We recently convened a workshop in London to reflect on how the Business Benchmark on Farm Animal Welfare (BBFAW) is influencing corporate practice. The meeting, attended by over 40 major food companies and investors, provided an opportunity to hear from the likes of Tesco, Cranswick and Compass Group about how they are responding to the Benchmark and to investor engagement more generally. While focused on a specific issue (farm animal welfare) and a specific engagement tool (the Business Benchmark on Farm Animal Welfare), the meeting provided some important insights into the way that companies perceive and respond to investor engagement.
A key point of consensus was that investor engagement can deliver substantial change in company practices and performance. However, the company participants were critical of the somewhat random nature of some investor engagement; they commented that investors’ agendas seem to constantly change, that much of the engagement they see is neither consistent nor structured, and that engagement appears to be something that investors do just ‘now and then’. One example cited was the pressure from investors for companies to set targets on a range of social and environmental issues, but subsequently paying little or no attention to the quality of these targets or how companies were performing against these targets commitments.
The companies explained that, for investor engagement to be taken seriously and to deliver change, this engagement needs to set out clear and realistic expectations of companies, and these expectations need to be consistently articulated and emphasised over time. They also observed that the influence of engagement is reinforced when investors use the results in their investment research and decision-making and when the engagement aligns with other pressures such as public rankings, NGO pressure or client and consumer demands. That is, engagement is not the ‘one and only’ strategy for influencing corporate practice, but rather one of multiple factors that influence corporate strategy companies.One of the criticisms made of investor engagement was that this engagement often seems removed from the realities of operating a business, with investors pressing companies to take action over timeframes that are either not realistic or not appropriate. The reality is that, on any issue, companies can move at different rates. For instance, it can typically take 12-18 months for companies to adopt a policy, a further 12-24 months to ensure that policy is effectively implemented and monitored and a further 12 months to have confidence in organisational systems, processes and monitoring before they can consider public reporting on performance.
While the companies acknowledged peer pressure as important, they noted that peer pressure is most effective when the comparators are relevant and appropriate by companies. For example, in the case of the Business Benchmark on Farm Animal Welfare, companies have welcomed the breaking down of the food sector into retailers, restaurants and bars, and producers. However, companies in restaurants and bars sector (which covers contract caterers and service companies, quick service restaurants and bars and hotel groups) have argued that this sub-sector needs to be further divided into restaurants and bars (who tend to have a high street presence and/or a consumer brand profile), and into contractor caterers/food service companies (who tend not to have a high street presence and/or consumer brand profile).
Engagement also needs to acknowledge the practical realities of modern business. Two issues were highlighted by company participants. The first is that companies may be unwilling to report on certain aspects of their impacts or performance. For example, many food companies have expressed concern about disclosing information that could be used as the basis for NGO campaigns or media exposés; examples include issues such as beak trimming or castration of male pigs, where there is limited public understanding of animal husbandry practices. More generally, in the absence of
universal reporting requirements, companies are reluctant to report information out of context, as this might lead to consumers or the media suggesting that their performance is worse than that of companies who choose to be less transparent about their performance.
The second issue highlighted is that while it is relatively straightforward to encourage companies to adopt policies, implement systems and report, it is far more difficult to change performance. In the food industry in particular, which operates using notoriously low margins, companies are unwilling to invest in areas where the economic benefits are not clear cut. That is, these companies need clear incentives – whether these are direct financial benefits from the investment being made or explicit rewards from customers or clients such as through a willingness to pay more for higher standards of goods or through improved brand loyalty – in order to take action.So what conclusions can we draw from this discussion? In essence, benchmarks and investor engagement can play important roles in driving changes in corporate practice, but these efforts take time to deliver and are often most effective in situations where the business case for action aligns with investor demand. Put another way, benchmarks and investor engagement provide remedy and they can even be instrumental in driving corporate action, but they only form part of the solution and should, therefore, be used alongside other drivers for change.
Rory Sullivan is Expert Adviser to the Business Benchmark on Farm Animal Welfare (BBFAW) and Nicky Amos is the Programme Director of the BBFAW. The 2016 Business Benchmark on Farm Animal Welfare can be downloaded from this link.
The Business Benchmark on Farm Animal Welfare is funded by Coller Capital, Compassion in World Farming and World Animal Protection.