “I happened to meet Generation coming out of business school, and it’s been 16 years to date,” she says.
Preston’s journey from grassroots to a mainstream investment company is unusual among her colleagues and highly relevant to companies that appreciate the value-added support from investors as much as their capital.
Generation has $24 billion in assets under management with a global mandate driven by an investment philosophy that is powered by a strong social and environmental ethos.
“Many [companies] recognise tech solutions would shift markets and improve society, but we want to make sure that’s true,” says Preston. She explains that Generation’s systems view approach enables the company to measure the real outcome and environmental impacts of a business model, from carbon footprint reduction to improved health benefits and improvement in livelihood. “That’s what we do through our diligence and reporting,” she says.
Investing in system-positive companies
The system-positive concept is Generation’s shorthand for companies that are believed will thrive in the transition to sustainability. Such companies are also helping to enable and drive the changes required in economic and social systems.
Preston explains that Generation organises its work through “industry roadmaps”, mapping the value chain of an industry or sector, and ultimately the critical environmental and social factors that affect it, the key incumbents, disruptors, policy framework, and so on.
She says that dozens of roadmaps have been created over Generation’s 16 years’ experience, and on a whole host of topics, from food supply chain logistics, biologicals, alternative protein, environmental intelligence, soil quality – you name it.
“This systems view is how Generation arrives at almost any topic. Even how we frame our growth fund, which has three pillars: planetary health, people health, and financial inclusion,” explains Preston. She argues that Generation believes that those overlapping pillars can address the broader set of sustainable development goals.
“Some businesses, certainly most if not all agribusinesses, tackle two if not three of these topics,” she explains. “Planetary health through the resources they use and the carbon footprint; people health through nutrition; and financial inclusion, which relates to a form of livelihood and economic stability, or the stability of the supply chain, and so on.”
Preston says that Generation looks at production, transportation, and consumption as three components to that systems view.
On the production side, the model looks at the in-field area of precision agriculture, data insights, and innovation on managing the physical footprint of land. The supply chain is about how to move the food through the chain. Consumption is about healthy diets and some of the trends that aim to reduce physical farmland required for the next hundred years, such as manufacturing plant-based or alternative protein, for example.
“We want to get to companies that are system-positive and we can back those businesses,” says Preston, as she introduces the five key questions that Generation is asking management teams to assess the sustainability credentials of food and drink businesses.
These questions are:
- What are the systemic shifts required to make the sector truly sustainable?
- Does the company stand to benefit from a sustainable transition?
- Does the business and management team have a long-term orientation?
- Does the company have levers available to catalyse a system-level change?
- Is the company mobilising effective coalitions for systems change?
Preston recognises that for any big business, from food corporations and agribusinesses to seed companies and machinery manufacturers, these are profound questions that explore the incumbent ecosystem. For this reason, these five questions are easier to tackle with smaller, nimble companies.
“Disruptors and innovators are less encumbered by an entrenched distribution network or a previous business model,” says Preston. “They’re coming to market with a new business model and can be a bit more nimble.”
The case of Nature’s Fynd
Generation’s portfolio brand Nature’s Fynd, the alternative protein company, is an example of a system-positive business because it addresses many of the systemic challenges of traditional food production.
The technology was developed by studying nature’s own solutions for adapting and thriving in environments with limited resources. The company based its work on research conducted by NASA on microbes in Yellowstone National Park.
Nature’s Fynd uses novel fermentation technology to grow a protein, called Fy (fai), which is a highly nutritious source of animal-free protein with all nine essential amino acids, vitamins, minerals, and fibre.
A versatile protein, Fy is being developed as an ingredient for alternative meat, dairy and other food products. Nature’s Fynd is also developing products of its own.
Alongside Fy’s nutritional profile is the low carbon footprint of Nature’s Fynd’s production set up: it uses only a fraction of the land and water resources required by traditional agriculture: 99% less land and 97% less water than beef production.
Nature’s Fynd’s manufacturing process is highly automated, hence reducing the risk of many of the human health problems associated with the meat-packing industry.
Nature’s Fynd is currently in the process of market entry in North America.
Price, nutrition, sustainability, and taste
Preston says that Generation identified what she called “tug of war” between four factors: affordability (can you produce food at the right price?), nutrition (does it have the right nutrients?), sustainability (the footprint it relies upon, not just environmental but also social sustainability), and taste.
“We recognise that the traditional food system has had trade-offs. It has optimised taste and optimised price, but it hasn’t optimised sustainability or necessarily nutrition,” says Preston.
She argues that this trade-off has facilitated feeding people at a low cost. Technology and novel manufacturing approaches are bringing costs down even further. “We’re starting to see the first point in time where we may not require trade-offs between those four factors.”
Preston explains that when addressing the trade-offs with management teams, Generation looks for ways to reconcile these factors.
“For example, I always say, even some of the novel, organic farming has benefited from a sustainability perspective and perhaps have some benefits from lower chemical loads and perhaps nutrition, but it’s more costly: that’s a trade-off,” she explains.
“Insect protein is really sustainable but may not hit the taste profile,” she continues. “So, every company that we look at undergoes this analysis. And that’s why I get excited about companies like Nature’s Fynd because it has the possibility to address taste, with the nutritional profile, at low cost, at scale and hit the sustainability premise.”
NutritionInvestor is publishing Preston’s interview on the release day of Generation’s System Positive, a white paper providing insights into the five questions to determine whether a company is system-positive.
“We think that it is very important that investors ask companies these questions, getting into their heads, thinking through these systemic layers of how the food and drink sector needs to transition,” she concludes.