Deliveroo’s sustainability pledges fail to convince doubters

Food delivery business Deliveroo has published its first sustainability strategy, but investors who avoided the company at its IPO last year have told Responsible Investor they still have concerns about the company’s management of ESG risks. 

Deliveroo listed on the London Stock Exchange in March last year and the stock price has performed poorly. As of Friday, the share price was 70 percent below what it was at IPO, a fact acknowledged by founder and CEO Will Shu in a letter he penned in the firm’s first annual report. Published last week, the document also contained a section dedicated to the company’s work relating to sustainability. 

Alongside announcing six areas of focus centred on the UN Sustainable Development Goals, Deliveroo has committed to giving a 10 percent ESG weighting in the annual bonuses for executive directors; these can up to 180 percent of salary. 

The exact details of the ESG metrics were not disclosed, as “they are considered to be commercially sensitive”, the report said. “Full disclosure will be published in the FY2022 Directors’ Remuneration Report.” 

Alongside tying ESG to bonuses, Deliveroo announced its intention for its “Performance Share Plan award” in the financial year of 2023 to also include an ESG performance measure that spans a multi-year performance period.  

“We did consider including ESG-related performance measures within the FY2022 PSP award but determined it to be premature, as it is important that any long-term targets align to our strategy,” the report noted. 

Ketan Patel, fund manager at EdenTree Investment Management, an investor that decided not to invest in Deliveroo at its IPO last year, commended Deliveroo for publishing a sustainability strategy and setting out “a materiality matrix built on six key pillars referencing the UN Sustainable Development Goal”. 

“However,” continued Patel, “the low 10 percent weighting to ESG in the annual bonus falls short, given how high profile the backlash at the time of listing where prominent ESG investors, including EdenTree, highlighted the asymmetrical relationship between capital and labour.” 

For James D’ath, director of ESG client solutions at Edison Group, an investment research and advisory company, the statement raises more questions than answers, specifically around ESG performance measurement. “It is hard to identify what these measures are or indeed how material (beyond the 10 percent) they will be without further detail,” he said. 

Deliveroo’s approach puts it in between two of its peers when it comes to ESG-linked compensation programmes. JustEat has no remuneration targets linked to ESG indicators, a spokesperson for the company told RI.

On the other hand, Uber – parent company of Uber Eats – links 20 percent of its performance-based equity and annual incentive programmes to various ESG measures, the company told RI.

Cristina Figaredo, research and engagement manager of the $50 trillion-backed FAIRR network, praised Deliveroo for putting work security among its six pillars. “Much improvement is still required, but we are starting to see progress in the wider food sector. Deliveroo seems to be the latest food company responding to this pressure.” 

Philip Webster, director of global equities at BMO Global Asset Management, told RI that despite progress being made, the London-based investor had not changed its position on the company.

“Whilst we welcome Deliveroo publishing its first sustainability strategy, my reason to not invest in the company relates to worker rights,” said Webster. “We have long believed that strong labour standards and transparency can have a positive impact on corporate performance and we still believe there are inherent risks in the business model Deliveroo runs.” 

CCLA, another organisation that avoided the IPO, also told RI it has no plans to invest. James Corah, head of sustainability at CCLA, explained: “We welcome the steps that Deliveroo has set out to increase their sustainability. However, whilst including ESG criteria in executive remuneration is an important step, it fails to recognise the structural flaws in the business. From precarious employment models to poor corporate governance, the business needs to show that it is serious about reform, let alone profitability, for it to be attractive to our clients.” 

Edentree’s Patel criticised the business model as being “characterised as a race to the bottom with employees in the main treated as disposable assets, which is the very antithesis of a sustainable business model”. 

Responding to the investor’s comments, a spokesperson for Deliveroo told RI the company is “committed to sustainability and high standards of corporate governance. We believe we are well placed to help consumer demand for more sustainable practices and to drive change among our partners. We have set out a plan to support our marketplace, be a part of the communities we serve and take action to drive sustainability”. 

The spokesperson continued: “Deliveroo offers riders the work they tell us they want, which provides flexibility, security and attractive earnings. Riders are self-employed and can decide for themselves when and where to work. We also provide all riders with free insurance and many with support if they are unwell and cannot work or become new parents. We pride ourselves on understanding what matters most to the 180,000 riders who choose to work with us. At the end of 2021, rider satisfaction was 85 percent and attraction and retention rates remained robust, despite rising job vacancies across economies. We believe this is a testament to the strength of the rider proposition.”