Unsustainability, pollution and labour malpractice in the meat industry has become an issue for investors, and they aren’t being silent about it.
Large meat companies have become major polluters of America’s air and waterways, and investors are becoming more vocal about them cleaning up their acts.
In the past, meat producers have been criticised for failing to sufficiently cut greenhouse gas emissions, and in recent months their workplace practices have come under scrutiny as thousands of slaughterhouse staff became infected with the COVID-19 virus. Investors now want meat companies to tackle another risky aspect of their supply chain: the air and water pollution linked to the growing of animal feed and the raising of pigs, cows and chickens at industrial-scale facilities. The worry is that a failure to act quickly could lead to tougher environmental regulations, more fines and higher compliance costs – with a material impact on the bottom line.
“It’s time to examine the model and ask if the pollution-related risks – to workers, the environment, and to public health – are being adequately managed,” says Mary Minette, director of shareholder advocacy at Mercy Investment Services Inc., which owns stakes in Tyson Foods Inc., Hormel Foods Corp., JBS SA of Brazil and Smithfield Foods, a unit of China’s WH Group Ltd.. “The answer is no.”
Although environmental groups have traditionally led the way in imploring meat producers to reduce contamination, more investors, local communities and even fast-food chains are now joining the cause. Mercy noted that Pilgrim’s fourth-largest customer, Walmart Inc., has introduced stricter guidelines about suppliers’ management of manure, nutrients and fertilizer. Other customers, such as McDonald’s Corp. and U.K. supermarket chain Tesco PLC, have set science-based emissions targets that require producers to adjust their supply chains. “Failing to address supply chain water pollution may therefore harm Pilgrim’s position as a competitive supplier, resulting in reduced revenue,” Mercy argued.
Pilgrim’s board disagreed with the proposal and said the company’s existing practices and procedures were sufficient “and that providing the contemplated report is unnecessary and would impose costs on the company that will not create value for our stockholders or the communities in which we operate.” In an emailed comment, a spokesman added: “We require that our contract growers comply with all local, state, and federal environmental regulations applicable to their operations.”
In 2019, Achmea Investment Management, a Dutch company with €185 billion under management, began to discuss water use and water quality with several companies, including Hormel, Nestlé SA and The Kraft Heinz Co. The engagement was done on behalf of the Dutch pension fund for the retail sector and another for the hospitality sector.
As an ESG topic in corporate boardrooms, “water has been overshadowed by climate change,” said Frank Wagemans, senior engagement specialist at Achmea. “But meat companies better act before regulation kicks in and forces them to do business in a sustainable way.”
As U.S. meat production has soared, fuelled by demand from China and other overseas markets, the facilities have become larger and the number of companies in the industry has shrunk.
When an environmental group, Mighty Earth, analysed water pollution data collected by the Environmental Protection Agency for the 2012-2017 period, it found that the top meat companies collectively discharged nearly 220 million tons of manure and facility waste into the environment, either directly into waterways, onto land, or by storing it in earthen impoundments. That’s about 500 times the sewage waste generated by New York City each year. JBS generated some 80 million tons of sewage and was the top discharger.
When that EPA data was mapped onto the 2019 spring flooding outlook provided by the National Oceanic and Atmospheric Administration, the analysis showed that beef processor Cargill Inc. had the most facilities concentrated in regions classified as “high risk” for flooding, while Tyson had the greatest overall exposure to flood risk area. In an emailed response, a spokeswoman for Tyson said: “All our facilities have wastewater permits and specific parameters we comply with based upon the regulatory requirements. We do not discharge manure or sewage as Mighty Earth states in this analysis.” In an email, a Cargill spokesman said: “We’re committed to supporting agriculture practices that optimise fertilizer use and incorporate 4R nutrient stewardship principles.” The 4Rs, which stand for right source, right rate, right time, and right place, is a fertilizer management system.
Flooding is especially worrisome when it comes to pig waste, which is often stored in large pits or lagoons, some the size of a football field. In 2018, when Hurricane Florence hit the U.S., at least 30 such lagoons in North Carolina overflowed and discharged pig faeces into the environment. A similar problem occurred in 1999 when Hurricane Floyd pummeled North Carolina, home to more than 9 million hogs. A 2015 study in the journal Science of the Total Environment found “evidence of high concentrations” of faecal bacteria in surface waters near pig farms, more than 15 years after the storm.
Tyson faces risks to its social license to operate, as well as reputational, competitive, and financial risks as consumer attention to the environmental impacts of meat production is increasing,” the resolution said. In 2017, for example, Tyson was forced to shelve plans to build a $320 million chicken processing plant in eastern Kansas after local residents fiercely opposed the project, citing fears of groundwater contamination and noxious smells.
The risk of water contamination, and the potential backlash, has spurred more investors to act. In 2018, for the fourth year in a row, a group of asset managers and institutional investors filed a resolution at Tyson’s annual meeting asking the company to implement a policy to reduce risks of water pollution. The resolution said that crops grown to feed the 39.6 million livestock produced weekly by Tyson was a primary source of water pollution if badly managed, while the animal waste from Tyson operations and those of 11,000 contract farmers could contain unwanted pathogens.
In a comment on the 2018 shareholder resolution, the Tyson spokeswoman said: “Water is a vital natural resource to our world and we aim to balance responsible water stewardship with protecting the quality and ensuring the safety of our products.”
Big meat producers have moved to fix some of the pollution problems. In its 2019 sustainability report, Tyson said it was working on a new initiative to set more narrowly focused water targets, and that it had teamed up with the World Resources Institute to assess water risk and develop a water stewardship strategy.
Smithfield has set a target to reduce solid waste by 75% and to achieve zero-waste-to-landfill certification at 75% of its U.S. processing facilities by 2025. In fiscal 2019, Sanderson Farms said it recycled 27% of the water it withdrew. Perdue runs a large-scale poultry litter recycling operation to prevent nutrient pollution.
Nonetheless, investors say their financial exposure to pollution-related risk remains significant. In June, Farm Animal Investment Risk and Return, or FAIRR, a nonprofit group that represents investors with $25 trillion under management, published data showing that 94% of 60 major meat and dairy producers were at “high risk” on the issue of waste and pollution. Their average score on managing water pollution was 13/100, where 100 represents the best practice.
In addition, “66% of all the companies demonstrate little to no awareness of the need to manage manure sustainably,” concluded the report. Not a single company met standards set by the Sustainability Accounting Standards Board, which seeks disclosure of the amount of manure generated.
Meat producers can pollute the air and water directly and indirectly. One direct source is the waste and manure produced by animals, which contains nitrogen and phosphorus. Another is the effluent from slaughterhouses. In addition, chicken and turkey producers use large exhaust fans to blow waste ammonia gas from poultry sheds into the environment, from where it can end up in groundwater. Livestock production generates 314 million metric tons of waste each year in the U.S., about 100 times the volume of human waste created, according to FAIRR.
But the leading source of U.S. water pollution emanates indirectly from the 40% of U.S. corn and 70% of soy that is grown for animal feed, a business that is dominated by major grain merchants such as Archer-Daniels-Midland Co., Bunge Ltd. and Cargill. The manure and fertilizer runoff from the soy and corn fields deposits excess nitrogen and phosphorus into nearby waterways, causing a form of pollution the EPA calls “one of America’s most widespread, costly and challenging environmental problems.”
Wagemans of Dutch asset manager Achmea said that in early October he raised the issue of water pollution with executives at Hormel Foods Corp.. Like most meat companies, Hormel has set targets for some aspects of its own operations, but not for animal feed suppliers, who are responsible for the bulk of water use, waste and pollutant discharge. “We are nudging food companies to take their supply chain into account as well,” said Wagemans.
Tyson, which reported sales of $42.4 billion in 2019 and is the largest buyer of feed corn in the meat industry, says it is has started to tackle the issue. In 2018, the Springdale, Ark., company agreed to support improved environmental practices on two million acres of corn by the end of 2020 by encouraging farmers to adopt better fertilizer practices and reduce water runoff and soil loss. In its 2019 sustainability report, Tyson said it had enrolled 420,000 acres as of that date.
Not everyone is convinced. Lucia von Reusner, a campaign director at Mighty Earth, says Tyson’s pronouncements are short on details. “If the company had been making progress, I think they’d want to disclose it,” said von Reusner. “Where are they implementing this? What are the outcomes? Right now, there’s nothing.” In its response, Tyson said: “Outcomes take several years to measure, but we have plans in place to ensure we are tracking against our goals.”
Trouble on the bay
The pollution problem is tough because of the surge in intensive animal farming. For example, in Accomack county, on Virginia’s eastern shore, there are now 480 chicken houses, nearly double the number that existed five years ago. Two of the biggest owners of the 85 million broiler birds annually raised there are Perdue Farms Inc. and Tyson.
The 137,000 tons of manure produced annually by the Accomack chickens gets spread on fields and can overwhelm the crops, causing nitrogen and phosphorous runoff that contributes to low-oxygen dead zones in Chesapeake Bay, America’s largest estuary. Ammonia gas emission from chicken houses add to nitrogen pollution. Research has linked meat production emissions to various ailments in people, ranging from pneumonia to asthma. Studies also suggest that the discharge from the extended meat supply chain exposes millions of Americans to harmful levels of nitrates in drinking water.
The hundreds of chicken houses located in the Chesapeake Bay area, some of which can house tens of thousands of birds, are owned by contract farmers who typically maintain the facilities and are responsible for disposing the waste. Tyson, Perdue and other meat companies own the birds, which they process and sell. Data from the U.S. Department of Agriculture suggest that the overall broiler industry in the six Chesapeake Bay states grew about 6% from 1.01 billion birds in 2007 to 1.07 billion birds in 2017. But because the birds, in general, became heavier, the amount of manure they produced rose 16% over that period.
In an emailed comment, a Perdue spokeswoman said the company had not doubled its footprint in Accomack, Va., over the past five years and currently has no construction permits pending in that county. “Over the last three years Perdue Farms has reduced the quantity of nitrogen discharged from our wastewater treatment plant by 77%,” she wrote. “We have been in compliance with our environmental permit during this time period, but have voluntarily reduced the amount of nitrogen emitted.” Tyson said: “Even though we’re a significant employer, our operations only account for about 10% of the total chicken production in the region. We have not expanded our operations in the region but instead built new chicken houses that replaced older houses.”
Another challenge is controlling pollution linked to suppliers further down the chain, such as growers of animal feed, including grain. At some Virginia sites, the over-application of manure on fields has contributed to unhealthy levels of fecal bacteria and pathogens in streams and rivers, rendering them unsafe for swimming. In Accomack County, data for January 2016 to July 2019 also showed that 22% of monitoring stations were contaminated with E.coli above the health threshold, and 21% were contaminated with enterococcus bacteria at levels deemed unsafe for water-contact recreation. “We’ve been tracking this for 10 years and the situation has gotten steadily worse,” said Abel Russ, a lawyer for Environmental Integrity Project, a non-profit group that collated the data in April.
Meanwhile, there’s mounting evidence that living near large animal production facilities can make people sick.
A 2018 study by scientists at Johns Hopkins School of Public Health found that people in Pennsylvania who lived near large-scale farms and were exposed to emissions were 66% more likely to be diagnosed with community-acquired pneumonia. Research published in the North Carolina Medical Journal in 2018 concluded that North Carolina communities located near large pig-raising operations had higher all-cause and infant mortality, though it did not specifically establish causality with exposure to hog farms. A 2019 study in the journal Environment International linked large animal feeding facilities to “reduced respiratory and allergic health among rural residents living in close proximity.”
Financial institutions are trying to get to grips with pollution and water quality risk not just for meat processors, but for food, fashion and other manufacturing businesses. “There’s new intelligence, and we have to put that into our risk models, but it won’t be done overnight,” said Christopher Flensborg, head of the climate and sustainable finance at Skandinaviska Enskilda Banken AB, or SEB, a large corporate and retail bank in Sweden. “We are currently mapping water quality and water quantity risks, and expect to do a lot of reallocation [of assets] on the back of this mapping.”
Original source: https://www.spglobal.com