Commentary

How ESG is Stirring up the Food Sector

Jeremy Coller, Chair of FAIRR, considers the progress to date – and the challenges to come – after five years of exposing investment risks in the food system.

Five years ago, there was no Beyond Meat or Impossible Burger in the meat aisle or available at a drive-thru; most people had never heard of a zoonotic disease. Meanwhile, my position as an animal rights activist meant I was constantly seeking out appropriate and relevant links to the investment space.

I can close my eyes and vividly remember the first conversation with a handful of colleagues in the ESG community and friends five years ago that led to the creation of FAIRR.

On that day we sketched out an argument: educate institutional investors about why factory farming is an investment risk hidden in plain sight – and if we do it well, we’ll change the investor conversation on animal agriculture forever. I believed that if we could build a network of institutional investors aligned on this issue, it would become a force for better returns, delivered in a more sustainable way.

Today, our network extends to institutional investors managing more than US$33 trillion – all bringing clear thinking to bear on their investment decision making with an ESG outlook, thanks significantly to the original research FAIRR undertakes.

Responsible investors are now confidently raising their voices on ESG issues in the food system from labour to climate risk – and driving real change. This shows how far we’ve come in the last five years.

A dangerous blind spot at the heart of our food system

Five years ago, there was a dangerous blind spot when it came to the understanding of ESG risks in the meat sector. This was a time when a New York Times article on ‘Why Industrial Farms are Good for the Environment’ hailed factory farms as “gentler on the environment than at any time in history” and global meat consumption was soaring.

However, when it came to the mass animal protein production machine behind the steaks and burgers on our supermarket shelves, I believed there were four ESG factors hiding in plain sight.

Firstly, factory farming contributes to climate change: 14.5% of anthropogenic greenhouse gas emissions come from livestock supply chains.

Secondly, it threatens human health through increased drug resistance, contributing to the spread of zoonotic disease. Roughly 80% of all antibiotics in the US are used on farm animals and FAIRR research shows 70% of animal protein producers are at ‘high risk’ of fostering a future pandemic.

Next, animal production endangers food security. Over 3 billion people could be fed with the crops we currently devote to feeding livestock, and meat presents an inefficient solution to solving growing global protein demand.

And finally, it consumes our planet’s natural resources at an unsustainable rate. Beef and soy are the biggest drivers of deforestation in the Amazon and it takes the equivalent of 50 bathtubs of water to produce a single steak.

It seemed clear to me then that intensive animal agriculture would become a stranded asset, making the sector a bad long-term investment bet. I’ve never been more convinced of this fact than I am today. And I’ve never been more convinced of the need for continued ESG research, analysis and data to help investors understand the unique challenges presented by companies in this sector.

Awakening the ESG community: moving the marker on good business

Back in 2015, I was making the case for ESG as a lens through which to examine the meat and dairy sector and make informed investment decisions about the allocation of capital.

Now, the value of global ESG data-driven assets has almost doubled in four years to hit US$40 trillion.

When we sketched out the argument for FAIRR, there was a vast knowledge gap when it came to material risks in Big Meat. Investors had no way of weeding out the innovators from the idle. Today, ESG research providers and in-house analysts are looking carefully at risks in food supply chains from deforestation to water scarcity

FAIRR has led that charge – our flagship Coller FAIRR Index provides 32,000 data points on 100 companies and hands investors a gold standard in ESG data that is helping them engage to drive lasting change in the food sector.

Five years ago, zero out of 20 leading global restaurant chains like McDonald’s and KFC had policies to reduce antibiotics in their supply chains. Today, with an EU ban on preventative antibiotics in farming coming into force in 2022, all 20 of those chains have policies to reduce antibiotics.

When we first engaged on ‘protein diversity’, no big retailers or food producers had much to report. Now 10 out of 25 including Tesco and Nestle have dedicated teams for plant-based products. And when FAIRR began, no protein producers had made climate commitments. Today five meat and dairy companies in FAIRR’s Index have ambitious science-based targets to reduce their emissions. It’s clear that ESG is moving the marker on good business.

Five years of FAIRR: ESG can change the world

As I reflect on five years of FAIRR, it’s clear that ESG is no longer a trend – I think it has the power to change the world. FAIRR’s investor members, who represent hundreds of millions of pensioners, have a clearer understanding of the risks involved in factory farming thanks to FAIRR. And that awareness is shifting markets.

However, my pride at what FAIRR has achieved is tempered with the recognition of how much more is still to be done.

We still need to see the widespread adoption of science-based-targets across the food sector, commitments to deforestation-free supply chains, strengthened biosecurity measures and better management of labour risks.

And we need to double down on addressing the blind spot that continues to exist in terms of those ESG risks inherent in the animal protein production industries.

That is FAIRR’s commitment and mine as its founder.

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