From farmers to financiers: investors have begun to see farm animal welfare as a significant risk
By Leah Garces, USA Executive Director for Compassion in World Farming —
Earlier last month in New York, a meeting took place that would have seemed implausible only a few years ago. High in a skyscraper on Third Avenue, influential investment institutions such as Bank of America, Merrill Lynch, Morgan Stanley and Boston Common Asset Management joined with NGOs and leading food companies to discuss how issues such as the close confinement of farm animals or transparency in our food system might impact the value of their portfolios.
The roundtable event was organized by the Business Benchmark on Farm Animal Welfare (BBFAW), the leading global measure of company performance on farm animal welfare, and its partners Compassion in World Farming, World Animal Protection and Coller Capital. Attendees also included Tyson Foods, Compass Group USA, Nestlé and Sodexo.
BBFAW ranks how 90 of the world’s leading food companies are managing and reporting their farm animal welfare practices. Before it came along in 2012, it’s fair to say that animal welfare was not on the agenda of global investors, other than perhaps featuring on negative screening lists for some specialist ethical investors. By and large, big mainstream investors paid little or no attention to it. Fast forward to 2016 however and a coalition of 18 major investors from the UK, the USA, Australia, the Netherlands, France and Canada have joined forces to engage with companies around their performance on the BBFAW. We’ve also seen initiatives such as the Farm Animal Investment Risk & Return (FAIRR) Initiative attract investors with over $750bn of assets under management.
So what is now driving large investors to care about something normally seen as one for the ‘NGO world’?
Farm standards as a business risk
The main driver undoubtedly is to do with risk management. Most investors will have exposure to food companies and they recognize that food and farming companies who do not monitor and manage farm animal welfare issues in their supply chain are less likely to succeed over time. In recent years we’ve seen health pandemics such as the outbreak of avian flu and farm pollution not only damage human health, the environment, and farm animals, but also company value.
For example, research by the FAIRR Initiative showed how the outbreak of H1N1 swine flu in 2009 led to over 14,000 deaths and saw companies such as US-based Smithfield Foods experience a dramatic 12.8% decline in share price when swine flu was reported in humans.
Improving standards as a flag for investors
Animal welfare standards also present investors with an opportunity to improve the companies they own too. The Business Benchmark on Farm Animal Welfare is now in its fifth year and the proportion of companies with a published farm animal welfare policy has increased from 46% in 2012 to 69% in 2015, while the proportion with published objectives and targets for farm animal welfare has increased from 26% in 2012 to 54% in 2015.
Many investors see animal welfare as a proxy measure to help judge management quality. Investors are now clearly seeing a correlation between food companies with a good grasp of animal welfare issues and those companies that understand how to manage a complex supply chain.
It is these sorts of hardnosed business instincts that are getting financiers to look much more closely at companies whose business involves farm animals. We should welcome that and hope that this month’s roundtable in New York is the first of many.
Leah Garces is USA Executive Director for Compassion in World Farming, the leading farm animal welfare non-profit, with a mission to end factory farming.