As a rating and research agency, Vigeo Eiris evaluates organisations’ integration of social, environmental and governance factors into their strategies, operations and management – with a focus on promoting economic performance, responsible investment and sustainable value creation. Vigeo Eiris, born from the merger of two leaders in their historical markets, is rooted in Europe and is now positioned as a global player in ESG research.
Animal welfare as an indicator topic
From environmental risks to employee rights, corruption to climate change, Vigeo Eiris assesses a wide range of sustainability issues, including farm animal welfare factors.
Nikki Gwilliam-Beeharee, Director of Research, explains that livestock and farm animal welfare has been rapidly emerging in recent years as a business issue for global food companies.
She says, “Animal welfare issues affect a wide range of stakeholders: the animals themselves, the environment, local communities, company employees and the end consumer. This can
translate into a large number of potential risks and opportunities for companies and investors.” According to Vigeo Eiris, if a company is seen to be mismanaging animal welfare standards at any point in its supply chain then business risks can arise. The main risks include:
- The increased risk of food safety crises. For example, in 2007 when a British inquiry into mad cow disease found that the infectious agent was spread by cattle, who are normally herbivores, being fed the remains of other cattle. The inquiry showed there was diminishing demand for beef alongside a decrease in the retail price. There were also increased costs for businesses, some actors had to pay to dispose of by-products that they used to sell and all actors incurred costs to bring their businesses into compliance with new government regulations.
- Operational and legal risk. Communities who believe their local environment has been negatively affected by intensive farming may protest or work with governments to disrupt
company operations. For example, local community opposition to a new, $320 million poultry facility in Tonganoxie, Kansas forced poultry giant Tyson to search for alternative locations in Tennessee.
- The risk of a deteriorated brand image. This can lead to the loss of consumer confidence and negatively influence the workforce morale. For example, over the last few years
there has been negative media coverage in the UK and the USA when companies have been exposed in cases of animal cruelty.
- Environmental damage and biodiversity loss. By degrading the environment and biodiversity that it relies on, a company reduces its own capacity to produce and sell goods in the long-term. For example, the over-use of antibiotics and the extremely restrictive living conditions used in intensive farming is producing animal breeds that are less healthy and less disease-resistant.
Integrating animal welfare into core assessments
It is the impact on stakeholders and the business risks that have led Vigeo Eiris to integrate animal welfare into its core assessment of any company selling animal-based food products. As a result, every investor receiving Vigeo Eiris’s assessment of a food company obtains information on its animal welfare performance as part of that assessment. This integration also means that animal welfare issues impact the overall ESG score for these companies. As animal welfare is integrated into core assessments in this way, investors can also benefit from the business insight this topic brings.
An indicator of broader awareness and responsibilities
“Every investor who receives Vigeo Eiris’s assessment of a food company receives information on its animal welfare performance as part of that assessment.” – Nikki Gwilliam-Beeharee, Director of Research at Vigeo Eiris.
Many modern large food producers have multitiered global supply chains including vendors, partners, subcontractors and sponsors, in complex webs of interrelationships across multiple jurisdictions.
These opaque networks can mask dangerous vulnerabilities: a problem in one area can quickly ripple up and down the chain, leading to severe reputational damage. The 2013 horsemeat scandal in the UK is one example of the complexity of modern day supply chains, according to Gwilliam-Beeharee. “The scandal demonstrated the lack of knowledge companies had about their supply chains and what can go wrong when there isn’t a good understanding and strong control mechanisms.
This in turn led to a drop in consumer confidence and reputational damage for the companies tainted by horsemeat,” she explains. For Vigeo Eiris, strong performance on animalwelfare is an indicator of good supply chain management. Welfare concerns must be addressed throughout the entire value chain, from farm to consumer level, in order to be effective. Companies that are successfully managing animal welfare are more likely to be managing associated ESG risks in the supply chain to a high standard.