Aviva Investors is a mainstream global fund manager with around £246 billion of assets under management. Its clients include large corporate and institutional investors and it was one of the first global asset managers to integrate ESG issues into its investment decision-making process.
Abigail Herron, Head of Responsible Investment Engagement at Aviva Investors explains that there are a number of reasons why mainstream investors such as Aviva Investors are starting to take animal welfare factors into account. “If a company does not manage its animal welfare standards and supply chain oversight then it is exposed to reputational risk, as shown in the horsemeat scandal. But more than that, we also find that the issue provides us with a useful insight into the overall quality of corporate management. For example, EU legislation in 2012 banning caged eggs was 12 years in the making but still caught some food companies off-guard, hurting their core revenue streams. We saw poorly-managed companies lose ground to those companies who better managed animal welfare so had the foresight to move to free-range eggs throughout their supply chains in advance of this legislation.”
Aviva Investors also discusses with investee companies how different slaughter methods can have a bearing on profitability. For example in the poultry industry, if a method requiring live birds to be shackled is used instead of controlled-atmosphere killing, it can have a negative impact on carcass yield and result in more worker injuries.
Putting it into practice
Aviva Investors’ philosophy on ESG issues is that as responsible investors, they protect and enhance value for their clients by promoting more responsible and sustainable business behaviours. Its Global Responsible Investment team and fund managers work together to integrate ESG issues into their approach, attend meetings together where possible and share tools such as Aviva Investor’s ‘ESG heat map’. This tool brings together ESG research from a range of specialist providers and highlights where the ‘red flags may be on a particular company.
Another tool which Aviva Investors uses to help integrate farm animal welfare factors into its investment process is the Business Benchmark for Animal Welfare (BBFAW). This is a benchmark that ranks how the world’s leading food companies are managing and reporting their farm animal welfare practices. The trajectory of a company on this benchmark – i.e. whether it is going up or down in the rankings each year – provides valuable insight into the Aviva Investors team. Herron highlights that she would like a company’s trajectory on the BBFAW to become “a consistent data point used by ESG researchers across the industry”. She believes that this would be a “tipping point for the emergence of farm animal welfare as an ESG issue”
Aviva Investors is an active owner, i.e. it is keen to engage with its investee companies on matters that may affect the long-term value of the company. However, as a mainstream investor Aviva Investors holds stakes in thousands of companies and cannot engage with all companies about all issues. It must therefore prioritise which issues and companies require engagement.
In this context explains Herron, “Animal welfare is still an emerging issue and therefore does not get the attention more developed ESG issues such as climate change, executive pay or boardroom diversity get. But while I would class it as emerging, it is still a pertinent issue to many companies.” She says that the process that Aviva Investors follow in this area is to look at who the leaders and laggards are in the BBFAW and to map them against Aviva’s top holdings. “We engage both with the top-performing companies in the benchmark that we have a significant holding in (to congratulate them on their approach); and with the ‘laggards’ in the bottom tier of the benchmark where we have a significant holding, to help them to improve standards.”
“Farm animal welfare is an emerging but pertinent issue”
– Abigail Herron, Head of Responsible Investment Engagement at Aviva Investors
A good example of Aviva Investor’s active ownership approach on this issue was its engagement with Hormel Foods, the US food company that produces canned meat product SPAM. Hormel is one of the largest pork producers in the world and still uses small metal gestation crates as containers for their pigs, even though these crates have recently been banned in various jurisdictions around the world including the EU and a double-digit number of US States. As a shareholder in Hormel, Aviva Investors has real concerns that the company should be more proactive when it comes to responding to this clear industry trend especially as many predict that more jurisdictions might ban these containers. In 2014, therefore, Aviva Investors supported a shareholder resolution calling on the Board to disclose the financial and operational risks of its gestation crate policy.
The gestation crates resolution won the support of large proxy voting firms ISS and Glass Lewis and, excluding shares controlled by Hormel itself, 50.4% of all shareholders voted in favour of the proposal.
Engagement questions to ask
Herron explains that she would strongly encourage other investors to consider asking similar questions of major food production and retail companies in their engagements. She shares typical questions that are asked when trying to ascertain how well a company is managing this issue. These include asking:
- Whether there is knowledge of ‘infrastructure’ issues (e.g. use of gestation crates) at the Board and operational level.
- Whether animal welfare performance or animal welfare KPIs feature in executive and/or management remuneration.
- Whether the company has ever ceased business with a supplier over farm animal welfare issues.
- Whether they think that their BBFAW ranking is a fair assessment.
- If they have a standard for humane slaughter, and whether any suppliers are able to offer controlled atmosphere killing.
- Whether and how they are able to ensure high farm animal welfare standards across global supply chains.
- If there has been any consideration about the carbon and water impacts of livestock in their greenhouse gas data.
- Which food assurance standards they rate, and aspire to.
To help the issue grow from its status as an emerging issue, Herron concludes that more needs to be done by all parties. Policymakers can look at systemic issues such as outmoded livestock infrastructure, companies need to address disclosure and transparency across their supply chain, and investors should include animal welfare as part of their routine ESG inquiries.