Beyond being a significant contributor to greenhouse gas emissions, land use changes, deforestation and biodiversity loss, the animal agricultural sector poses a risk to public health. Antibiotics are a corner stone of modern medicine, enabling the treatment of bacterial infections and allowing successful lifesaving and life-quality enhancing medical procedures. However, every time bacteria are exposed to antibiotics, there is an inherent risk that antimicrobial resistance (AMR) develops.
Today, an estimated 700,000 people die from multi-resistant bacterial infections every year. If current poor antibiotic manufacturing and stewardship practices continue and we reach a high-AMR scenario as outlined by a World Bank report, this number is expected to increase to 10 million annual deaths and a potential 3.8% annual global loss in global GDP by 2050.
Poor antimicrobial practices are endemic in the continuously growing animal agricultural sector with antibiotics being misused and overused on such a scale that it’s been estimated that 70% of antibiotics are given to farmed animals. A multi-stakeholder approach is required to address these problematic practices within animal agriculture, including those in the animal health sector which manufacture and sell antibiotics for use in animals, to successfully tackle the growing threat of AMR.
Report findings and actions required
EOS at Federated Hermes has been pleased to contribute to the latest report from the FAIRR initiative, a collaborative investor network that raises awareness of the ESG risks and opportunities brought about by intensive livestock production. Feeding Resistance: Antimicrobial stewardship in the animal health industry explores the current practices of the ten largest publicly listed actors in the animal health industry and the actions required to ensure resilience of the companies’ product portfolios and good AMR stewardship.
- The opaque antibiotic manufacturing supply chain and lack of external oversight is allowing antibiotic residues in effluence to enter the environment at concentrations that increase the risk of development of AMR. The risk of poor manufacturing practices is exacerbated by the lack of global standards, as well as local regulation to restrict antibiotic concentrations in manufacturing effluence.
- Among the companies assessed, certain sales and marketing practices were found to promote misuse and overuse of antibiotics, indicating a troubling lack of integration of good AMR stewardship practices within the wider business strategy. For example, robust labelling is key to ensuring responsible use of antimicrobials and deterring their use for growth promotion or prophylaxis, as well as how to properly dispose of or return products so they are not released into the environment. This is particularly egregious in emerging markets as regulatory oversight of antibiotic use tends to be inadequate and this is where industrial farming practices with its associated higher use of antibiotics is growing.
- Positively, regulation governing antibiotics is becoming more robust around the world and consumers are increasingly demanding sustainably and ethically produced animal protein products, as well as animal protein alternatives. In response to this, animal protein producers are exploring preventative treatments and alternatives to antibiotics. Animal health companies are, to a varying degree, diversifying their product portfolios by investing in the R&D of vaccines, probiotics, prebiotics and other treatments to protect animal health and so future proofing their portfolios in response to these changing market pressures by reducing exposure to antibiotics.
- Finally, some of the companies have AMR stewardship initiatives in place, mainly in emerging markets, to support good animal farming practices and responsible use of antibiotics via education of veterinarians and farmers. However, the sector is also seen to actively support lobbying which seeks to undermine tightening AMR regulation.
Addressing the challenges and the role of investors
Following the launch of the report, a panel with representatives from the investment industry, including EOS, academia and media discussed the multiple challenges in uncovering and addressing antibiotic discharge into the environment, the role of public policy in addressing AMR and how investors can drive positive change in the animal health industry.
Investors have an important role to play as companies tend to be receptive to the investor voice and they often have long-standing relationships with them. Engagement calls for animal health companies to demonstrate understanding of material risks and opportunities linked to AMR and preparedness to meet these across their full value chain of manufacturing, sales, marketing, R&D and AMR stewardship. A challenge for investors engaging on AMR is the lack of transparency and determining how well sales, marketing and lobbying practices promote responsible antibiotic use. Companies should ensure that AMR stewardship is fully integrated in the business strategy or run the risk that these are perceived as ‘green washing’ when the disconnect between stewardship activities and wider business practices becomes apparent.
To overcome these challenges, investors need to ask the right questions. The report contains suggestions, which we helped formulate, that comprehensively cover the material issues. These questions should be part of the investor dialogue with management and the board, to ensure that change is lead from the top. Finally, escalation needs to happen where companies are unwilling to act at the required pace. Investor collaborations, AMR shareholder proposals and voting implications are all important escalation tools to hold companies and boards to account.
A long-term sustainable food system is fundamental to the future of our society. Governments, companies and investors need to ensure that negative externalities, such as AMR, are removed from the agricultural practices that will feed our growing population.