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Animal farming and ESG: a sector where some are more equal than others

20 September 2022 |
Active ESGStewardshipSustainable
Meat farms and associated industries are the unlikely battleground for a myriad of ESG issues. Emily DeMasi, EOS engager, outlines why Federated Hermes has made the sector an engagement priority.
Stewardship Report 2021

The animal farming industry entered the pandemic widely regarded as an ESG laggard: a sector noted for its high greenhouse gas emissions, unethical treatment of livestock, and intensive land and water use, and a leading global cause of deforestation. The Farm Animal Investment Risk and Return (FAIRR) initiative found the industry has done ‘too little to measure and manage pandemic risk’ according to the Farm Animal Investment Risk and Return (FAIRR) Initiative. The pandemic has exposed the need for reform of the global food system that the world can ill afford to ignore.

A cautionary tale

The meat industry, in addition to its obvious impact on livestock and the natural world, is also an important employer in the global economy. The meat sector relies on labour-intensive value chains that employ more than 6.1 million people in the US, about 9.5 million in Brazil, and one million in Europe.¹ Demand for its produce is expected to soar as the global population rises towards 9.7 billion by 2050² with future consumption expected to be driven by low- and lower-middle income countries.³ While these were trends that the world was already aware of long before 2020, Covid-19 has shone a spotlight on the sector and, in particular its workers, who have been disproportionately affected by the pandemic.

The impact of Covid-19 on the meat industry is a cautionary tale of unexpected costs, shrinking production capacity, and disruption of operations and food supply chains globally. In addition, its workers face hazardous conditions and exposure to risks from factors such as dangerous machinery, fast line speeds, repetitive tasks and biological agents. Some meat producers are now facing fines, prosecution, investigations, and employee litigation, but the growing reputational and financial impacts associated with poor labour practices are present throughout the agricultural supply chain.4 Issues ranging from the working conditions of farmers in the field to the impact of Covid-19 on frontline workers in markets and grocery stores are relevant when considering investments and engagement topics with such companies. As active investors, we are committed to engaging across the food value chain to encourage companies to improve worker conditions and ensure that workers have a voice in the decisions and policies that impact them.

The pandemic exposed and exacerbated the fundamental and structural human capital risks in the industry as it tries to keep pace with broader market trends such as the transition to a green economy and automation. For a sector so pivotal to our lives, we cannot afford to see the animal farming industry and its workers left behind as the world moves forward from Covid-19.

Engaging for workers

In 2021, our stewardship business, EOS at Federated Hermes, partnered with the FAIRR Initiative, a global investor network seeking to raise awareness of the material ESG risks and opportunities caused by intensive livestock production. In this collaborative engagement, the group targeted the seven largest protein producers globally with the aim of empowering workers and supporting risk mitigation in three key areas:

  1. health & safety,
  2. fair working conditions,
  3. worker representation.

As part of this work, we are urging companies to take the following steps to mitigate some of the human capital management and human rights risks in the food system supply chain. This includes:

  • Empowering workers and supporting health & safety by implementing, and monitoring the effectiveness of grievance mechanisms. Companies should also permanently provide paid sick leave to all workers, including subcontracted and temporary workers across operating markets, regardless of whether this provision is included in the national legislation.
  • Providing mechanisms and oversight to ensure fair working conditions, including reviews and the disclosure of the distribution of workers across different contract types, with regular reports to the board on the workforce composition by contract type.
  • Improving worker representation, voice and engagement, and including workers as important stakeholders in discussions around industry trends and subsequent impacts.

Tomorrow’s crises

EOS is also working with FAIRR on the issue of antimicrobial resistance (AMR). AMR could be the next big public health crisis unless we can arrest the misuse of antibiotics in industrial livestock farming. EOS contributed to the latest FAIRR report Feeding Resistance: Antimicrobial Stewardship in the Animal Health Industry.5 The paper explores the current practices of the 10 largest publicly listed players in the animal health industry and the actions required to ensure resilience of the companies’ product portfolios and good AMR stewardship.

Download our Stewardship Report to find out more about how we use active stewardship to address humanity’s most pressing issues while helping our clients to sustainably grow their wealth.

Download our Stewardship Report 2021

1 FAIRR Initiative (2021) Unpacking labour risk in global meat supply chains

² Population | United Nations

³ FAIRR Initiative (2022) Meat – ESG Risks and Performance in the Meat Sector

4 FAIRR Initiative (2022) Meat – ESG Risks and Performance in the Meat Sector

5 Feeding Resistance: Antimicrobial Stewardship in the Animal Health Industry – FAIRR

Stewardship Report 2021

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