FAIRR highlights food system failure to protect nature, while WBA reports inertia across industries.
Calls for compulsory nature-related disclosures – which may be mandated under the Global Biodiversity Framework (GBF) being finalised at COP15 – have been strengthened by studies showing firms are not yet reporting on or mitigating large-scale risks and impacts.
The world’s largest meat and dairy producers are overwhelmingly failing to manage their impacts on water and forests, according to the latest annual Protein Producer Index, released by the FAIRR Initiative, an investor network with US$70 trillion AUM.
A separate report from the World Benchmarking Alliance (WBA) found a lack of monitoring and action on firms’ nature-related risks and impacts across multiple industry sectors. Its first annual Nature Benchmark, which analysed almost 400 large firms globally, reported that just 5% had conducted a science-based assessment of their impact on nature and biodiversity, compared with 50% taking action to reduce carbon emissions.
Bottom of the league
A total of 87% of firms surveyed by FAIRR do not know if supplier farms are located in areas of high water stress; while 72% of meat and dairy companies – mostly located in Asia – do not disclose how they address water scarcity risks in feed farming.
Regarding waste impacts, 83% of firms have not issued plans on preventing water pollution from nitrogen and phosphorous in animal waste, although 74% do now provide some disclosures. Further, 70% of firms in the index are considered to pose a risk through antibiotic waste, which can alter the bacterial communities that underpin ecosystems.
At least 60% of the producer firms still source soy from high-risk deforestation areas and have not yet set targets to reduce their exposures. FAIRR reported that only 8% of all assessed companies achieved a best practice score for their deforestation risk management for soy – and just 14% for cattle sourcing. Although 17 firms have made zero-deforestation commitments, six of these only come into effect after 2025.
FAIRR surveyed 60 of the world’s largest listed animal protein producers, covering meat, eggs, dairy and aquaculture, with a combined market capitalisation of US$360 billion. More than half the firms assessed were ranked high risk in terms of overall ESG performance, while firms running high risks in terms of deforestation, nutrient pollution and freshwater conservation included suppliers to global brands such as Nestle and McDonalds.
Although the index registered improvements in how assessed firms manage climate-related risks, including setting science-based targets for reducing greenhouse gas emissions, water and waste management are the two risk factors in which they performed worst, barely improving since 2018.
Threat to investors
Failures to avoid deforestation, pollution and water stress are seen as an increasing threat to investors in light of discussions at COP15 in Montreal over the next two weeks, which are likely to result in new commitments by signatories of the GBF.
“From rainforests to rivers, meat and dairy producers are failing to manage their biodiversity impacts,” said Jeremy Coller, Chair of FAIRR initiative and CIO of Coller Capital. “Investors are focused on material financial risks for companies, and a global agreement on nature at COP15 would see the intensive animal agriculture industry face increased regulatory, legal, tax and reputational risks.”
To achieve its objective of reversing biodiversity loss and protecting nature, the GBF includes targets that require substantial change to current practices, which could come at significant cost to farmers, producer firms and investors that are not already taking steps. Legislation is already being introduced in major jurisdictions, such as the European Union, which this week passed a law introducing stricter due diligence of major commodities to restrict deforestation.
Targets expected to be confirmed in the final draft of the GBF include Target 2, which protects freshwater and related ecosystems, Target 7, which aims to reduce pollution, partly by limiting nutrient loss, Target 8, which minimises climate change’s impact on biodiversity by tackling deforestation, and Target 15, which requires disclosure of nature-related risks and impacts by large corporates and financial institutions.
“With the likelihood of significant new regulation on the horizon, it is worrying to see FAIRR’s data reveal such large gaps in reporting… on risks from deforestation to nutrient pollution. These livestock companies must take urgent action to reassure investors that these material risks are being properly managed, and to ensure that future disclosures will satisfy investors’ own reporting requirements,” said Diane Roissard, Biodiversity Lead, La Banque Postale Asset Management.
A framework for generating nature-related disclosures by corporates and investors is being developed by the Taskforce on Nature-related Financial Disclosures (TNFD), which released its third iteration last month. The TNFD has borrowed some of its approach from the Task Force on Climate-related Financial Disclosures (TCFD), and it is expected that GBF signatories will mandate firms and investors to report in line with the TNFD’s proposals, similarly to how jurisdictions including the UK, Japan and New Zealand adopted TCFD recommendations into domestic legislation, as part of their commitment to the Paris Climate Agreement.
Pressure for change
As well as the GBF, a further pressure for change to the global food system is the confirmation at COP27 that the UN’s Food and Agriculture Organization will develop a roadmap for the food and agriculture sector to align to 1.5°C pathways by COP28.
“That was a major signal to the world that the agriculture sector is responsible for emissions and can’t be ignored,” said Thalia Vounaki, Senior Manager, Research and Engagements at FAIRR.
In September, the Science Based Targets initiative (SBTi) introduced its FLAG methodology to help firms in land-intensive sectors such as agriculture to set science-based net zero targets that include land-based emission reductions and removals.
“FLAG asks the agricultural sector to include a zero deforestation commitment target for 2025 in order for their science-based targets to be approved and validated. That’s a major shift. It’s important for that aspect of deforestation to be connected with climate change,” she added.
To accelerate change in the food and agriculture sector and reduce future risks, FAIRR says investors should step up engagement with investee firms across deforestation, waste and water. On deforestation, it recommends investors ask firms to set comprehensive targets across all high-risk regions and all the way along their supply chains, not just for their own farms. For waste, they should ask firms to disclose how they manage manure, including details of nutrient management plans. For water, FAIRR suggests investors ask firms to disclose whether they have farms in locations at high risk of water scarcity and how they manage those risks.
“Now that we’re seeing progress on the climate front, I hope we can now see more attention going into nature-related risks,” said Vounaki.
According to WBA’s Nature Benchmark, 97% of companies have yet to commit to a nature-positive trajectory by 2030, while less than 1% of assessed firms have undertaken the research needed to know how much their operations depend on nature. Further, just 14% of firms specified whether their operations were located in areas of high risk or value, ecologically, and fewer than 13% had made a clear commitment to adhere to Indigenous Peoples’ rights.
Vicky Sins, World Benchmarking Alliance’s Nature Transformation Lead, said companies needed to measure and report on their relationship with nature to support net zero goals but also to understand the changes they may need to make to their operations to support enhanced protection of nature in the aftermath of COP15.
“Businesses are set to face increasing accountability on nature – which will have a major positive impact. Some of the better performing companies in the benchmark, such as mining companies, are those under the most scrutiny,” she said.
The benchmark covered eight industry sectors – including metals and mining; construction and engineering; pharma and biotech; and apparel and footwear – and analysed the performance of global firms such as Rio Tinto, Bayer, Kering, Vale and Novartis.
Major firms in sectors with a poor sustainability track record were among the highest performers in the WBA benchmark, with four of the five highest ranked firms coming from the metals and mining industry.
WBA said only 5% of firms have committed to avoiding ecosystem conversion by tackling deforestation or protecting wetlands. Further, only 29% are reducing plastic use and waste in line with moves to curb pollution through air or water pollutants reduction or solid waste production.
The alliance intends to extend the exercise to 600 firms over 12 industries next year.