Why Investors Want Fast Food Climate Accounting: Q&A with FAIRR

Maria Lettini FAIRRWhen investors with trillions of dollars at stake ask about the environmental risks in a company’s supply chain, corporate leaders tend to pay attention. FAIRR’s engagement on the global fast food supply chain is a prime example.

Started about three years ago by Jeremy Coller, founder and CIO of the private equity firm Coller Capital, FAIRR is a network representing more than $11 trillion in combined institutional investor support. The network engages institutional investors, companies, and other stakeholders around the material financial risks and opportunities associated with global protein production.

In late January, FAIRR sent letters to the world’s largest fast food companies, urging them to take action addressing serious climate and water risks in their supply chains.

More than 80 investors signed the letters to Domino’s Pizza, McDonald’s, Chipotle Mexican Grill, Wendy’s, Yum Brands, and Restaurant Brands International. Yum Brands owns KFC, Taco Bell, WingStreet, and Pizza Hut while Restaurant Brands International owns Burger King, Tim Hortons, and Popeyes.

“We felt that climate risk was not being addressed comprehensively when we looked at the fast food chains,” says Maria Lettini, director of the FAIRR initiative. Recently we caught up with her to learn more about what’s at stake for these companies.

What prompted FAIRR’s letters to major fast food companies?

One of the things we did last year was produce the Coller FAIRR Protein Index. We looked at the 60 largest meat, poultry, dairy, and fish producers globally and assessed them across nine environment and social risk factors. These large listed companies are not managing environmental and social risks very well so we wondered if the consumer-facing companies are managing the risks.

When we started thinking about an engagement in which we would have investors driving the conversation, fast food companies came to mind because they serve 120 million customers a day globally and the majority of their products have some meat and dairy component.

A large portion of their climate change-related impact is related to animal protein sources, but they were focused on operational reductions. Things like feed, enteric fermentation, land use are significant components of their GHG emissions and should be addressed.

Why have fast food companies been slow to address their environmental footprints?

In their defense, no one was really asking them about these issues. That’s all changing now. The investor community is very aware of products that contribute to climate impact, particularly as there have been more frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD).

So now they’re being asked specific questions and they’re having to give specific answers. It’s an evolution in the understanding in the market.

Which steps does FAIRR want to see these companies taking?

We came up with four key asks that we thought would start to move the sector. We are asking these companies to develop supplier policies on animal protein sourcing.

We want them to measure, report, and reduce GHG emissions and fresh water use. The associated quantitative metrics, where possible, should be time-bound so we didn’t just see progress moving sideways.

Another aspect is disclosure — we want the companies to publicly disclose their progress on an annual basis, and report to other public platforms such as CDP.

Importantly, we want to see them commit to undertaking a climate scenario analysis in line with TCFD recommendations. The companies would begin to understand the resilience of their own animal protein product lines and their commodity sourcing for meat, dairy, and eggs — and that understanding will help them set more ambitious targets.

What’s at stake for companies if they don’t act?

It comes back to supply chain security, brand reputation, financial growth, and whether or not they’re aligning their sustainability ambitions to the issues that are going to have the most impact. Investors understand what they need to see in order to give them a sense of comfort.

Are any examples of successes?

McDonalds recently set a goal to reduce emissions intensity by 31% by 2030 from 2015 levels, and they’re the only one addressing issues beyond operational efficiencies — hence the focus on this core group.

We see more movement on the retailer and supermarket side. For example, UK supermarket Tesco also has a complex supply chain. They set a goal to reduce Scope 3 GHG emissions by 17% by 2030, and they have also been working with their suppliers to set science-based targets based on the 2-Degree Scenario.

What happens now?

We’re still in the early stages of this engagement. The companies have received their letters, and four out of the six companies have already responded acknowledging receipt and that they understand the asks.

Now the idea is to have meetings where we hear formal response on their plans. We expect to get those set up by early next month.

Do you expect this engagement to be successful?

This method of engagement with companies, in FAIRR’s experience, has produced good results. We’re optimistic that this will help move the fast food restaurants in the right direction. If these six companies incorporate positive progressive internal policy changes, it changes the entire climate landscape.

Obviously we don’t have a crystal ball, but companies often respond quickly when large shareholders are asking them questions. Private sector and institutional investors are a huge lever of change.

The 4th Annual Environmental Leader & Energy Manager Conference takes place May 13 – 15, 2019 in Denver. Learn more here.

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