Jeremy Coller Foundation report illustrates the risks to investors from factory farming

December 14, 2015

Most investors have not woken up to the fact that factory farming presents very real risks to their portfolios and so needs to be considered as part of the investment process, says a new report by the Jeremy Coller Foundation. The FAIRR (Farm Animal Investment Risk & Return Initiative) report, shows the potentially catastrophic environmental, social and governance risks posed by factory farming, from antibiotic overuse, which endangers human health to staggering levels of CO2 emissions.

As COP21 ends today in Paris, the report also highlights the attendant issues around climate change which are exacerbated by factory farming such as water scarcity and land degradation.

Key findings from the FAIRR report include:

Animal factory farming has established itself as the predominant mode of livestock production.

An estimated 70% of farmed animals are now raised in this system, including 99% of US farm animals, and now many Asian countries have started to implement intensive animal farming systems at pace and scale.

A knowledge gap exists about animal factory farming risks among investors.

Despite the evidence of its potential impacts on areas such as public health, the environment and food safety, animal factory farming has not historically received meaningful attention from the responsible investment community.

This report is a toe in the water to broaden current understanding of risk and opportunity linked to investment in animal factory farming.

Researchers Verisk Maplecroft analysed several economic, academic and NGO studies to understand whether there was financial vulnerability for long-term investors. It is the first study to reveal unpriced risks from the impacts of wider environmental, social and governance issues on animal factory farms.

Animal factory farms are vulnerable to at least 28 ESG issues that may damage their financial performance and returns.

The key risks are:

  • Environmental – These include issues such as climate change, water scarcity and water pollution. Reports indicate that if the industry was forced to meet the costs of its pollution, this could equate to billions of dollars. As one of the largest contributors of greenhouse gas emissions, the sector may also suffer long term damage from regulation aimed at supporting the transition to a low-carbon economy.
  • Social – The report concludes that there is a significant amount of material value potentially at risk from social health impacts. These include the overuse of antibiotics in factory farms, pandemic risk and reputational damage to companies due to changing consumer attitudes. For example, the research describes how the 2009 outbreak of H1N1 strain of swine flu, thought to have originated in a US factory farm, wiped around US$3bn of value off the MSCI US Agriculture and Food Chain Index in just two weeks. The 2015 outbreak of avian flu in the US, whose spread was catalysed by intensive farming, had similarly devastating financial impacts
  • Governance: There are four broad governance issues that impact the animal factory farming industry, with potential changes to subsidy support from governments presenting the most significant financial risk. For example, one study argues that the success of the animal factory farming model is due largely to subsidy support, including almost US$4bn that the US industry receives in benefits annually from subsidised grain production to developing countries also rings alarm bells for investors due to less robust corporate governance in these countries.

Some leading investors have already started to integrate animal factory farming risks into investment processes.