FAIRR Initiative: Sustainable proteins engagement

Give a brief overview of your initiative, its objectives, and why you decided to undertake it.

Six years ago, investors saw material investment risks in the meat and dairy industry due to several ESG impacts, including high levels of greenhouse gas (GHG) emissions, pollution, and antibiotics use. About 23% of emissions came from agriculture, forestry and associated land use, and FAIRR research has calculated that meat companies stand to lose up to $11 billion of EBITDA from future carbon pricing. Yet no major food manufacturers or retailers were considering diversifying away from animal proteins towards more sustainable proteins such as plant-based meats as part of their risk mitigation strategies.

FAIRR’s Sustainable Proteins engagement sets about changing this.

Launched in 2016, the six-phase engagement was the world’s first and largest investor engagement of its kind. It targeted 25 large food manufacturers and retailers including Nestlé, Costco, Amazon, and leading UK supermarkets Tesco and Sainsbury’s. The engagement called on companies to diversify their protein sources to drive growth, make alternative protein an affordable option, reduce ESG risk exposure, and build a resilient food system while improving their ability to compete and innovate.

The key objective was to ask the companies to set time-bound commitments to increase the share of alternative proteins (more sustainable alternatives to animal proteins) in their product portfolios.

From an initial coalition in 2016 of 40 investors managing $1.25 trillion of assets, investor support for the engagement grew by 1300% over five years and in its last phase was supported by investors worth $18 trillion in AUM.

The engagement has had a real-world impact in the food sector and helped drive innovation and the distribution of alternative protein products. The number of retailers and manufacturers setting targets to expand their alternative protein portfolios rose from zero to seven since 2018. Unilever has committed to reaching a staggering $1.2 billion in sales of meat and dairy alternatives between 2025 and 2027. UK retailers Tesco and Sainsbury’s have demonstrated global leadership on protein diversification. Tesco has committed to a 300% increase in sales of meat alternatives by 2025, pledging to halve the environmental impact of UK shopping baskets, while Sainsbury’s has ambitious plans to increase the volume of its plant-based protein and dairy to keep up with growing consumer demand.

The fifth phase of the initiative was completed in 2021. The ongoing sixth engagement phase is dialogue-based and focuses on monitoring corporate commitments, encouraging knowledge sharing, and aiming to improve public disclosure using standardised metrics.

Describe how your initiative is aligned to Active Ownership 2.0.

1. The IPCC is among bodies to recognise how animal protein contributes nearly a third of GHG emissions, drives deforestation, and adds to global health challenges, such as antimicrobial resistance (AMR). According to the UN-backed body, a switch to a more plant-based diet is the most impactful way to alleviate these challenges and take strides towards achieving several Sustainable Development Goals (SDGs) (e.g., SDGs 2, 3, 12, 13, and 15).

   We have witnessed the impact of global shocks on our food supply chains, which have exposed the fragility of the food system and brought urgent focus to the need for resilience in an increasingly resource-constrained world. It has also been a catalyst for accelerating innovation in food technology and driving government action.

2. Our investor engagement on sustainable proteins was collaborative, working closely with investors and companies to achieve the desired outcomes by setting clear tasks and milestones for each company.

   Throughout the engagement, we facilitated dialogues between investors and companies, as well as technical roundtables. We took a multi-phased approach, producing publicly-available research at the end of each phase, praising those with good results, and adding to our asks at each phase to drive progress. Since its launch, we have achieved widespread media coverage, including by Reuters, The Telegraph, Bloomberg and the Financial Times. This was effective as it placed companies under the spotlight and encouraged them to improve their results.

3. Our theory of change was built on clearly evidencing the material risks for makers and sellers of meat and dairy products, and by sharing best practice and market insights to create a race to the top. Our regular reports and dialogues backed this up, clearly illustrating progress and best practice. These include: Plant-Based Profits: Investment Risks and Opportunities in Sustainable Food Systems; Appetite for Disruption (I): How Leading Food Companies Are Responding to the Alternative Protein Boom; Appetite for Disrupt ion (II): A Second Serving; and Appetite for Disruption (III): The Last Serving.

   Through dialogue and communication with companies, the engagement intended to drive real-world outcomes by encouraging companies to evaluate current exposure to animal proteins and the risk profile of supply chains. We asked companies to assess the strategic implications of growth plans that have a higher reliance on animal proteins, and commit to transitioning to global business models based on less resource-intensive ingredients and products. We encouraged companies to develop cross-functional strategies, set clear goals, and agree timescales to support a pathway for action and report on the right metrics to measure their progress.

   By addressing these actions, investors were looking for companies to build a future-proofed business that is resilient, adaptable, and profitable in the long-term.

4. Since launching in 2016, the six-year investor engagement has delivered on the objectives laid out at each phase. Over the first five phases, the focus was on raising awareness of the issues, gathering information on strategic approaches, assessing progress on the development of diversification strategies, improving disclosure, and publicly committing to set time-bound commitments to drive the transition. The sixth phase, which focuses on monitoring commitments, is ongoing.

   It might seem obvious now that companies like Beyond Meat have become such a success story, but it was highly innovative at the time to consider selling plant-based meats at affordable prices in the meat aisle, and to call on the food sector to invest in this type of innovation.

   But encouraging companies to set time-bound commitments to grow the share of nutritious plant-based and alternative proteins in their product portfolios has helped drive the consumer transition to more sustainable and healthier diets, and has reduced consumption of, and over-reliance on, animal protein. This has helped create a healthier, more sustainable and equitable food system, while protecting future food security.

   FAIRR’s research indicates that 2021 was “the year of cultivated meat”, with investment in technology reaching $506 million. In July 2021, Nestlé announced a collaboration with Future Meat Technologies. This was the first time a company in FAIRR’s engagement scope partnered with a new entrant in the field of cultivated meat.

5. Investors have acknowledged that the engagement’s collaborative approach is critical to driving outcomes.

   Throughout the engagement, FAIRR facilitated dialogue between the target companies and investors. In the ongoing phase of the engagement, 84 investors with $23 trillion of AUM expressed interest in participating in dialogues. About 83% of companies in the engagement will participate in dialogues and meet with FAIRR and investors.

   We knew there was a ‘first-mover’ problem, whereby one large food firm did not want to invest for its competitors to benefit. By working as an investor collaboration and engaging with 25 large players at once, we were able to drive collective change.

6. The initial challenge was getting companies to accept alternative proteins as a viable market. The idea of putting a plant-based burgers in the meat aisle was unusual, as was having a team solely focused on R&D for plant-based products. However, by engaging with companies and educating them on the growth potential offered by alternative proteins, these two ideas became commonplace. Now, 40% of companies in the engagement have a plant-based research team.

   Following feedback, we found that many companies were overburdened with questionnaires on their ESG performance. Therefore, we shifted our approach for the current phase to dialogue based. This allowed for more open and honest conversations between companies and investors, providing us with an opportunity to share tailored follow-up questions. The effort will enable us to continue to provide clear recommendations on where companies can improve.

The results achieved in the initiative to date, including: evaluation of its success against the objectives; any adjustments to plans going forward; and any insights learned from this project that can be applied more broadly?

Clear time-bound commitments are crucial to measure progress and ensure accountability. After five years of engaging with the largest publicly-listed food retailers and manufacturers, FAIRR and the investor signatories have achieved a milestone. For the first time, companies are making formal commitments to increase volumes and sales of meat and dairy alternatives and/or reduce brand-level emissions. In 2021, seven companies set such a target. While not perfect, these targets demonstrate an evolution in recognising the materiality of protein diversification as a crucial aspect of growth and carbon mitigation strategies.

The engagement has resulted in significant progress on emissions reporting, with 48% of companies now publicly disclosing their emissions from animal agriculture (Scope 3), up from 21% in 2019. Some 52% have set a net-zero ambition, an increase from just 8% in 2019, while 68% now have Scope 3 targets for reducing agricultural emissions in their supply chains, which represent approximately 92% of each company’s total GHG emissions. By encouraging companies to diversify their portfolios and increase their plant-based and alternative protein offering, the engagement addresses other ESG risks including biodiversity, climate risk, and health.

The results demonstrate the effectiveness of the collaborative approach. By working closely with investors and company representatives, we have been able to continue developing the engagement to provide clear recommendations to drive real-world outcomes.

Going forward, we will produce a qualitative assessment based on the progress made by the company since Phase 5 and FAIRR’s evaluation framework. This will provide a forward-looking outlook on progress and the expected trajectory for the next 12 months, whether it’s positive, neutral or negative. The engagement will continue to assess the companies currently involved and aims to add more, focusing on laggards and giving those performing well time to deliver on their targets.

Results from the engagement have demonstrated the importance of diversifying product portfolios to build resilience against global shocks, as demonstrated by the recent geopolitical situation. By placing less reliance on specific commodities, companies are able to build resilience against, and effectively manage, ESG risks.

In a world where food prices are soaring and resources and land are dwindling, shortening the supply chain by using plant-based protein for human consumption is a more effective method of sustaining the growing human population while respecting planetary boundaries.