Global investors put pressure on fast food companies to tackle climate and water risks

Global investors representing more than USD $6.5 trillion are calling on six of the largest companies in the USD $570 billion global fast-food sector to act urgently on the climate and water risks in their supply chains.

The investors have sent letters to Domino’s Pizza, McDonald’s, Restaurant Brands International (owners of Burger King), Chipotle Mexican Grill, Wendy’s Co. and Yum! Brands (owners of KFC and Pizza Hut).

The letters, facilitated by the sustainability organisation Ceres and the FAIRR Initiative, ask companies to explain by March 2019 how they plan to enact meaningful policies and targets to de-risk their meat and dairy supply chains.  The companies in the spotlight manage over 120,000 restaurants worldwide.

Over 80 investors, including BMO Global Asset Management (Canada), Aviva Investors (UK) and Aegon Asset Management (Netherlands),  are warning that “animal agriculture is one of the world’s highest-emitting sectors without a low-carbon plan.”

Environmental impacts of  sector’s meat and dairy products have hit unsustainable levels

Jeremy Coller, Founder of FAIRR and Chief Investment Officer of Coller Capital said:

“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. 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 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.”

Mindy Lubber, president and CEO of Ceres, added:

“Fast-food giants deliver speedy meals, but they have been super slow in responding to their out-sized environmental footprints. 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.”

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 the targets annually.
• Undertake a climate scenario analysis in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Livestock sector uses approximately 10% of annual global water flows

A new investor briefing from FAIRR, also released on the same day, highlights the environmental impact 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 percent of total allowable GHG emissions by 2050.

This will create an 11-gigaton GHG mitigation gap between projected emissions and the target level required to keep global warming under a 2°C threshold. The livestock sector is also estimated to use approximately 10% of annual global water flows.

The investor letters highlight that the meat and dairy industry currently has limited water and climate policies and goals in place. Analysis by the Coller FAIRR Index found that more than 70 percent of meat and livestock index companies do not have targets for reducing GHG emissions.

The meat sector was also shown to be the lowest performing industry in Feeding Ourselves Thirsty, a 2017 analysis of water management practices released by Ceres, and is a major source of nitrogen and phosphorus pollution globally.

Alice Evans, Co-Head of Responsible Investment, BMO Global Asset Management, commented:

“Far-sighted investors cannot ignore the headwinds facing the meat and dairy sector. 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.”

Market risk – rising global temperatures and intensifying competition for water access are increasingly material factors for investors

Other investors who signed the letter also made the following key points:

• Global fast good brands need to take concrete action to manage supply-chain emissions and water impacts. The takeaway from investors is that those firms that fail to meet this challenge face regulatory and reputational risks that put their long-term financial sustainability under threat.
• In terms of evaluating market risk, rising global temperatures and intensifying competition for water access are increasingly material factors for investors. This is especially the case in the meat and dairy sector. Investors expect the fast food sector to deliver sustainable supply chains.

Investors with combined assets of over $6.5 trillion are backing the Ceres/FAIRR climate and water engagement.

The FAIRR initiative as a whole has more than 180 investors with over $11 trillion of assets under management participating in its activities.

The Ceres Investor Network on Climate Risk and Sustainability comprises 163 institutional investors, collectively managing more than $25 trillion in assets.