Farm animal welfare: revisiting the investment arguments

The horsemeat scandal has been a catalyst for greater investor interest.

While reporting on farm animal welfare remains in its infancy, there are signs that investor awareness of the business risks and opportunities is growing. In December 2013, we published the second Business Benchmark on Farm Animal Welfare (BBFAW) report. The Benchmark assessed how 70 global food companies – covering the three food industry subsectors, i.e. food retailers and wholesalers, restaurants and bars, and food producers – are managing and reporting on farm animal welfare. The most significant finding from the 2013 Benchmark was that the management of farm animal welfare remains relatively underdeveloped. While over 70% of the companies covered by the Benchmark acknowledged that farm animal welfare was a business issue, only 56% had published a formal farm animal welfare policy, just 39% described their board or senior management oversight of their approach to farm animal welfare, and 41% had published objectives and targets for farm animal welfare. The Benchmark did, however, identify some encouraging signs of progress. For example, the number of companies that had published a formal farm animal welfare policy increased from 46% to 56%, the number with published objectives and targets for farm animal welfare increased from 26% to 41%, and the number reporting on performance against these objectives and targets increased from 19 to 30%. The Benchmark also identified seven leadership companies.These were The Co-operative Food (UK), Coop Group (Switzerland), J Sainsbury, Marfrig, Marks & Spencer, Noble Foods and Unilever. The common characteristics of these companies are that they all have strong commitments to farm animal welfare, well developed management systems and processes, and a clear focus on farm animal welfare outcomes.
Are investors interested in farm animal welfare?
When we developed the Business Benchmark on Farm Animal Welfare, we identified investors as a key audience for the information that we would produce. It is probably fair to say that, at least relative to other ESG issues such as climate change or human rights, investors had paid relatively little explicit attention to farm animal welfare matters, other than where a particular company had hit the headlines for particularly poor or controversial practices. We also recognised that investors’ ability to engage effectively with companies on farm animal welfare and account for farm animal welfare in their investment processes was limited by their lack of familiarity with farm animal welfare issues, by a lack of corporate reporting on farm animal welfare, and by a lack of evaluation tools to enable the performance of companies to be assessed and benchmarked. Over the past two years, we have had extensive discussions with investors, primarily in Europe and North America, about their views on farm animal welfare. Over this

period, we have seen significant changes in investors’ interest in farm animal welfare. Last year’s horsemeat scandal played a catalytic role, resulting in investors paying more attention to the manner in which companies manage issues such as food provenance, traceability and quality in their supply chains. This interest has been reinforced by the growing awareness among investors of the wider business case arguments for companies to focus on farm animal welfare. These include regulatory and labelling requirements (in particular within the EU), consumer willingness to pay a premium for higher welfare farm produce, and media/NGO campaigns on the farm animal welfare practices of high profile retailers and restaurants.
How are investors approaching farm animal welfare as a business issue?
Our more recent discussions with investors suggest that an increasing number are considering how they can address farm animal welfare-related issues in their investment research and decision-making, and in their engagement with companies. In relation to investment research, investors are taking a variety of approaches. Some are focusing on the specific implications of farm animal welfare (i.e. the business risks and opportunities) for the companies in which they are invested. Others are looking at farm animal welfare as a value driver (often as part of wider sustainability assessments) within the food sector. Others are considering companies’ exposures to farm animal welfare-related issues and are using the Benchmark as a measure of how these companies are managing these issues.Others are using the Benchmark as a measure of the quality of companies’ risk management systems (e.g. as a measure of how effectively companies identify and manage existing and emerging issues) or of their supply chain processes more generally. In relation to engagement, a number of investors have signalled that they intend to use the Benchmark in their engagement with companies. To assist them with this, we have prepared short investor summaries for each company (available on request from the BBFAW Secretariat), indicating the company’s overall performance against its sector peers, identifying its strengths and weaknesses, and making recommendations for improvements in relation to reporting and performance. While we acknowledge that farm animal welfare remains a relatively novel issue for investors, we see clear signs that investors are starting to acknowledge and take account of the business risks presented by farm animal welfare, and to encourage companies to improve their management of farm animal welfare-related risks and opportunities. Even in the period since the first Benchmark report was released in December 2012, these efforts have played an important role in encouraging companies to improve their reporting on farm animal welfare and to adopt appropriate management practices and processes. We are optimistic that, as more investors start to focus on farm animal welfare, this will increase the incentives for companies to improve their practices and processes and, in turn, contribute to significant improvements in farm animal welfare across the entire food industry.

Nicky Amos is the Programme Director and Dr Rory Sullivan is the Expert Adviser to the Business Benchmark on Farm Animal Welfare.

Link to the Business Benchmark on Farm Animal Welfare: 2013 Report

For copies of company-specific summaries, contact Nicky Amos