Incorporating welfare into investors’ wider environmental strategies and engagements is challenging but necessary, says Robert Black, Manager, Responsible Investment, Chronos Sustainability.
Farm animal welfare is a key, though often neglected, issue for those concerned about developing sustainable food systems and for investors in the food sector. It is a complex issue, illustrative of the challenges investors encounter in attempting to engage on and integrate the myriad ESG topics they are faced with.
A sustainability issue in its own right, farm animal welfare is considered niche in ESG terms, given its sector-specific nature and broad perception as a non-systemic risk. However, it is also an issue that is closely connected, and sometimes in conflict, with investors’ goals for driving outcomes on wider social and environmental topics such as climate change, biodiversity, and health. Investors in the food sector, or those with an eye on protein supply chains, are increasingly recognising it as a material investment concern. Farm animal welfare can be a source of risk (e.g. food recalls, media scandals) but can also provide potential opportunities connected with adopting higher welfare standards which can support product differentiation, foster innovation and forge entry to new markets.
What farm animal welfare has on its side as an ESG topic is that global standards and expectations of good practice and performance are well defined, making the specifics of what needs to be achieved clear to investors and companies.
Putting the spotlight on corporate practice
The Business Benchmark on Farm Animal Welfare (BBFAW) evaluates 150 of the globally most significant food companies. Now in its tenth year, it has seen significant improvement in the way that companies are incorporating farm animal welfare into their management and disclosure practices. The 2021 Benchmark, released this year, revealed that of the 150 companies evaluated, 134 (89%) now acknowledge farm animal welfare as a business issue (compared to 71% of the 68 companies evaluated in 2012). Further, 122 companies (81%) have formal policies on farm animal welfare (compared to 46% of companies in 2012), and 119 companies (79%) have published formal objectives and targets for animal welfare (compared to 26% of companies in 2012). The significant improvement made in companies’ governance of farm animal welfare is clear to see. Despite this, almost one in five food companies (28 of the 150 companies) have not published a formal farm animal welfare policy.
As is the case in many other maturing ESG topics, farm animal welfare finds itself with improving disclosure on corporate management systems, but lacking disclosure on performance and thereby raising stakeholder concerns over the extent to which real world outcomes are occurring. Moreover, when data are reported, it is often lacking in terms of scope.
The 2021 BBFAW Benchmark reported an average overall score of 12% for its 10 performance impact questions. The lack of emphasis on performance was further highlighted elsewhere in the recent Benchmark. For example, whilst 100 companies (67%) report some data on the proportion of animals (across laying hens, broiler chickens, pigs and dairy cattle) in their global supply that is free from close confinement, much of this data is only partially reported and is limited by geography or product type (e.g. fresh meat). The most widely reported performance impact data relates to laying hens where 88 companies (59%) report some data, yet, even here, only 23 companies report that 60% or more of the laying hens in their global supply chains are cage-free. What this tells us is that whilst a significant proportion of companies – 119 in total (or 79%) – have published formal improvement objectives for farm animal welfare, many of these companies are not reporting improved welfare for animals on the ground.
Farm animal welfare and sustainable food systems
Beyond the specifics of company-level activity, farm animal welfare is a critical dimension of other environmental and social challenges investors are seeking to manage. And one that needs to be evaluated when setting goals or strategy on these other topics.
Food production, and specifically animals raised in intensive systems, have significant impacts on climate change and biodiversity through greenhouse gas (GHG) emissions and decisions on land use. Farm animal welfare practices can also impact human health through antibiotic use and worker conditions. Further, there are instances where legislation designed to improve farm animal welfare conditions has been subject to lobbying misaligned with stated corporate beliefs and public commitments, an increasingly prominent governance concern.
The relationship between climate change and farm animal welfare is illustrative of the holistic, and potentially conflicting, nature of many ESG issues investors face. To manage climate successfully and sustainably in animal food production, farm animal welfare must be addressed. There are arguments that some intensive farming systems produce lower GHG emissions than higher welfare systems and are therefore more climate-friendly, however, an oversimplified focus on GHG emissions as a climate management metric would not give due consideration to the other climate and environmental impacts of these systems and may lead to an increase in lower welfare, intensive systems.
The alternative protein industry is an area of focus for developing sustainable food systems and another space where to be successful it is critical that consideration is given to the farm animal welfare implications. Increases in consumption of alternative protein could lead to lower demand for farm animals and less necessity for intensive farming systems. But it is as yet unknown how farm animal welfare performance would fare as companies transitioned to lower animal numbers. Or whether lower overall animal numbers in the food system would result in increased consumer willingness to pay for higher welfare products. Therefore, any strategy to reduce demand for animal protein must ensure farm animal welfare remains a critical focus for those animals that remain in the food system, and indeed may remain in intensive systems.
Overcoming conceptual challenges
Farm animal welfare is an evolving topic as knowledge, expectations, and corporate reporting mature, and is a significant sustainability issue for companies and for investors to manage. It faces conceptual challenges which ESG investors will be all too familiar with. Finding the right balance of measurement, disclosure, collaboration and engagement will be key in the dual objectives of driving farm animal welfare improvements and building a wider understanding of its place, and materiality, within sustainable food systems.