Value and values: Farm animal welfare in ESG analysis
In the past, poor corporate performance on farm animal welfare grounds led some ethically-motivated investors to screen out companies, but responsible investors are increasingly becoming aware of the link between farm animal welfare and financial value, as apparent from a recent UKSIF investor analyst seminar on farm animal welfare.
Animal welfare organisations have long campaigned over the treatment of animals used in food production - the conditions in which they are kept, mutilations, how they are transported, the methods of breeding and slaughter. For the ethically-motivated, farm animal welfare is one of many welfare areas of concern: including endangered animals, pet welfare, medical and cosmetic research, the use of animal by-products in fashion and the treatment of zoo animals.
Statistics from Compassion in World Farming (CIWF) show that there are more than 60 billion farm animals reared each year for food. Yet, according to EIRIS’ consumer green money website YourEthicalMoney.org, fewer UK green/ethical retail funds have a policy on intensive farming than a policy on animal testing for medical or cosmetics purposes.
Farm animal welfare impacts upon areas not immediately apparent: it can affect humans (e.g. potential poor working conditions for staff at factory farms and abattoirs) ; also the physical environment (health and welfare of animals themselves, and systemic effects on other animals and plants). There is widespread concern about the quality of food produced by intensive farming, particularly about food contamination (e.g. BSE in beef and salmonella in eggs), antibiotic residues, and the use of growth hormones and pesticides. Wider environmental concerns such as the high CO2 emissions from intensive farming are also relevant.
The link between intensive farming, climate change and the environment is not always made. Data from YourEthicalMoney.org suggests that whilst numerous UK retail funds appear to have a policy on the environment (85) or climate change (58), far fewer (37) have a policy on intensive farming. A 2009 CIWF and Friends of the Earth report, Eating the Planet, summarises the links. Demands of the growing world population will put the finite resources of the natural world under pressure. Progressive technologies to increase yields can have significant detrimental environmental and social impacts. Farming is affected by and contributes to climate change: 22% of global emissions are generated by agriculture of which 80% comes from livestock production.
What’s the business case? In a good practice note the IFC suggests that higher farm animal welfare standards are likely to win competitive advantage for companies, through more efficient production processes, meeting the needs of international markets, and becoming the preferred producer by consumers and retailers that are concerned for animal welfare, food safety and quality, human health and the environment.
There is no global legislation on the welfare of animals, but the World Organisation for Animal Health has adopted guidelines on welfare of animals during transportation and slaughter. The EU has minimum legally- binding standards of welfare for various farm animals. There are also a number of voluntary standards. Poor performing companies risk their reputations as the lack of universal standards contrasts with growing consumer concern.
Investors can quickly get up-to-speed by reading investor briefings available from the Business Benchmark on Farm Animal Welfare. The briefings cover the regulatory and policy landscape, and the case for business action, amongst other issues.
EIRIS researches animal welfare amongst its criteria, including looking at animal testing, intensive pig or poultry farming, operation of fish farms, abattoirs or slaughterhouses, and sale of meat and slaughterhouse by-products. Investors can screen out companies, positively support companies performing well, or engage with companies to encourage change. At the date of writing, EIRIS research shows that 2% of companies in the FTSE All Share Index derived turnover from intensive pig or poultry farming.
As the links to climate change and the environment become more evident, responsible investors may increasingly consider farm animal welfare not just on values grounds, but as part of ESG risk analysis to find better corporate value.
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on 21 December 2011 | 2:58 pm
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