A new food index analyzed 60 global intensive farming companies on health, environmental, and social issues and categorized 36 of them as “high risk.” Those large companies worth $152 billion include major suppliers to fast food chains, according to the Coller FAIRR Protein Producer Index published today.
The Farm Animal Investment Risk & Return (FAIRR) Initiative is a $5.9 trillion investor network that seeks to raise awareness of the material impacts factory farming and poor animal welfare can have on investment portfolios.
FAIRR analyzed major protein producers on their management and disclosure of nine ESG risk factors: GHG emissions, deforestation and biodiversity loss, water scarcity and water use, antibiotics, waste and water pollution, working conditions, food safety, sustainable proteins, and animal welfare. These factors were identified using previous FAIRR assessment, top-down analysis, and bottom-up analysis.
The Index shows that two-thirds of the companies are either not managing critical risks or are failing to disclose basic information. Major suppliers to McDonalds and KFC, including Chinese firm Fujian Sunner and Indian firm Venky’s, are among the “high risk” companies, FAIRR says. Sanderson Farms, the third largest poultry producer in the United States, got a low ranking, as did Cal-Maine Foods and Guangdong Wens.
On the other end of the spectrum, the Index identified best practices in greenhouse gas emissions and alternative proteins, ranking Norwegian firm Marine Harvest at the top for approaches such as tracking antibiotics usage and only using them when fish are at risk. FAIRR also highlighted Tyson Foods for launching Tyson Ventures, a $150 million venture capital fund for developing plant-based meats and other sustainable food products.
To find out more about the new index, we connected with Aarti Ramachandran, FAIRR’s head of research and corporate engagement.
What was the impetus for the Coller FAIRR Protein Producer Index Report?
Investors need environmental, social, and governance (ESG) data and transparency to make prudent investment decisions, yet this information is lacking in the meat, fish and dairy sector. This is the first index to help investors bridge that knowledge gap.
Most investors are exposed to the food sector and as megatrends like climate change, antibiotic resistance, and food technology radically reshape the way we produce and consume meat, fish, and dairy, the Coller FAIRR index will help institutional capital identify both best-in-class companies and potential stranded assets in the food sector.
How were the risk factors chosen?
For this index we consulted with a range of stakeholders including investor groups, NGOs, and companies. The nine risk factors chosen are representative of the key sustainability issues facing the animal protein production industry.
Were the results surprising to you?
The number of companies that were not meeting basic management and disclosure levels in areas like antibiotics stewardship and GHG emissions was surprising. Seventy-seven percent of Index companies were graded as high risk on antibiotics and 72% on GHG emissions. These high numbers were a surprise as these are critical business risks to these companies, especially as regulators, investors, and other companies increasingly engage on these issues.
When a company in the index has “inadequate” disclosure for a risk factor, what does that mean?
It generally means that they show no evidence of having a policy or processes in place to manage the issue. For example, in the case of inadequate disclosure of GHG emissions, they are not disclosing against the three KPIs for this criteria, including reporting targets for emissions reduction, or levels of emissions intensity. While this was not a scored indicator, none of the companies we assessed has developed an internal price on carbon. This lags behind their peers in the broader food industry, who have been using an internal price on carbon to guide their business decisions for a few years now.
What are the biggest challenges currently facing the lowest ranking companies?
All the sustainability challenges analyzed by this Index are complex ones that require long-term solutions. In all cases the first step for low ranking companies is to improve disclosure and to make sure these are issues are being measured so that they can be managed. From here, there is then a crucial step for low ranking companies to learn from the best practice and innovation identified in this report, and to try to emulate this within their own business models.
Where do you see the global protein production industry heading in the future?
Both regulators and consumers are displaying broad trends towards requiring healthier food and food that is produced in a more sustainable way — generating less emissions, less water use, and reducing biodiversity loss.
We have started to see traditional meat and fish companies like Tyson Foods and Cargill diversifying into alternative proteins, for example with Tyson buying a stake in Beyond Meat, and this could well be the start of an industry-wide trend.