The clash over consumers’ demand for fast food chains to improve the animal welfare requirements that they use when sourcing meat hit new heights last week when the third-largest public pension fund in the US, New York State Common Retirement, penned a letter to McDonald’s warning it about “potential financial and reputational risks associated with McDonald’s chicken welfare practices.” New York State Comptroller Thomas P. DiNapoli signed the letter, which Bloomberg released last week.
“We are not surprised by the letter as around the world we are seeing more and more pension funds and big investors concerned about the way meat is produced who are engaging major food companies to manage the environmental, social and ultimately financial risks meat production is causing,” Maria Lettini, director of the $8 trillion FAIRR investor network wrote to AgFunderNews.
“For example, this letter follows the scandal with Brazil’s BRF, the world’s largest poultry exporter, earlier this year. BRF shares plummeted by 6% after the European Union banned exports of chicken processed in three of its plants, following an investigation by Brazilian authorities on food safety checks and levels of salmonella.”
In the letter, DiNapoli applauds McDonald’s for updating its chicken welfare policies in 2017, but notes that they fall short of the best practices imposed by competitors like Burger King, Subway, Sonic, Jack in the Box, and 80 other fast food retailers. During recent years, these restaurants have announced new mandates that require their chicken suppliers to comply with standards from the Royal Society for the Prevention of Cruelty to Animals (RSPCA) or the Global Animal Partnership (GAP) by 2024. McDonald’s 2017 policy changes fall short of either standard’s requirements, says DiNapoli.
NYPF is not the first funding outlet to quantify animal welfare. In April 2016, a group of institutional investors worth $1 trillion and led by Coller Capital joined forces to lobby 10 publicly-traded food companies over the use of antibiotics in their supply chains.
Tyson Ventures, the investment vehicle of the world’s largest poultry company, has made sustainability a central component of its strategy, backing plant-based meat companies like Beyond Foods and Memphis Meats. And two years ago, a 40-strong investor coalition including Swedish state pension funds, put pressure on food companies to diversify their offerings to provide more plant-based options.
Consumers Continued Appetite for Improved Animal Welfare
The growing tide of scrutiny against mega fast food chains is nothing new in recent food news, but the addition of a powerhouse like New York Pension Fund, which holds nearly $350 million of McDonald’s stock, shows that fast food vendors may start to feel pressure from other channels as opposed to just consumers. Celebrities, athletes, and other public figures have also used their platforms to help consumers’ voices be heard, but investors and financial outlets may be able to pressure companies in more direct ways.
“Investors are significant because they are the ultimate owners of listed companies. That means they have tremendous influence with companies to make change happen. This is especially the case when investors collaborate together through networks such as FAIRR,” says Lettini. “I think we’ll also see more, and stronger action because it’s becoming easier for investors to spot the problems in their portfolio. New tools such as the Coller FAIRR Protein Producer Index are now emerging which provide freely-available information on the sustainability performance of the world’s biggest meat, fish and dairy companies. That is closing a blind spot for investors and catalyzing action.”
McDonald’s, which feeds an estimated 68 million people or 1% of the world’s population each day, has followed suit when it comes to standards for egg-laying hens, committing to phasing out the use of battery cages, which are small cages allotting each bird less square-footage than a sheet of paper, by 2025. It’s also committed to using pork produced without gestation crates—restrictive cages used to separate sows during their pregnancy to the point of preventing them from being able to turn around—by 2022. But when it comes to conditions for meat birds, referred to as broilers in the poultry industry, McDonald’s has lagged.
The February 2018 Business Benchmark on Farm Animal Welfare (BBFAW) report ranked McDonald’s as having a high level of animal welfare compared to 110 other international fast food chains. McDonald’s scored higher than other mega restaurants like KFC, Burger King, Subway, and Starbucks on the subject of animal welfare. The aspect that set it apart during the analysis was the company’s decision to make animal welfare and addressing consumers’ concerns a key aspect of its business operations.
In October 2017, it announced eight commitments designed to improve chicken welfare throughout its supply chain, which includes providing housing that allows chickens to engage in natural behaviors and the implementation of on-farm monitoring systems as well as third-party audits. The announcement also called for the creation of an independent Global Chicken Sustainability Advisory Council.
As the letter notes, however, McDonald’s does not require its suppliers to comply with GAP standards, which primarily focus on providing chickens with better living conditions like less crowding in confinement houses and access to the outdoors.
There is a business-related benefit to improved animal welfare beyond the ethical aspects, DiNapoli writes in the letter. Consumers are showing an increased demand for improved animal welfare in the ballot box and the drive-through and they are willing to seek out products that meet their animal welfare expectations.
DiNapoli closes his letter by calling on McDonald’s to provide a response detailing its efforts to improve its chicken welfare policies so that they meet RSPCA and GAP standards. According to Lettini, this probably won’t be the last time we see finance-backed pressure on companies to address animal welfare.
“Investors are increasingly recognizing the long-term risks associated with intensive factory farming. Last year’s, ‘rotten meat scandal’ sparked consumer outcry, numerous import bans on Brazilian beef and a single-day fall of 11% in the share price of the world’s largest meat processor JBS. The global meat industry is plagued by a complex and opaque supply chain, switching hands and crossing borders multiple times before reaching our plates. With limited traceability, an export ban for poor animal welfare and hygiene can cause tremendous financial losses. So, it is really becoming part of responsible asset management for investors to take action on animal welfare issue.”