Case Study

Boston Common Asset Management: Engagement with an impact

Boston Common Asset Management is an experienced investment manager dedicated to the pursuit of both financial return and social change. The firm manages over US$2.7 billion in assets, as of June 2018, investing with a long-term horizon and has been widely regarded as a leader in the responsible investment field since it was founded in 2002.

Animal welfare guidelines

Boston Common Asset Management uses a comprehensive set of indicators and instructions known as its ‘ESG Guidelines’ to help define which stocks they prefer, and those they choose to avoid. Steven Heim, Director of ESG Research at Boston Common explains that while animal welfare has always featured as a consideration at the firm, the level of detailed guidance increased when one particular client requested it for their own portfolios in 2006. Now the firm’s ESG Guidelines contain very specific animal welfare factors, for example they do not invest in companies that primarily operate factory farms, that use animals for entertainment purposes, and companies that manufacture genetically engineered growth hormones for livestock. This is in addition to expanding its ESG guidelines related to animal testing for products.

Boston Common currently avoids investment in several large food companies such as Smithfield Foods (now a subsidiary of WH Group of China) and Tyson Foods largely due to animal welfare issues.

Active ownership to protect value and welfare standards

Boston Common Asset Management is wellknown for its strong active ownership programme, and it has a long history of engagement on animal welfare and intensive farming related issues.

From 2005 through 2007 the firm led a coalition of investors to question Dean Foods’ branding of dairy products as ‘organic’ when a sizable portion of the milk for the products came from an industrial-scale factory farm with about 8,000 cows in confined sheds and feedlots, (rather than grazing pasture as US federal organic regulations required). The brand in question was the ‘Horizon Organic’ dairy brand and Heim explains that, “Besides complying with the law itself, we questioned whether Dean Foods’ procurement of milk from factory-farms violated consumer trust and therefore jeopardised the value of its organic brands and share value”.

“The firm rejects companies that primarily operate factory farms or that use animals for entertainment purposes.”

– Steven Heim, Director of ESG Research at Boston Common

The issue led to a boycott of the Horizon Organic brand from members of the Organic Consumers Association and led some US retailers to cease stocking its products. Heim explains “When consumers pay a premium for organic milk, they generally expect that cows have access to pasture and gain a sizeable percentage of their nutrients from grass… The Horizon Organic farm that I visited in Idaho had about 8,000 cows, over 4,200 of which were milking cows, and one calf, with only 600 acres of pasture. It was an unbelievable ratio. A lot more pasture is required for that many animals. After our engagement, Horizon later ended its practice of selling off new borne calves and replacing them with year old calves that had not been raised organically.” Boston Common ultimately divested its holdings in Dean Foods.

More recently in 2017 Boston Common engaged with French supermarket group Groupe Casino regarding the company’s cage free egg policy. Casino has supermarkets across the world, but only developed its cage free egg policy for its French operations. Heim explains, “Casino has a good set of welfare policies in place, including a commitment to make eggs 100% cage free by 2020. We learned however, that this policy did not extend to Latin America. So we raised the issue with Casino. They explained to us that Brazil’s egg supply chain is less centralised than in France and this meant introducing a cage free policy was a more complex task. However the company has now committed to being 100% cage free by 2025 in Brazil for its own brands.

Boston Common also joined FAIRR’s antibiotics and sustainable protein engagements in 2016, Heim explains, “Antibiotic resistance and the climate risks linked to animal protein production are some of the biggest issues the world faces. Therefore even though Boston Common doesn’t have holdings in any of the companies engaged we felt it was critical to lend our voice to these important engagements.” Boston Common has also engaged with companies to argue against the use of growth hormones, in particular recombinant bovine growth hormone (rBGH) which is used on some dairy farms to increase milk production.

Coming risks: changing climate is changing agriculture

Heim sees climate change and the environment as a big risk for the agriculture sector and something that the investment community is not paying enough attention to. He explains, “Only 10% of all corn grown in the U.S is for direct human consumption. The rest is grown for livestock feed or ethanol fuel, and distiller’s grain byproduct is used for feed too. Corn is a major user of water, which is a concern with the droughts we are experiencing. If you link that with the fact that 25% – 35% of methane emissions in the U.S. may be from livestock, it means that cows fed on a grain diet as is typical on an animal factory farm are a long-term risk as the need to manage water and emissions builds.”

“Cows fed on a grain diet – as is typical on an animal factory farm – are a longterm risk as the need to manage water and emissions builds”

– Steven Heim, Director of ESG Research at Boston Common

A recent report by the U.S. Environmental Protection Agency (EPA) on US GHG emissions, showed that livestock agriculture is the largest single source of methane in the country, more than the oil and gas industry. Methane is considered a potent climate forcer, over 80 times more potent than CO2 on a 20-year basis. Heim adds, “There is a great deal of focus on fossil fuels, but we need to do the math and look at the role of agriculture in global climate change, there is huge risk. The status quo can’t continue for animal welfare, human health or environmental reasons.“

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The information in this article should not be considered a recommendation to buy or sell any security. All investments involve risk, including the risk of losing principal.