Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Jessica Grant. She is from Sustainalytics. Hello.
Jessica Grant: Hi.
Black: So, Jessica, we're just approaching the end of January, or what will have been Veganuary for a lot of people. You've been doing some research into the meat industry. Why did you decide to look into this sector?
Grant: Well, from an ESG angle, the meat industry is fascinating and it's now getting a lot of attention. The politicians are discussing it, investors are scrutinizing it, and it's being discussed at most dinner tables now. And so, where we had veganism and vegetarianism, it's been around for a while now, we're now seeing this kind of boom in the flexitarian trend where traditional meat eaters are starting to reduce their meat intake. And then, you pair this with the success of these plant-based alternatives such as that of Beyond Meat and then the potential for lab-grown meat in the future and many of the reasons for all of this change is ESG related. You have the traditional reason of giving up meat because of animal welfare concerns. But now, it's more the awareness over the health impact of meat or the environmental footprint of the industry.
Black: So, if I'm a sustainably minded investor, are all meat producers excuse the pun off the menu?
Grant: Well, fundamentally, we see meat processing companies as high risk. They have a lot of ESG issues to overcome. But this isn't to say that they're all bad. We do have some that are much better at managing their ESG issues or the ESG risks such as Hormel. They have pretty good management across the board.
Black: So, what are some of the biggest concerns or flashpoints you found from an ESG perspective with some of these companies?
Grant: When we wrote the paper, we were looking at a few of the historical ESG issues for the meat industry, and then we also looked at some upcoming problem areas. One of the big ones was labour conditions and then occupational health and safety, and then also funny enough, 100 years ago, the consolidation of the industry was also an issue, one that the US Justice Department took upon themselves to fix, and they were deemed as successful until the 1980s where merger mania occurred. And now, today, we're faced with a similar situation where we have a handful of meat companies controlling the meat industries or the meat markets and from this, we are finding a lot of anticompetitive practice allegations and specifically price fixing. So, we took a big look at that.
On the environmental side of things, agriculture and in particular, livestock is being heavily criticised in scientific papers like that of the International Panel on Climate Change. And this highlights the heavy footprint of the industry in terms of its GHG emissions, land use, use of fresh water, pollution of ecosystems, deforestation was a big one, and the impact on biodiversity.
Black: Okay. But crucially, I don't have to rule out this entire sector as an investor. So, what are some of the leaders in the field?
Grant: So, as I mentioned earlier, Hormel displays pretty good management across the board, both on the social side of things and the environmental side of things. One of the interesting points or the exciting pieces of news that I came across when writing the paper came from Tyson Foods and this related to a program they were rolling out across 500 million acres of cattle grazing land in the U.S. and they were developing a sustainable beef production program, which they would audit the cattle ranchers to see that they were using best practice in terms of animal welfare and also environmental practices.
Black: Jessica, thank you so much for your time. For Morningstar, I'm Holly Black.
