01 June 2018
A new index to capture the investment risks and opportunities in the food sector through the ESG lens has been launched. Abigail Herron discusses the findings on 60 of the largest listed livestock and fisheries companies, many of which will feature heavily in insurers' investment portfolios
The insurance sector has long been at the forefront of measuring, monitoring, mitigating and managing risk. However, blind spots exist where investors, insurers and companies have been slow to address emergent but pertinent risks.
In the case of environmental, social and governance (ESG) risks such as climate change, it is usually in the long and short-term interests of the insurance sector to mitigate harmful impacts. For example, in 2016 a coalition of 29 of the world's biggest insurers, concluded that the 'protection gap' – the difference between the costs of natural disasters which are rising alongside climate change and the amount insured – has quadrupled to $100bn a year since the 1980s.
This week saw the launch of a new index for investors suggesting that the global food industry is another sector that insurers should look at more closely if they are to protect themselves and wider society from growing risks.
The Coller FAIRR Protein Producer Index, created by an investor network whose participants manage over $5.9tn of assets, assesses 60 of the largest listed livestock and fisheries companies, many of which will feature heavily in the investment portfolios of insurance companies. These companies have a combined market cap of circa US$300bn and have wider influence as they supply the animal protein for the countless nuggets, burgers and dairy products consumed every day.
Looking through the lens of ESG risks the Coller FAIRR Index is the first to capture the enormous investment risks and opportunities, building in this area.
Meat and fish sector is failing to manage health and environmental issues
Overall, 60% of the animal protein producers in the Index - 36 large companies worth $152bn - are categorised as 'high risk' for investors. On the issue of antibiotics alone, three in four companies display inadequate polices or have no measures in place to reduce their excessive use of antibiotics - despite emerging regulation and public and investor pressure for them to do so. Actuaries in the UK have already been urged by the medical chief officer for England to examine the impact of infections caused by antimicrobial resistance.
Major suppliers to McDonalds and KFC, including Chinese firm Fujian Sunner and Indian firm Venky's, are among those graded 'high risk' both in overall management of sustainability and in antibiotics stewardship in particular.
Furthermore, 72% of Index companies performed poorly on management and disclosure of greenhouse gas emissions, putting the implementation of the Paris Agreement in jeopardy.
From fast food to fine dining, much of the food on our plates leads back to the livestock and fisheries sector assessed by this Index. That is why it should be of deep concern to insurers and all investors that a majority of these global food suppliers are failing to manage such significant business risks.
Best practice emerges
Encouragingly, the Index also identifies a growing suite of best practices and some remarkable innovations by meat, fish and dairy producers to meet ESG challenges. From antibiotics stewardship to water management, greenhouse gas inventories to investment in 'plant based meats', there are numerous best in class practices emerging in each of the nine sustainability risk factors analysed by the Index. For example, it finds Europe-based aquaculture companies disclose particularly impressive practices compared to peers.
What is clear is that insurers need more pertinent ESG data and transparency in the meat, fish and dairy sector to be able to manage these risks more effectively. This first iteration of the Coller FAIRR Index is an excellent catalyst to further dialogue between investors and these important food suppliers to help both manage the challenges ahead.
Abigail Herron is global head of responsible investment for Aviva Investors.
The Coller FAIRR Protein Producer Index is available here.