Focusing Companies on Supply Chain Accountability

February 20, 2019

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Well-funded environmentalists take a page from hedge fund playbooks, with meat in their crosshairs

Activist groups pushing to further reduce greenhouse gas emissions, water use and meat consumption have initiated a new strategy and enlisted new allies in their quest. Partnering with doctors, academics and investors who control trillions of dollars, activists have set their sights on the environmental impact of meat and poultry production.

We seem to have arrived at a tipping point. Going forward, the actions of food and beverage companies could have a fundamental impact on the future of their supply chain partnerships, communications with Wall Street, CSR efforts and how we raise animals for food.

Here’s a quick review of what’s happened over the past month or so, and what it represents for the industry.

From EAT-Lancet to Green New Deal

Mid-January 2019 saw the launch of the EAT-Lancet Commission report, which enlisted the expertise of doctors and academics to define the best diet for us and the planet. The report calls for a dramatic reduction in our consumption of meat, dairy and other foods for environmental and health reasons, as well as a similar call to action to cut food waste.

Though The Lancet has been writing about the health risks of animal protein since 1897, it significantly shifted its approach to the topic in 2015. While the journal previously focused on controversies surrounding red meat and associated risk factors for specific diseases, it now speaks more broadly about the negative impacts of meat consumption and calls on the general public to establish limits.

While the EAT-Lancet Commission report wasn’t a major turning point in policy and societal conversations around this topic, it set the stage for a broader movement designed to reduce red meat consumption, and disrupt production.

That movement received further support recently, with the introduction of the Green New Deal resolution, which calls for recognition that the U.S. government has a responsibility to achieve “net-zero greenhouse gas emissions through a fair and just transition for all communities and workers”. The initiative was inspired by the Intergovernmental Panel on Climate Change’s proclamation that we have slightly more than a decade to get carbon emissions under control before catastrophic climate change impacts become unavoidable.

Among other things, the resolution calls for collaboration with farmers and ranchers to build a more sustainable food system. The Green New Deal would include, according to an FAQ released by Rep. Ocasio-Cortez, efforts to “create a sustainable, pollution and greenhouse gas free, food system that ensures universal access to healthy food and expands independent family farming.”

Investor Letter from Ceres and FAIRR

The most significant development on this front, however, is a letter released last month by CERES and FAIRR from more than 80 global investors who manage $6.5 trillion in assets. It urged Domino’s Pizza, McDonald’s, Restaurant Brands International (owner of Burger King), Chipotle Mexican Grill, Wendy’s Co. and Yum! Brands (owner of KFC and Pizza Hut) to set aggressive targets to reduce the greenhouse gas emissions and water impacts of their meat and dairy suppliers.

This letter represents the first time that investors have launched a coordinated effort to address the environmental impact of meat and dairy consumption. More so than pressure from academics or NGOs, this development poses very real business and profitability risks that industry leaders must respond to or face the potential for shareholder proposals and damage to their reputation with investors and customers.

Investors have a successful history of motivating corporate action on sustainability issues. CDP (formerly the Carbon Disclosure Project), created in 2002, is a good example. CDP started with a letter from 35 investors calling for climate information from a broad cross-section of companies; 245 of them responded. Today more than 6,000 companies publicly disclose environmental information from CDP, and nearly a fifth of global greenhouse gas emissions are reported through CDP.

The Ceres and FAIRR investor letter sounds a loud and clear signal of things to come by asking QSRs to work with their supply chains to reduce emissions and water use. Whether the industry stands together or points fingers on this issue will determine whose reputation is on the line.

Time to Unite … and Take Action

Depending on how QSRs react, all these efforts combined represent either a threat or an opportunity, both financially and reputationally, for food companies, meat producers and farmers and ranchers.  Significant and measurable progress in reducing the environmental footprint of meat, poultry and dairy production has already been made. It’s critical that all parties up and down the supply chain unite to clearly communicate that progress and tackle these issues in an even more transparent and comprehensive fashion. If they don’t, proxy fights, share price erosion and reputational damage lie ahead.

The time to act is now – before others firmly control the message … and potentially the future of the industry.