How institutional managers are using animal welfare index
Proponents of a benchmark monitoring global food companies on animal welfare are pushing for wider adoption of by institutional investors as a tool to evaluate management boards and control risk.
The Business Benchmark on Farm Animal Welfare tracks 80 global foods companies, from Sainsbury’s to McDonald’s, on how they prioritise the treatment of animals in their supply chain.
It was created to give investors such as pension funds a clear way to trace how companies were addressing animal safety, said Rory Sullivan, an adviser to BBFAW. But he said investors were motivated to examine animal welfare as part of a risk strategy, rather than out of consumer interest.
The horsemeat scandal demonstrated the potential risk to a company’s brand, Sullivan said, and regulations over food safety and welfare have tightened.
“Investors are using it in a very instrumental way,” Sullivan said. “Not necessarily hugely concerned about animal welfare as such – what they are interested in is companies’ quality of management.”
Poor performance in the benchmark could potentially be an indicator of weak management or oversight in other areas
In a statement, the Universities Superannuation Scheme said it was aware of the benchmark and has reviewed its results, adding: “Poor performance in the benchmark could potentially be an indicator of weak management or oversight in other areas."
It said it was “one tool amongst many” it considers when identifying company risks.
Pension funds increasingly recognise the environmental, social and governance and factors that can have a material impact on returns, Will Pomroy, policy lead for corporate governance and stewardship at National Association of Pension Funds, said in a statement.
He said: "[Funds] increasingly expect their investment managers to take effective efforts to understand and manage these risks."
Cost impediment
The benchmark relies on information reported by the companies themselves, as well as from meetings and other publicly available information, to rate how a company prioritises animal welfare.
But the index has had a slow start in gaining investment interest, as companies often see increased welfare standards as a cost impediment, according to Helena Viñes Fiestas, head of sustainability research at asset manager BNP Paribas.
“For the time being, it’s a premium,” she said, referring to the cost to companies of setting up stronger governance of animal welfare in supply chains. But she added awareness of animal welfare was increasing, especially as food safety and regulations get tougher.
This year, retailers Marks & Spencer and Waitrose were among the top three performers in the benchmark. But half of the companies listed, including global brands such as Burger King and Starbucks, were rated in the bottom two tiers.
The lowest tier is tied to a lack of evidence that animal welfare is on the company’s agenda, BBFAW said.