By Kanchan Mishra

About 70 billion animals are being slaughtered annually to feed 7 billion humans. The meat sector is responsible for more than 14% of the world’s greenhouse gas emissions - more than the whole transport sector. The livestock industry also is the single largest driver of habitat loss worldwide, which impacts biodiversity and the livelihood of local communities. Moreover, factory farming is responsible for 73% of global antibiotics’ use, which is accelerating the development of superbugs. People employed in this sector often face harsh, dangerous, underpaid, and precarious employment conditions breaching human and labour rights.

A Profundo study recently published by the Dutch Fair Pension Label highlights poor animal welfare conditions at the world’s largest chicken and pig meat producing companies. Together with its partners in Chain Reaction Research, Profundo has published several studies that link the Environmental, Social, and Governance (ESG) risks associated with soy and cattle production with material financial impacts on companies in this sector. As the buyers of soy and cattle - traders, consumer goods companies and retailers - are adopting stricter purchasing policies, their access to markets can come at risk.

Despite of these known risks, most of the meat producing companies lack adequate policies and commitments on deforestation, reduction of emissions, antibiotics, and due diligence mechanisms to counter human rights violations. Among the 60 meat companies ranked by the 2019 Protein Producer Index,  39 companies with combined revenues of over USD 116 billion, are ranked as high risk (worst performers).

Interestingly, institutional investors such as pension funds and insurance companies hold about 18% of the shares of the companies researched by the 2019 Protein Producer Index. According to  the Fair Pension Label, the largest Dutch pension funds have invested about EUR 3.4 billion in the shares and bonds of 28 selected meat companies. These numbers indicate that institutional investors can play a large role in changing the way the world is being fed today. However, the top10 Dutch pension funds do not have adequate policies for investing responsibly in the meat sector.

While the sector is exposed to immense ESG risks and mounting public scrutiny, an alternative development path is emerging that could offer value creation opportunities for investors. Many meat companies are working towards diversifying their protein portfolio and announcing investments in alternative, plant-based protein products and technologies. A recent report by the Intergovernmental Panel on Climate Change (IPCC) estimated that replacing meat with plant-based protein could reduce global annual GHG emissions by between 0.7 and 8.0 gigatonnes of CO₂-equivalent by 2050.

Historically, the meat sector attracted less attention form sustainability advocates than for instance the energy and transport sectors. However, times have changed. The global investor community increasingly acknowledges the ESG risks involved in industrial meat production. FAIRR Initiative, a collaborative investor network that raises awareness on the material ESG risks and opportunities caused by intensive livestock production, has now 163 members representing USD 17.1 trillion in Assets under Management (AuM).

How to approach the meat sector is still a challenge for responsible investors, though. Different from the coal sector, divestment is not the answer. As the global population grows and incomes rise across the developing world, overall food demand is on course to increase by more than 50 percent by mid-century, and demand for animal-based foods by nearly 70 percent.

Therefore, investors in this sector need new strategies and use their leverage to stimulate the meat companies in their portfolio to change course and develop new products and technologies. Active ownership, such as engagement, dialogue and exerting their voting rights, may provide opportunities for investors to make the sector sustainable. Through effective engagement with the companies, investors can encourage companies to focus on certified soy in their supply chains and develop policies to avoid deforestation and human and labour rights abuses. Additionally, investors should stimulate meat companies to limit the usage of antibiotics, to diversify towards plant-based proteins, and improve animal welfare.

For more information and research opportunities on this topic, please contact Kanchan Mishra, k.mishra@profundo.nl

Foto: Pixabay - franzl34 (CC0-Public Domain)