Kames Capital is a UK based asset manager and a wholly owned subsidiary of the Aegon NV Group – who manage around $380billion of assets worldwide. They pursue a wide range of investment strategies for clients including pension funds, government agencies, financial institutions, wealth managers, family offices and financial advisers. These include both specific ‘ethical’ funds and mainstream funds that take ESG issues into consideration.
Factory farms incompatible with an ethical approach
Kames’ three ethical funds collectively manage approximately £2.6bn in assets. All three ethical funds screen out those companies that do not meet the companies pre-defined ethical criteria. These criteria include issues of animal welfare and mean that Kames’ ethical funds do not invest in companies that:
• Provide animal testing services;
• Operate intensive farms;
• Operate abattoirs or slaughterhouses;
• Produce or sell meat, poultry, fish or dairy products.
Head of Corporate Governance and Ethical Research Ryan Smith explains, “Our animal welfare screen is very strict and our ethical funds are some of the few available for clients who
wish to have no direct or indirect exposure to companies with poor animal welfare practices.”
Emerging issues from in intensive farming
Beyond their ethical range Kames also launched a new ‘Global Sustainable Equities Fund’ in April 2016 which will be a ‘high-conviction’ fund that explicitly integrates issues of sustainability into its investment process. This fund will not use an exclusion screen when it comes to animal welfare issues but, explains Smith, “is likely to use intensive farming as one of the sustainability issues for relevant sectors that help us focus down to a limited portfolio of 35–45 stocks which perform in terms of both in-depth sustainability and financial fundamentals.”
The fund will be looking for both ‘leaders’ and ‘improvers’ and so offers an incentive for food & beverage-related companies that may currently rely on intensive farming but are putting in place measures to improve their sustainability over the long-term.
A factor across all funds
Beyond their new fund and specialist ethical offerings, animal welfare-related issues can also shape investment decisions in Kames’ mainstream funds and form part of their corporate
engagements on ESG issues. For example, when considering investments in food production companies, Kames has identified food safety as a potential risk. Smith explains, “Probably one of the most immediate material ESG risks for investments in meat, dairy and indeed all food is food safety and supply chain management. The recent horsemeat scandal in the UK shone a light on risks linked to poor oversight of supply chains. If good safety standards are not in place food can become contaminated and pose a risk to consumers. Tainted or contaminated food can lead to costly recalls and consumer backlash, with financial consequences.”
After the 2013 horsemeat scandal, Kames held meetings with Tesco about issues of food safety to ensure they put safe and transparent supply chains in place.
Intensive farming related issues can also be passed from Kames across the whole Aegon Group. “If our sustainability team unearths an important sustainability risk,” says Smith, “then
we share that information across the wider Group to that other fund managers can act on it if relevant”.
There are also opportunities
Smith says there are also some opportunities arising in the food production sector. He explains, “There is a broader societal trend towards healthier eating – increasingly consumers are
demanding foods that are lower in salt, fat and sugar and whose origin they know. This means there are opportunities for companies specialising in product reformulation or that produce healthier alternatives. For example our Global Sustainable Equity fund has invested in Hain Celestial – a US based natural foods producer who we believe are well placed to benefit from this trend.”
“There are opportunities for companies specialising in product reformulation or that produce healthier alternatives.” – Ryan Smith, Head of Corporate Governance and Ethical Research at Kames Capital
One of Hain Celestial’s brands is FreeBird Chicken which produces high welfare, antibiotic free and organic chicken. FreeBird assesses all its farmers welfare practices against the Global Animal Partnership’s 5-Step Animal Welfare Rating Standards program – a leading international animal welfare standards rating program, which has recently been adopted by Whole Foods Market. All FreeBird farmers must be certified to at least level two.