Such issues are not only posing problems in a societal or environmental context, but have a real business impact if not managed well. Their business impacts not only come to the fore during crises, as we have seen with the meat packing factories that had to be closed after Covid-19 infections skyrocketed. The high environmental impact of industrial livestock production is also likely to create a negative financial impact, as the industry is one of the main contributors to climate change, and is likely to be subject to more regulatory and financial scrutiny.
It is not all doom and gloom – we also see companies that are profiting from the opportunities that new ways of farming offer. But innovation needs to be encouraged though in an industry which is over 11,000 years old, going back to when the first sheep and goats were domesticated.
An overview of our 3-year engagement on the meat supply chain
Meat consumption has grown exponentially since the 1960s
Food consumption and production patterns determine both our health and the health of the planet. Growing populations, increasing wealth and climate change are just some of the factors that will significantly influence the global food system in the years to come. The production of meat has grown almost exponentially since the 1960s, with the majority of the rise attributed to poultry, pork and beef.
As of 2014, the average person annually consumed around 43 kg of meat per year. For European and North Americans, this is more than double, with consumers eating 80 kg to 110 kg of meat respectively. This global average is likely to increase, since similar changes in population, incomes and urbanization rates have led to growing demand for meat and animal products.
It is estimated that the agricultural sector is the world’s second-largest greenhouse gas emitter. On average, one cow produces 85 kg of methane a year. In order to reduce emissions, improve health and feed more people, urgent and radical change is needed to meet the UN Sustainable Development Goals and the Paris Agreement by 2030.
The main challenges and our expectations
The meat production sector faces great challenges, such as constraints from finite natural resources, the environmental impact of large-scale production, and the impact on consumer health via the spreading of animal-born human diseases from livestock resistance to antibiotics. Ultimately there are health concerns regarding the over-consumption of meat by consumers generally.
For our engagement program, we developed an indicator framework that was comprised of the following objectives: animal welfare, labor standards, product quality and safety management, and innovation management.
Animal welfare: a company’s animal welfare policy should cover various issues, such as routine mutilation, high stock densities, pre-slaughter stunning, long-distance live transportation and the use of antibiotics during the growth phase. The policy should also cover all geographic areas, supplier relations and subcontractors. We evaluated companies’ performance on three broad parameters – governance and management, leadership and innovation, and performance reporting and impact.
Labor standards: we research companies to see if they have a policy that respects fair labor conditions. We examine coverage of the policy in terms of the company’s own operations and those of its suppliers, along with its coverage in terms of various labor issues and processes to ensure compliance with it. We also look into a company’s monitoring and health and safety initiatives to ensure the better health of employees.
Product quality and safety: we evaluate how meat processors and retailers ensure that their products meet the high quality and safety expectations of customers. We want companies to have a traceability system in place where they can trace back the origin of the meat products, and also to adopt detailed food labelling. Certified and organic products are preferred. We also expect companies to follow Good Manufacturing Practices and any other relevant standards for processes. Finally, we want to see companies take part in customer education on the health impact of eating meat, with a view to reducing their meat intake.
Innovation management: areas in which we are seeing opportunities for innovation in this industry are:
Specialty chemicals (animal feed producers) that, for example, provide innovative solutions such as probiotics instead of antibiotics added to the food
Automation of food facilities, thereby reducing the risk of operational health and safety issues
For quick-service restaurants and retailers, the market is changing as consumer demand changes. We expect companies to actively work on diversifying their product portfolios and to engage in consumer awareness programs in their stores and franchises.
Combatting deforestation was not an official objective in these engagement efforts. However, in the last few years, we have engaged with companies and even with countries (Brazil) on this topic. This remains an issue to be concerned about and engaged with.
Helpful initiatives to assess corporate performance
In 2016, when we started this engagement theme, we held a roundtable with the UK-based investor research group Farm Animal Investment Risk and Return (FAIRR), and with the Business Benchmark for Farm Animal Welfare (BBFAW), to discuss the risks and opportunities seen through changes in the meat and fish supply chain.
We found these two initiatives very helpful in guiding our research. This roundtable helped in our development of a robust indicator framework which guided dialogues with companies. Furthermore, the Access to Nutrition Index and the PRI Deforestation Benchmark aided our research into how companies are addressing the various issues in the meat supply chain.
Our conclusion on the engagement
Our engagement focused on companies across the food supply chain, from bioscience companies, (meat) processors and food products to retailers. Companies that performed the best included those from northern Europe and Scandinavia, plus American companies in the fast food industry.
Their actions and disclosures, especially those around participation in the Carbon Disclosure Project, along with their engagement with the Cerrado Manifesto, and their establishment of science-based targets and others, highlight their commitment to sustainability, and the steps they have taken to continuously improve over the last three years.
Our engagement programs with Brazilian companies, on the other hand, were closed as being non-effective, given their significant lags compared to peers across most objectives. We want these companies to do well on this topic and we remain involved as long as we are invested in them.