Can Factory Farm Divestment Work?

It’s easy to forget that factory farming is a relatively new phenomenon. Over the course of just a few decades, large-scale, intensive production of livestock and poultry has come to dominate the food system and now accounts for essentially all animal agriculture in the United States; an industry valued at over $100 billion per year. Many organizations have been raising the alarm over the myriad problems associated with factory farms — animal welfare, environmental impacts and public health for starters — often emphasizing consumer action or shifts in government policy to end the abusive system.

Unfortunately, the practice continues to grow across the globe, as concentrated animal feeding operations (CAFOs) now account for 72 percent of poultry production, 43 percent of egg production and 55 percent of pork production worldwide. However, a new strategy is emerging that focuses on the role that investors in companies throughout the food supply chain can play, either to pressure those companies to improve practices or else shift their money away for good.

Divestment Inspiration

Back in 2012, the fossil fuel divestment campaign kicked off after an influential Rolling Stone essay by 350.org founder Bill McKibben. Since then, the campaign, which was inspired by the 1980s divestment campaign against the apartheid regime in South Africa, has grown to include over 700 institutions divesting nearly $5.5 trillion. With these two examples to draw from, a growing movement is urging investors to consider the risks they expose themselves to by aligning their money with factory farming. Some of the movement’s leaders have even emphasized the link between fossil fuel and factory farm divestment, referring to companies that ignore the problems with intensive livestock farming as “the new coal.” Which is to say, an industry whose reputation has tanked.

Factory Farming Is a Risky Investment

The best way to get the attention of investors is by highlighting risk, and industrialized animal agriculture has plenty. Importantly, many of these risks are hidden from investors, and so activists are trying to shed some light on just how investing in factory farming could prove to be a bad gamble.

According to a 2016 report by Farm Animal Investment Risk and Return (FAIRR), an investor initiative founded by Jeremy Coller, factory farming is “exposed to at least 28 environmental, social and governance (ESG) issues that could significantly damage financial value over the short or long-term.” The report breaks down some of the key risks:

• Environmental: Climate change, greenhouse gas emissions, poor animal welfare, water scarcity and water pollution.
• Social: The overuse of antibiotics, loss of rural jobs, human rights, infectious diseases and changes in consumer attitudes about factory farming.
• Governance: Potential shifts in government subsidies away from intensive animal agriculture, corporate governance that doesn’t focus on transparency and sustainability reporting.

The big takeaway is that all of these issues can affect companies throughout the food supply chain, from large agri-business to retailers and restaurants.

Engaging Companies, But Not Divesting Much

There are a small number of investment and asset managers that are taking an early lead in the factory farm divestment movement. But as a 2015 FAIRR report makes clear through numerous case studies, most of these investors are engaging companies as opposed to actually moving their money. For example, Aviva Investors congratulates top-performing companies in their portfolio when it comes to animal welfare issues, and encourages bottom tier companies to improve their standards. But some investment managers, such as Boston Common Asset Management, are explicitly steering their clients away from companies engaged in factory farming. The firm does not invest in companies that primarily operate factory farms, and has engaged with and divested from Dean Foods for its organic dairy brand that sourced from factory farms. Nonprofits are also trying out investor engagement related to factory farming, such as CERES, which recently submitted a shareholder resolution for Tyson Foods. The resolution encouraged Tyson to report on possible risks and challenges from the consumer shift towards plant-based foods due to animal welfare, environmental and personal health concerns.

Perhaps most impressively, a $2 trillion group of investors, made up of 71 institutions, has engaged with ten of the world’s largest restaurant and fast-food chains to ask them to end the subtherapeutic use of antibiotics (i.e. used to speed growth, not to treat sick animals) important to human health in their global meat and poultry supply chains. Even with this financial might, the group has seen modest change in its first year: the phasing out of subtheraputic antibiotics for poultry by some companies (but without clear timelines), and companies working with suppliers just to get baseline information on how antibiotics are used in their livestock supply chains.

Assessments of company practices when it comes to factory farming are tough to come by, but one useful tool that investors have at their disposal to measure animal welfare conditions is the Business Benchmark on Farm Animal Welfare (BBFAW). In its 2016 report, BBFAW reviewed 99 companies and found some reason for optimism: 73 percent of those companies have published farm animal welfare policies, up from 46 percent in 2012. However, 42 of those companies didn’t show any evidence of implementing their policies or even having animal welfare on their business agenda. As investor engagement and the so-far limited shifts in investments begin to move the needle, the BBFAW will serve as an important indicator.

Divestment Should Be One Strategy Among Many

If factory farm divestment sticks to the script of fossil fuel divestment, then the goal should not be to cause investors to sell their shares. Instead, its ultimate aim should aim to build a bigger and stronger movement against industrial animal agriculture and challenge the reputation and long-term viability of companies profiting from the system.

Companies should be particularly mindful of shifting consumer attitudes and preferences when it comes to food, particularly meat. As a recent ASPCA survey discovered, 75 percent of consumers surveyed are concerned about the welfare of animals raised for food and are paying more attention than before to labels that indicate how those animals were raised. There is also confusion on the part of those surveyed about how animal welfare conditions are monitored on farms. Clearly there are opportunities for forward-thinking companies who are transparent about their animal welfare policies, and big risks for those who choose to ignore the issue.

By linking existing efforts to combat factory farming such as changes in consumer choices, corporate activism, government policy changes and now investor engagement, animal welfare may soon shift from being a reputational issue to a financially material one for companies operating on the food supply chain. That could be exactly what’s needed to reveal the shaky foundation beneath the factory farming system.