Fast food giants need to face up to climate and water risks, investors warn

4 February 2019

Fast food companies need to take urgent action to deal with the climate change and water risks they face, particularly from meat production, says a $6.5 trillion group of investors. The investors warn that " animal agriculture is the world's highest-emitting sector without a low-carbon plan ".

The shareholders of companies including Domino's Pizza, McDonald's, Burger King owner Restaurant Brands International, Chipotle Mexican Grill, Wendy's and Yum Brands (which owns KFC and Pizza Hut), want the companies to set tough targets to reduce greenhouse gas emissions and the amount of water used in their supply chains.

The fast food sector is a $570 billion market and between them, these companies manage more than 120,000 restaurants around the world.

More than 80 investors, including BMO Global Asset Management, Aviva Investors and Aegon Asset Management, have asked to explain by March 2019 how they plan to de-risk their meat and dairy supply chains.

The initiative was facilitated by the sustainability organisation Ceres and the FAIRR (Farm Animal Investor Risk and Return) Initiative, which focuses on the environmental, social and governance (ESG) linked to intensive livestock and fish farming systems and provides investors with the tools necessary to integrate this information into their asset stewardship and investment decisions.

"Every day around 84 million adults consume fast food in the US alone, but the inconvenient truth of convenience food is that the environmental impacts of the sector's meat and dairy products have hit unsustainable levels," said Jeremy Coller, Founder of FAIRR and Chief Investment Officer of Coller Capital. "To put this in perspective, if cows were a country, it would be the world's third largest emitter of greenhouse gases.

"Other high-emitting industries, such as cars or oil and gas, are beginning to set clear yet ambitious climate targets, making animal agriculture one of the world's highest-emitting sectors without a low-carbon plan. A failure to tackle these major environmental problems in corporate supply chains puts the long-term financial sustainability of these household names under threat. Investors are calling for more strategic and innovative thinking to manage these risks."

FAIRR has published an investor briefing, highlighting the environmental impacts of the meat and dairy producers that supply the fast food sector. Agricultural emissions, including those from meat and dairy, are on track to contribute around 70% of total allowable GHG emissions by 2050. This will lead to 11 gigatons more greenhouse gases (GHG) than we can emit if we are to keep global temperature increases under 2°C. The livestock sector also consumes around a tenth of the world's water every year.

Despite this, the investors point out, the meat and dairy industry currently has limited water and climate policies and goals in place. FAIRR found that more than 70% of meat and livestock index companies do not have targets for reducing GHG emissions, while meat producers were the worst-performing sector in a Ceres analysis of water management practices, and a major source of nitrogen and phosphorus pollution globally.

The letters call on the fast food companies to:

  • Adopt a supplier policy with clear requirements for suppliers of animal protein products to report and reduce greenhouse gas (GHG) emissions and freshwater impacts.
  • Publish quantitative, time-bound targets to reduce the GHG emissions and freshwater impacts of their own meat and dairy supply chains.
  • Commit to publicly disclose progress on these targets annually.
  • Undertake a climate scenario analysis in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

"Fast-food giants deliver speedy meals, but they have been super slow in responding to their out-sized environmental footprints," said Mindy Lubber, president and CEO of Ceres. "Investors are eager to see more leadership from these companies to reduce the mounting climate and water risks linked to their meat and dairy suppliers. From eliminating deforestation to reducing water waste, cleaning up their supply chains will have enormous impacts on the animal agriculture sector as a whole, and dramatically increase our ability to meet the goals of the Paris Agreement to limit global warming."

Far sighted investors cannot ignore the headwinds facing the meat and dairy sector, added Alice Evans, Co-Head of Responsible Investment at BMO Global Asset Management. "Increased environmental regulation, rising consumer demand for plant-based food, and fears over water pollution from intensive farms are all ingredients in the rising threat to the long-term value of the fast food multinationals. This investor engagement is further evidence that capital markets are putting sustainable environmental management on the menu for the fast food sector."

Rising temperatures and intensifying competition for water access are increasingly material issues for investors, pointed out Eugenie Mathieu, senior SRI Analyst at Aviva Investors. "From field to fork, investors want to understand which food companies are monitoring and minimising the long-term environmental risks in their supply chain. This engagement sends a clear message to the fast food sector that investors expect them to deliver sustainable supply chains."

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