Alliance Notes 4/6/20 : COVID-19 Brings Farm Animal Welfare into the Spotlight, Digging Deep into Responsible Mining

Monday, April 6, 2020

 

This Week at the Alliance

 

Announcements

 

  • On Tuesday, April 7 at 11am EDT, our Debt & Fiscal Governance Working Group call will feature Richard Hughes, Macroeconomic Policy Unit Research Associate at the Resolution Foundation. Richard has over two decades of experience advising governments on domestic and international macroeconomic issues, including at HM Treasury and the Public Finance Division of the International Monetary Fund’s Fiscal Affairs Department. He will summarize the fiscal aspects of his recent paper, “Safeguarding governments’ financial health during coronavirus.” The discussion will address whether emerging market governments have the fiscal space to stabilize their economies while meeting their liabilities and continuing to reform their public financial management (PFM) systems, increasing transparency and working toward best practices.
  • On Thursday, April 9 at 1pm EDT, members of the Extractive Industries Working Group will have a call with the Sustainability Accounting Standards Board (SASB) on tailings management. SASB is in the process of reviewing the tailings topic that forms part of its Metals & Mining and Coal Operations standards. This project comes in response to a number of initiatives on tailings in recent months, including the Investor Mining and Tailings Safety Initiative—sponsored by the Church of England Pensions Board and the AP Funds’ Swedish Council of Ethics—as well as ICMM’s Global Tailings Standard, set to be finalized later this year. The Alliance has been active on this issue over the past couple of years; please reach out to Andrew Howell if you would like to join this call. 
  • Later this month, on Tuesday, April 28 at 9:30am EDT, the Alliance and Reuters ESG Events will host a webinar panel on ESG in Emerging Markets: How will Emerging Market Countries and Companies Fight the Coronavirus and Climate Change? Join Director of Sovereign Research, Fergus McCormick and other policy experts for a discussion of EM’s fiscal capabilities to fight the coronavirus as well as climate change. The speakers will explore whether EM Green Deals could be part of the path to sustainable growth in the wake of COVID-19 and the role of the investment community to guide and capture returns from the post-pandemic stimulus packages aimed at sustainably reviving the economy.  

 

COVID-19 Brings Farm Animal Welfare into the Spotlight

 

Cages crowded with chickens at a factory farm. Source: HSI.

COVID-19 is only the latest disease outbreak to call attention to the linkages between animal welfare and human health and prosperity. Ebola, SARs, Nipah virus, avian influenza and now the novel coronavirus are all among the 75% of new or emerging infectious diseases that the US Center for Disease Control (CDC) has identified as originating with animals. Zoonotic diseases pose significant risk to food and financial security globally, even when they circulate only among animals. (The African Swine Fever outbreak killed off 50% of the pork population in China, the largest producing country, from 2018 to 2019.) 

In industries that deal with animals, pitfalls in corporate governance or supply chain management can enable zoonotic diseases to spread across and disrupt the entire global economy. Encroachment into natural forest areas for agriculture, mining or other development has brought humans and domesticated animals into closer contact with wild animals. Factory farms, an agribusiness staple, are often ideal incubators for diseases. High population density, low genetic diversity, and extensive use of antibiotics all compromise animals’ health. 

In this context it is no wonder that concern for animal welfare is growing among both consumers and investors. According to the Business Benchmark on Farm Animal Welfare (BBFAW), which released its eighth annual report this week, 60% of the world’s 150 leading food companies now have formal policies and management procedures to ensure animal welfare measures are implemented throughout their supply chains. However, the BBFAW report also warns that progress is still too slow among the companies in the bottom 40%, which provide little to no information on animal welfare.

The numbers are especially bad for the publicly listed emerging-market food companies (i.e. producers, retailers and restaurants) included in BBFAW’s analysis. Of these 18 companies, 11 ranked in the lowest tier, with no EM companies qualifying for Tier 1 (Leadership) or Tier 2 (Integral to business strategy). This is cause for serious concern, as companies lagging on farm animal welfare risk loss of revenue and reputation due to changing consumer preferences, regulatory developments or food safety scandals.

BBFAW rankings for emerging-market companies. Source: BBFAW.

With such wide variations in company preparedness, it’s important for investors to be aware of an issuer’s exposure to animal welfare risk. To that end, the FARMS Initiative, an off-shoot of organizations including our Agriculture Working Group collaborator Humane Society International, has released a Guidance Note for Investors with due diligence questions they recommend that investors ask  company management. Investor engagement not only enables you to protect your portfolio—it can also motivate improvements in corporate practices generally. As Dr. Rory Sullivan, co-author of the BBFAW and CEO of Chronos Sustainability, emphasizes: “In a world where farm animal welfare is an increasingly important driver of both business value, and investment risk, maintaining and improving animal welfare standards must remain a focus.” – Nadine Cavusoglu

 

Digging Deep into Responsible Mining

 

Source: Responsible Mining Foundation.

Last week the Extractive Industries Working Group hosted Pierre De Pasquale of the Responsible Mining Foundation for our monthly call. Pierre returned to our group to highlight some key takeaways from the recently published Responsible Mining Index (RMI) 2020. See his presentation here.

In the world of extractives, investing and ESG, the bi-annual RMI is an extremely useful source: a robust, transparent and methodical take on 38 of the world’s largest miners from a sustainability perspective. This document, available free of charge (including the underlying data) provides useful tools for investors to learn what big mining companies are doing—or in many cases are not doing—along six thematic dimensions. 

We highlighted our initial reaction to the RMI a few weeks ago,  but this call provided significant further detail and insight into this important work. Pierre highlighted the RMI’s focus on ”salience” rather than the narrower concept of ”materiality”: the relevance of this work is for a broad group of stakeholders, and thus the scope extends beyond factors that investors would see as material. With this in mind, Pierre highlighted six overarching conclusions from the study:

  1. Significant gaps remain. While miners have demonstrated modest progress compared with the 2018 survey, performance falls well short of “society expectations.” 
  2. Some signs of progress. That said, many miners did exhibit improvements in their scores compared with two years ago, with 19 companies exhibiting higher scores versus just three with lower scores.  
  3. Effectiveness requires persistence. Pierre noted that while stated commitments towards more responsible mining practices have increased, evidence of action on those commitments is often still lacking.
  4. Risk of “SDG Washing.” Pierre noted a positive bias in how miners discussed their initiatives and a lack of frankness in admitting where they were still falling short.
  5. Lack of data on individual mines. Most companies remain reluctant to disclose specifics about mine sites, despite a clear signal from society that this type of information is essential. More needs to be done in this area. 
  6. External requirements drive performance. Companies tend to disclose more on issues where they face regulatory requirements to do so or are pressured by external forces. This trend is evident in forced and child labor, for which disclosure is much stronger in countries where the law mandates modern slavery reports.

Pierre’s conclusion is that the signs of progress towards more responsible mining are encouraging and indicate that even more is possible if companies pursue the path from commitment to action. A positive message from this work is that pressure from outside stakeholders—whether governments, civil society or investors—can help accelerate this process. – Andrew Howell

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