Fast food must urgently address environmental investment risks

FAIRR and Ceres launch new shareholder initiative

The production of meat, dairy and other livestock products is responsible for around 20% of global water use, and nearly a quarter of all man-made greenhouse gas emissions. Yet, 68% of the sector leaders covered by the Coller FAIRR Index do not have any targets for direct or indirect emissions. And 82% of these companies do not impose any specific requirements for suppliers on water use and management.
As a significant buyer and seller of meat and dairy products, the multi-billion-dollar global quick service restaurant sector, commonly known as ‘fast food’, is exposed to significant operational and reputational damage from the underwhelming response of the livestock sector to these risks.
That’s why Ceres and FAIRR will be bringing investors together in a new shareholder engagement with six large fast food companies to set meaningful targets for reducing the environmental footprint of their carbon- and water-intensive meat and dairy products.

Animal agriculture faces climate and water risks

The livestock sector today is increasingly exposed to a broad array of ESG risks that pose a threat to consumer-facing food companies, investor portfolios, and consumers themselves.
In its most recent report, the Intergovernmental Panel on Climate Change (IPCC) identified livestock production as a significant contributor to breaching the 2°C temperature threshold. The sector is also highly vulnerable to climate change impacts due to feed price volatility, lower forage quality and lower animal productivity.

In the US, 46% of all irrigation water goes to the production of crops for animal feed

The sector’s extensive use of water and its growing impact on water quality is another cause for concern. Per gram of protein, the water footprint of animal products ranges from 1.5 to six times that of pulses, with meat from beef cattle being the most intensive. Most of this water use is linked to the production of feed; in the US, for example, 46% of all irrigation water goes to the production of crops for animal feed, most of which are grown in areas of high water stress.
Fertiliser run-off from growing crops to feed animals as well as manure and wastewater from farm and slaughtering facilities present significant water pollution risks. Yet the sector has been slow to address these risks: the meat sector was the lowest performing industry in an analysis of water management practices by Ceres in 2017.In 2018, a report by the Environmental Integrity Project found that three quarters of large US meat processing plants violated their pollution control permits, with “some dumping as much nitrogen pollution as small cities.”
These issues are increasing the financial and regulatory burdens on the livestock sector. In North Carolina, one of the largest hog and poultry producing states in the US, the recent Hurricane Florence resulted in 33 manure lagoons – storage pits for hog manure – overflowing and mixing with floodwaters. One of the world’s largest hog producers, Smithfield Foods, is now facing nuisance lawsuits from over 500 North Carolina residents over their waste management practices. Juries have awarded over $500m in damages in three lawsuits so far. (Smithfield has recently announced plans to cover hog lagoons in North Carolina, Virginia and Utah.)

Downstream companies must act to manage risks

The business case for consumer-facing downstream companies is clear: they must work with their suppliers to manage these risks.
The fast food industry has an important role to play in the global food system – just in the US, on any given day, more than 80 million adults consume fast food. As some of the largest buyers of meat and dairy, these six firms have a significant environmental footprint. Improving the stewardship of their meat and dairy supply chains will have a catalytic impact on the high-emitting meat and dairy sector, improve supply chain resiliency and avoid dangerous levels of climate change.
The Ceres/FAIRR engagement will ask six global restaurant chains to set, and report on, a clear strategy for reducing the greenhouse gas emissions and freshwater impacts of their meat and dairy supply chains. The engagement will also ask companies to publish science-based targets and commit to publicly disclosing progress every year.
According to IPCC’s recent report, dietary shifts (toward less animal protein diets) will be key to hold warming below 2°C. This is why, in line with the Task Force on Climate-related Financial Disclosures, we are asking companies to commit to undertaking a climate-related scenario analysis to demonstrate the resiliency of their business models to investors and other stakeholders.
The Ceres/FAIRR engagement is open to all institutional investors for sign on until 14 December 2018. Contact FAIRR or Ceres to learn more.

Aarti Ramachandran is Head of Research and Corporate Engagement at FAIRR while Brooke Barton is Senior Director for the Food and Water programme at Ceres.