FACTORY FARMING

EXECUTIVE SUMMARY
> Ignoring ESG issues associated with animal
factory farming leaves investors exposed to
significant material risks.
Animal factory farming has not historically received
meaningful attention from the responsible investment
community. However, in a relatively short period of time
it has come to dominate global meat production despite
wider risks over its potential impacts on areas such
as public health, the environment and food safety.
The available literature studied for this report shows
that these risks are material for mainstream investors,
especially those with significant exposure to the
agricultural and food value chains.
> Animal factory farming is a new phenomenon that
has established itself as the predominant mode of
livestock production.
Over the past half century drivers such as population
growth, rising incomes and urbanisation have driven
a sharp increase in meat consumption and a shift
towards factory farming as the way to meet demand.
An estimated 70% of farmed animals are now raised
in this system, including 99% of US farm animals 1 .
Now many Asian countries have started to industrialise
their animal farming systems at pace and scale.
> A knowledge gap exists about animal
factory farming risks among investors.
This report analysed several economic, academic and
NGO studies to understand whether there was financial
vulnerability for long-term investors due to the rise of
intensive farming. Most of these studies focused on
While industrial farm animal
production has benefits,
it brings with it growing
concerns for public health,
the environment, animal
welfare, and impacts on
rural communities. 3
Pew Commission on Industrial Farm
Animal Production (US)
the sector’s vulnerability to policy and regulation and
we believe that this report is the first study to reveal
unpriced risks from the impacts of wider environmental,
social and governance issues on animal factory farms.
> Animal factory farms are vulnerable to at least
28 ESG issues that may damage their financial
performance and returns.
This diverse range of 28 issues are split into
‘environmental’, ‘social’ and ‘governance’ risks.
The links between ESG issues and financial outcomes
can be complex and difficult to assess, but nevertheless
a hard line can often be drawn between issues such as
droughts or food contamination and financial performance.
This report has developed a framework to link ESG issues
with four key financial levers: ‘production and price’,
‘market access’, ‘reputation’ and ‘legal and regulatory’.
The key risks are:
••
Environmental – These are the most quantifiable
of the three (ESG) areas and include issues such as
climate change, water scarcity and water pollution.
For the latter the example of North Carolina is cited,
which permanently banned new pig factory farms in
2007 to protect water courses and prevent pollution.
Reports indicate that if the industry was forced to
meet the costs of its pollution, this could equate to
billions of dollars 2 . The chapter also cites the large
contribution of the livestock sector to climate change
(14.5% of all man-made GHGs) and shows how the
costs of ‘heat stress’ could significantly harm cattle
farmers in the next 30 years.
••
Social – The report concludes that there is a
tremendous amount of financial value potentially
at risk as a result of social issues. These include
health impacts from the overuse of antibiotics
in factory farms, pandemic risk and reputational
damage to companies due to changing consumer
attitudes. For example, it describes how the 2015
outbreak of bird flu in the US, thought to have
been catalyzed by factory farms, caused over
$3.3bn of economic costs. The example of Yum!
and McDonalds losing US$10.8bn of combined
market capitalisation after a food safety scandal
in a Chinese supplier is also explored.
THAI AGRIBUSINESS CPF DOWN 15% DUE TO AVIAN FLU (2013) YUM! AND MCDONALD’S LOSE $10.8BN OF COMBINED MARKET CAP IN EXPIRED MEAT SCANDAL (2014)
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