The business benchmark on farm animal welfare: the investor agenda

In February 2013, the Business Benchmark on Farm Animal Welfare released a report benchmarking the performance of 68 of the world’s largest food companies on their approach to farm animal welfare. While the research identified a number of clear leaders and pockets of best practice, the main conclusion was that companies’ approaches lag significantly behind their approaches to other corporate responsibility issues. Fewer than half of those assessed have a published policy on the subject. Farm animal welfare is clearly a novel issue for investors and, other than high profile controversies such as the 2008 shareholder resolution relating to Tesco’s poultry welfare practices, has primarily been seen as an issue for ethical investors. The Business Benchmark raises the question of whether farm animal welfare is an issue that mainstream investors should be concerned about and, if yes, what is it that investors should do. The first point to be made is that farm animal welfare is an important issue for all food sector companies, be they retailers, service companies, manufacturers, processors or producers. There are various reasons:
• The tightening of farm animal welfare-related regulation (in particular within the EU);
• Growing consumer awareness of, and concern about, animal welfare issues and the provenance of food in the supply chain;
• The need to respond to customer expectations and demands (e.g. the pressure on food producers and manufacturers to meet the corporate responsibility (CR) standards of the retailers, and, increasingly, the restaurants and bars that they supply);
• The risks to brand and reputation of being ‘named and shamed’ in high profile media campaigns or food scares/scandals over alleged poor farm animal welfare practices;
• The potential for companies to improve their operational efficiency, margins and profits through improved productivity and reduced wastage; and• The opportunity to access new markets and customers and to grow existing markets as a result of adopting higher welfare standards ahead of competitors (i.e. first mover advantage).
Of course, the significance of farm animal welfare differs between companies, with its importance to individual companies depending on their markets, their market position, their clients, the proportion of their businesses that utilise animal products, their brand proposition, and so forth. This is reflected in the way companies approach farm animal welfare. Some have identified farm animal welfare as integral to their strategic vision and are actively managing objectives aimed at delivering on these aims; others see farm animal welfare as a business risk but not necessarily as a driver of long-term business value; and some do not see farm animal welfare as a particularly important issue for their business. It is doubtful that any investor would argue against the proposition that companies should seek to manage farm animal welfare so as to minimise downside risks and maximise relevant opportunities. The question for investors is whether farm animal welfare is a material driver of investment returns. The Business Benchmark opens up two important issues for investors. The first, and most significant, is that it suggests that many companies are not effectively managing the issue, and/or they are not effectively reporting on what they are doing and/or they do not have the data and information necessary to effectively reassure stakeholders on their management approach. That is, even if a company’s exposure is modest, the fact that the issue does not seem to be effectively managed is a signal that the risk may be greater than might otherwise be expected.
The second is that the benchmark signals a greater stakeholder focus on farm animal welfare across the board, suggesting that it is moving from being about product choice (e.g. offering higher welfare products to a niche segment of consumers that are concerned about farm animal welfare) to being about how companies manage farm animal welfare as a core business issue.

The central conclusion for investors is that the risks to companies of not effectively managing and not effectively reporting on farm animal welfare are likely to increase. There is much that investors can do to mitigate these risks through, a) ensuring that all of the companies that they invest in are aware of the Benchmark and associated guidance material (e.g. on reporting and on management systems) produced by the Business Benchmark on Farm Animal Welfare, b) encouraging these companies to develop their management systems and processes to ensure the risks and opportunities presented by farm animal welfare are effectively managed, and, c) encouraging these companies to improve their reporting on farm animal welfare.The Business Benchmark will be repeated annually, with the next benchmark report scheduled to be published by the end of 2013. Over time, the Benchmark will enable investors to much more clearly delineate between those companies that are using farm animal welfare as a source of competitive advantage, those that are effectively managing the risks to the business, and those that are not taking effective action on this issue. The Benchmark will also allow investors to draw increasingly robust conclusions about the quality of companies’ management (both of farm animal welfare specifically and of social and environmental issues more generally).

Nicky Amos is the Programme Director of the Business Benchmark on Farm Animal Welfare.

The 2012 Business Benchmark report can be found here

For more information on the Business Benchmark on Farm Animal Welfare and to sign up to receive regular briefings and updates, please visit: Site link