The Ethical Investor: Falling birth rates propel pets sector, and why ESG investors should tap into it

Falling birth rates are driving pet ownership, creating a booming market that offers promising opportunities for ESG investors.

"Wait, Trump said what?!" Pic via Getty Images

• Birth rates decline as people choose careers and pets

• Global pet industry is benefitting from this, to grow significantly by 2030

• Ethical investing could thrive in sustainable pet product demand

The conversation around motherhood is evolving in nearly all developed countries, with birth rates plummetting significantly over the past decade.

There are many reasons for this.

People are focusing on their careers and personal goals, often delaying marriage and children. Economic concerns, like the rising cost of living and housing, also make raising children more daunting.

Valuing independence and freedom is another reason, as is wanting to enjoy travel and experiences without the responsibilities of parenting.

Earlier, celebrity wrestler John Cena made it clear why he doesn’t want children.

“I don’t want them,” he said during a podcast, explaining that he has “a certain curiosity about life” and recognises “the investment that it takes".

He acknowledged that not wanting kids is “a tough subject” that can lead to judgment but says he feels “confident in his decision”.

Pets industry booming as a result

Cena's decision reflects a global trend where many people are choosing pets over children.

In China, for example, data shows that there could soon be more pets than children.

Young Chinese couples say they often find it easier and more fulfilling to adopt pets, referring to them as "fur babies".

And in Europe, more households are choosing pets over children, with around 50% of households now having a pet instead of kids.

Against this backdrop, the global pet industry is set to explode, jumping from US$320 billion today to nearly US$500 billion by 2030, according to a recent report from Bloomberg Intelligence.

The US will continue to be the largest market, with sales expected to hit close to US$200 billion.

Pet food is expected to be the biggest expense for pet owners, potentially reaching US$135 billion globally, with a strong focus on healthier options.

Even during the pandemic, spending on pet food had remained steady.

“Consumers are willing to pay more for items for their pets, with the pet food market having the potential to grow more than 50% from current levels by the end of the decade,” said Diana Rosero-Pena at Bloomberg Intelligence.

Meanwhile, the trend of treating pets like family, coupled with improved nutrition leading to longer lifespans, is driving increased spending on their healthcare.

As a result, vet services are set to see a big boost in demand over the next decade. A recent survey of 2,300 pet owners found that 80% had visited the vet at least once in the past six months.

In this health space, the rise of new animal health companies, offering things like monoclonal antibodies, vaccines, and other treatments, has been driving innovation.

Improved diagnostic tools and AI are also expected to enhance care options, making it a pretty exciting time in the animal health sector.

So what does this have to do with ethical investing?

The pet industry could present a compelling opportunity for ethical investors due to its growing emphasis on sustainability.

The sector has been addressing critical environmental concerns such as deforestation, pollution, and waste generation.

As consumers become more aware of these issues, there’s a rising demand for pet products that prioritise them.

For example, using organic or locally sourced ingredients for pet foods not only supports local economies, but also minimises the carbon footprint associated with transportation.

Also, opting for recyclable or compostable packaging, which is growing in popularity, aligns with the increasing consumer preference.

Recent research from IRI (Information Resources, Inc) shows that 55% of Australians actively seek out environmentally friendly pet products.

“Shoppers have spoken in the strongest possible terms about their views on sustainability,” said Daniel Bone, Insights Director at IRI.

“They want to save the planet and feel that they can help do this on a daily basis by making informed and proactive purchasing decisions with their food and grocery shopping.”

Experts also believe the pet industry is a strong option for ethical investors as it allows them to invest in ways that align with their core values.

Having a pet nearby, for instance, can help lessen feelings of loneliness, as people often perceive their behaviour as a source of emotional comfort.

Also, pets can act as social facilitators, making it easier to connect with others in various situations.

Ultimately, ethical investing is when individuals align their money with their principles.

Pets and animals-related stocks on the ASX

Mad Paws (ASX:MPA)

This online digital platform provides a pet marketplace of services including sitting, walking, day care and grooming to pet owners.

In FY24, the company achieved record revenue of $27.8 million despite a tough economic climate. Notably, Mad Paws has reduced its operating loss to $1.3 million.

A major factor in this success has been the investment in technology and data science, which has improved the user experience on the platform.

Mad Paws has launched its largest media campaign this year, backed by a $4 million budget.

The introduction of the Mad Paws Pet Store further diversifies its product offerings, catering to the varied needs of pet owners.

VisionFlex (ASX:VFX)

VisionFlex has a pet business called Pet-Yeti through its merger with 1st Group (ASX:1ST) in 2022.

Pet-Yeti is an online appointment-booking platform focused on animal health. The SaaS booking platform helps animal owners and vets to easily connect online across Australia and New Zealand.

The platform allows pet owners to consult with veterinarians remotely, using video calls and other digital tools. This service is particularly useful for routine check-ups, follow-ups, and minor health concerns, reducing the need for in-person visits.

Apiam Animal Health (ASX:AHX)

Apiam’s diverse business model caters to a wide range of clients, from pet owners to large livestock operators, including those in the pig and beef industries.

Apiam provides veterinary services across Australia through a network of 66 clinics, catering to companion animals, equines, and mixed animal species.

In addition to its clinical services, Apiam also runs the Intensive Animal Vet Services, which focuses on providing veterinary care for livestock, particularly in the beef and pig sectors.

This segment aims to support large-scale agricultural operations, such as beef feedlots, by delivering specialised services that enhance animal productivity.

Looking ahead to FY25, Apiam anticipates strong demand for veterinary services in regional and rural areas.

While Apiam will keep an eye out for potential acquisitions, the company said it will also prioritise managing debt and ensuring that any investments meet their return on capital expectations.

Melodiol Global Health (ASX:ME1)

This cannabis company is also producing cannabinoid pharmaceuticals for animal treatments.

The company ventured into pet pain management through its acquisition of US-based Sierra Sage Herbs in 2021.

Part of the Sierra Sage Herbs Green Goo range is animal pain relief to help ease the aching of arthritis, sore muscles, bruises and strains.

Melodiol's Anibidiol 8 formulation is designed to support the immune system and natural response of cats and dogs.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision.

Originally published as The Ethical Investor: Falling birth rates propel pets sector, and why ESG investors should tap into it