Farm Animal Welfare: Reframing materiality for investors and companies?

The third annual Business Benchmark on Farm Animal Welfare

The third annual Business Benchmark on Farm Animal Welfare (BBFAW), published in February 2015, assessed how 80 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 Benchmark showed that there has been encouraging progress over the past two years, with notable increases in the number of companies that have adopted formal policies and set objectives and targets. In 10 of the 80 companies covered by the Benchmark, farm animal welfare now appears to be well integrated into business strategies. Despite these encouraging findings, 40 out of the 80 companies provide little or no information on their approach to farm animal welfare.
Link to the benchmark report to see how companies performed

Are investors using the Benchmark?

Our discussions with investors over the past year suggest that an increasing number are considering farm animal welfare-related issues in their investment research and decision-making. Some are focusing on the specific implications (i.e. the business risks and opportunities) for the companies in which they are invested. 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 used the Benchmark to prioritise companies for engagement, and to identify specific subjects for discussion with companies, whether on the specific subject of farm animal welfare or as part of wider discussions on sustainability strategy and governance.

What has driven investor interest?

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 relative to issues such as climate change or human rights, investors had paid relatively little attention to farm animal welfare. There were various reasons: the perception that animal welfare is primarily an ethical issue, a general lack of investor familiarity with theissue, a lack of credible information on performance, and an absence of tools to assess and benchmark the relative performance of companies. This has changed. The 2012 horsemeat scandal resulted 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 has been reinforced by the growing awareness of the 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 practices of high profile retailers and restaurants.

The Benchmark has also played an important role. Not only has it raised the profile of farm animal welfare in the business community but it has also encouraged companies to provide more information and it has provided a credible framework for assessing company performance.

While we are encouraged by the progress to date, we are very aware that many investors have yet to take significant account of farm animal welfare in their investment processes or in their engagement with companies. Farm animal welfare continues to be seen as an ethical rather than a mainstream investment issue. As a result, further work is needed both to set out a compelling business case for action, and to convince mainstream investors that farm animal welfare is an important issue for them to focus on.

Furthermore, there is relatively little demand (from clients, from beneficiaries) for investment organisations to explicitly consider farm animal welfare in their investment processes. A number of investors have told us that they would look at farm animal welfare in their investment research and their engagement if they saw demand from their clients to do so.

Expressed another way, encouraging investors to take action on farm animal welfare is not just a matter of providing data and information, and assuming that investors will then automatically use this information. Given that many investors do not see farm animal welfare as a financially material issue, they are unlikely to focus explicit attention on farm animal welfare unless there is demand from their clients. This points to the need to create demand for investment research on farm animal welfare, for investors to use their influence with the companies in which they are invested, and for investors to consider farm animal welfare in their investment research and decision-making processes.

Wider reflections on materiality

While the primary focus of this article is on farm animal welfare, it also points to wider conclusions about materiality. Our experience with the Business Benchmark on Farm Animal Welfare shows that, far from being fixed, investors’ views on materiality can and do change. Investors views do change in response to changes in the wider business environment; when costs, asset values and risk profiles change, these changes are taken into account by investors. Views change as companies start to talk more about specific issues and as tools such as benchmarks are developed. Perhaps most significantly views can be changed by civil society organisations.

To do this requires civil society organisations to recognise and harness the levers that they have available to them.These include traditional campaigning strategies as well as developing the tools and messages that resonate with investors. But it also requires them to think about how they use their influence as investors and how they use the influence that their members can bring to bear to stimulate change through the entire investment system. Put another way, issues that are seen as important by clients and by beneficiaries are more likely to be seen as important by investors.

The 2014 Business Benchmark on Farm Animal Welfare: can be downloaded here.

Rory Sullivan is expert adviser to the Business Benchmark on Farm Animal Welfare and Nicky Amos is the programme director to the Business Benchmark on Farm Animal Welfare.