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ESG - The FAIRR Initiative

Wednesday, 6 December 2023

EQ Advisory recently interviewed FAIRR as part of its own programme of external engagement with stakeholder groups in the ESG arena. They are delighted to share their engagement highlights with you.

EQ: What is FAIRR, and what are its objectives?

The FAIRR Initiative is a collaborative investor network that raises awareness of the environmental, social, and governance (ESG) risks and opportunities in the global food sector.

FAIRR: Our mission is to build an awareness of the issues linked to intensive animal production across the investor community. By filling the knowledge gap around ESG issues in animal agriculture, FAIRR empowers investors to engage as shareholders and debt holders of global food supply chain companies – from protein producers to international retailers – on ESG risks ranging from climate, pollution, and labour issues to antimicrobial resistance. In doing so, we aim to harness the power of capital markets to build a more sustainable and equitable food system.

We focus on providing high-quality research, facilitating collaborative engagements, and coordinating policy action for our members. We make sure we do the heavy lifting for investors so they can focus on exercising their influence as responsible stewards of capital while safeguarding the long-term value of their investment portfolios. With over 400 members globally, representing over $70 trillion in combined assets, we are the world’s fastest-growing ESG network.

EQ: Could you tell us about some of the most recent work you have been undertaking?

FAIRR: We have most recently launched our flagship benchmark, the Protein Producer Index. It’s an assessment of 60 of the biggest listed global meat, dairy, and aquaculture companies on ten ESG themes aligned with the Sustainable Development Goals. The theme ranges from climate and nature-related risks, such as greenhouse gas (GHG) emissions, water scarcity, and deforestation, to social issues, such as working conditions and antimicrobial resistance.

Focusing on the protein producers allows us to tackle the animal agriculture industry, which is disproportionately responsible for much of the climate and nature-related impact within the food system. Animal agriculture is responsible for over 60% of the agriculture, forestry, and land use (AFOLU) sector's global GHG emissions and contributes to approximately 15% of all GHG emissions worldwide. The sector is also the number one cause of deforestation due to cattle ranching and soy production (used for animal feed).

It uses 1/3 of global freshwater supplies and is the largest consumer of antibiotics, as an estimated 70% of global antimicrobial is used on farm animals. Within animal agriculture, intensive animal farming poses significant material financial risks and other risks (regulatory, legal, tax, reputational) to investors as the performance of companies in this sector depends on their longer-term ability to anticipate and navigate growing environmental and social risks.

The Index is designed to provide institutional investors with best-in-class analysis and trends on the protein supply chain to integrate into their investment decisions and engagement strategies. Since its launch in 2018, the Index has grown both in recognition and impact. Most of our members have used the thematic research and company assessments to inform their bilateral dialogues with companies in their portfolio. Investors have also used the company’s Index score to assess its progress over time on specific priority ESG issues. Concurrently, two thirds of the Index companies are now engaging with FAIRR to discuss their assessments, underlining that the Index has become an important benchmark for the sector. This is something we are incredibly proud of.

EQ: From what you have observed, what are currently the key factors affecting investors’ behaviour when it comes to ESG?

FAIRR: ESG regulation comes to mind. With recent policies adapted to match national-level climate and nature ambitions, market players will have to face that some ESG risks are turning into regulatory risks. For example, the upcoming EU Corporate Sustainability Due Diligence Directive will oblige companies to conduct due diligence not just on their operations but also on the activities of other entities in their value chains to identify and mitigate impacts on the environment and human rights issues.

As a result, investors are incentivised to engage with, for instance, protein producers in the EU market who purchase soy from Brazil as part of their feed ingredients to ensure they have a comprehensive supply chain policy and monitoring mechanism to adequately adhere to their deforestation-free commitment.

We have also observed that investors are increasingly seeking greater integration or understanding of the connectivity between climate and nature risks, especially in sectors like AFOLU that are highly dependent on them. Investors are expecting company disclosures to consider nature-related impacts alongside climate impacts. Biodiversity as a broad engagement theme has become more popular, with topics ranging from waste and pollution to deforestation.

In the AFOLU sector, land-use change emissions associated with deforestation to grow livestock feed ingredients are one of the largest drivers of GHG emissions. Therefore, tackling deforestation is a crucial mitigation measure for this sector, as reflected in the latest Science Based Target Initiative (SBTi) guidance.

EQ: What are some emerging ESG trends that could play a larger role in influencing investors in the future? 

FAIRR: Greater scrutiny of greenwashing will impact the way investors analyse company disclosures. Climate ambitions or claims that are not accompanied by quantifiable targets will not be sufficient to demonstrate that a company has strategically considered the materiality of these risks, or carried out the necessary assessment of the mitigation potential of their proposed ESG initiative.

We recently analysed the disclosure of a group of food companies on their approaches to regenerative agriculture and identified that almost two-thirds of companies with regenerative initiatives only have a generic statement and lack quantifiable targets. Investors will continue to engage companies to ensure credibility in disclosures by asking for more details on pilot programmes or more discussion on how practices like regenerative agriculture will play a role in the company’s overarching net-zero strategy. The trend of greater accountability of ESG claims will only continue to amplify.

EQ: What do you see as some of the biggest barriers when moving towards a sustainable economy?

FAIRR: Consumers play a significant role in driving systemic change in the food sector. However, navigating the issue of food security in the current economic environment is a challenge. The SBTi has included diet shifts and reduction of food loss and waste in their guidance as part of the demand-side mitigation efforts to reduce associated emissions. Alignment with this guidance will require a wide-scale public education effort to identify what food items are nutritious yet have a lighter impact on climate and nature, as well as concerted actions to make them more widely accessible and affordable. 

As part of shifting the market, policymakers play a significant role as market enablers. For instance, agricultural subsidies, which directly impact food prices, should be mindful of incentivising the over-production and over-consumption of several high-carbon agricultural products that also cause damage to nature.

Investors are increasingly asking policymakers for action, as this is essential to their long-term investment horizon. Among our member base, a group of investors representing $7.3 trillion of AUM signed a statement calling on G20 finance ministers to align agricultural support with climate and nature goals by 2030, citing material financial risks to portfolios if the goals are not achieved. If subsidies are not aligned with government, multilateral, and private sector commitments and efforts to transition to reach net zero and protect and restore nature, change is not likely to happen at scale.

If you would like to know more about the FAIRR initiative, please visit their website.

Additionally, there are member case studies showcasing collaborative engagements through FAIRR which can be viewed here.

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