Case Study

Robeco: Farmed animal issues part of the next ESG frontier

Robeco is fully owned by ORIX Europe, a subsidiary of ORIX Corporation. Robeco is one of the world’s largest sustainable asset managers, with approximately EUR 167bn in assets under management. Based in the Netherlands, Robeco was an early signatory to the PRI and has sustainable investing as one of its strategic pillars.

Deep dive into farm animal welfare issues & sustainable food

Robeco undertake an annual consultation with a range of stakeholders to identify three material ESG topics for the year ahead that require deep dive research to better understand the risks and opportunities. In 2015 farm animal welfare was identified by Robeco as one of these three issues for further research and during 2016 issues of animal welfare and sustainable agriculture were explored in depth to inform both portfolio management and engagement activities.

Engagement Specialist Peter van der Werf explains why Robeco chose farm animal welfare as their key social issue, “Societal megatrends such as the growing global population and
increased wealth in developing world are driving demand for more meat protein. However this puts a lot of strain on natural resources. On top of that, meeting this demand is creating negative environmental impacts such as unsustainable levels of carbon emissions and waste. We expect that governments in many countries will need to redefine laws and cut subsidies around meat production. However, this will take a significant amount of time and timing is difficult to predict. If you couple that with increasing insistence in the developed world for good quality meat and high welfare standards, you have large risks and opportunities that the meat producers, processors and retailers need to act on. We believe these risks to be highly material for the companies and their reaction can result in positive value creation for shareholders.”

Shifting from sustainable agriculture to sustainable food

In early 2018, Robeco renamed its sustainable agriculture strategy to the sustainable food equities strategy. Van der Werf explains, “The food sector is undergoing a radical transformation. Demand for food is increasing, projections show 70% more food will be needed to feed the global population by 2050, and at the same time there are shifts in consumption with consumers more willing to pay a premium for sustainable goods, and at the same time food science and technological innovation are increasingly important productivity drivers. Each of these are significant changes to the status quo and provide interesting and attractive investment opportunities”.

Engaging with food and beverage companies

Robeco has raised issues of animal welfare and intensive farming with investee companies for a number of years, usually as part of other dialogues. For example, van der Werf explains, “A European retailer and supermarket chain told us that it regards farm animal welfare as the next ESG frontier to understand and implement higher standards for.”

In the wake of its deep dive research, Robeco identified 11 companies within its portfolio that have high levels of exposure to issues of animal welfare and intensive farming, and is working with them over the next few years to address the issues identified in research.

A sharp focus on antibiotics

In late 2017, alongside FAIRR and BBFAW, Robeco organised a Business Roundtable to bring together investors, companies and industry experts to share knowledge on the topic of
antibiotic use in the meat supply chain. Van der Werf explains, “Companies and investors are inadequately informed not only about the risks, but also about the opportunities involved.
The roundtable sought to address both the company and investor perspectives by building the corporate case for prioritizing animal welfare  and phasing out antibiotics, as well as the case for engaging on these topics, and considering them as part of ESG integration.”

“If consumers are willing to pay five cents more per kilogram for meat in the store, the animal industry can phase out the use of antibiotics.” – Peter van der Werf, Engagement Specialist at Robeco

The roundtable included inputs from industry experts including Nutrivice Consultancy. Van der Werf continues, “Nutrivice told the roundtable that there is a need to educate people involved in the food industry about biological matters related to livestock matters, and the dangers connected with the irresponsible use of antibiotics. In terms of phasing antibiotics out of the supply chain, Nutrivice have calculated that if consumers are willing to pay five cents more per kilogram for meat in the store, the animal industry can phase out the use of antibiotics.”

Adjusting animal feeds to combat climate risk

Robeco believes that for almost every ESG risk, there is also an opportunity, and one of its investment strategies is to invest in companies whose products provide solutions or mitigate
risks. Within agriculture, Robeco sees significant opportunities through biotechnology and specialty chemicals that can be added to animal feed to  help tackle emissions from the sector.

Van der Werf says that although specialty chemicals are currently a niche area, they expect emissions from animal agriculture to come under increasing scrutiny, creating a growing market for products that reduce animal emissions. He explains: “Emissions from meat production have gone under the radar to date, but that is changing. In a recent meeting we presented our environmental research on how oil majors are adapting their business models to cope with climate change and one client responded, ‘but what about agriculture?’ So we see this as an area for close attention that will gain more traction over the next five years.”

As an example of a company working to reduce animal emissions through feed additives Van der Werf mentions a Dutch life and materials sciences company. The company derives almost a third of its annual sales from animal feed, and has created a feed additive that can be added to cow feed, that it says, can reduce animal methane emissions by over 30% without negative impact on animal welfare, performance, or the amount of feed they consume.

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