- May 29, 2020
By Jacob London
The coronavirus pandemic has placed extraordinary challenges on the nation's meat industry. Dozens of meat processing plants have had to close after hundreds of workers have tested positive for COVID-19. At many other plants, production has slowed in order to accommodate social distancing guidelines and other safety measures. Many workers feel these measures have been inadequate, and continue to protest unsafe working conditions.
It was amidst these unprecedented operational and reputational challenges that the shareholders of Pilgrim’s Pride Corporation – the second largest poultry processor in the U.S. – convened last month for their annual general meeting. On the proxy statement was a shareholder proposal requesting that the company report to investors how it plans to reduce water pollution within its supply chain.
Pilgrim’s board of directors stood against the proposal, arguing that the concerns were already addressed by the company’s policies. However, the proposal received the support of 71% of Pilgrim’s independent shareholders (Pilgrim’s is majority-owned by Brazilian meatpacking giant JBS SA). In its fourth year of coming to a vote, this is the highest level of support this proposal has received, a clear signal that investors are dissatisfied with the company’s approach to managing water risks. It is particularly striking that the record vote came at a time of such turmoil for the meat industry, providing another indication of investors’ sustained focus on mitigating climate and water-related risks across the sector.
It’s no surprise that Pilgrim’s shareholders consider water pollution to be a material financial risk. Effluent discharges from the company’s slaughterhouses have resulted in myriad fines and penalties, while the vast majority of Pilgrim’s water pollution footprint is associated with its agricultural supply chain. The manure generated by the approximately 45 million birds per week the company processes contains nitrates, phosphates, antibiotic-resistant bacteria, and other pathogens which can contaminate waterways if improperly managed. Additionally, runoff of excess fertilizer used to grow the corn and soybeans to feed the animals is one of the primary drivers of toxic algae blooms. Mercy Investment Services, the lead filer of the proposal, noted that proposed state and federal regulations of agricultural practices used by farmers who supply Pilgrim’s could increase compliance costs, and that reducing their pollution footprint would make farmers more resilient to these measures.
One such proposed regulation, the Farm System Reform Act, would prohibit new factory farms from going into business and require others to cease expansions before halting operations entirely within two decades. The legislation is motivated by the pervasive health and environmental externalities associated with confined animal feeding operations, and garnered additional support last week as Sen. Elizabeth Warren, D-Mass., announced that she would co-sponsor the act along with Sen. Cory Booker, D- N.J.
Proponents of the proposal at Pilgrim’s also pointed out that failing to mitigate water pollution could reduce Pilgrim’s market share, as more major meat buyers issue their own expectations of improved environmental stewardship. For example, major retail chain Walmart has introduced expectations for its global meat suppliers related to their management of manure and fertilizer. Just as manure and fertilizer are significant drivers of water pollution, they are also prominent sources of agricultural greenhouse gas emissions. Walmart, McDonald’s, and British supermarket chain Tesco are part of a growing cohort of food retailers and restaurants setting science-based targets to reduce emissions from their operations and supply chains. All three are also members of the top ten largest customers of Pilgrim’s Pride, according to data from Bloomberg. Given agriculture’s outsized share of food retailers’ emissions, meat suppliers like Pilgrim’s may jeopardize their market share if they are slow to incentivize more sustainable manure management and fertilizer practices amongst their feed suppliers and contract growers.
Pilgrim’s certainly isn’t the only poultry company exposed to these risks, and investors are taking note. In February, a proposal concerning water risks went to a vote at Sanderson Farms, the third largest poultry producer in the U.S. The proposal requested the disclosure of water-related metrics which the Sustainability Accounting Standards Board (SASB) classifies as financially-material for poultry producers. Sanderson was more receptive to shareholders’ concerns, committing to disclose not just the metrics requested by the shareholder proposal, but to issue a report fully compliant with all of the environmental, social, and governance standards set by SASB for the poultry industry. The company noted that it made the commitment following “extensive engagement with many of its largest stockholders.”
The support for these proposals demonstrates investors’ growing awareness of the poultry industry’s exposure to water and climate-related risks. More broadly, it signals investors' expectation that meat processors proactively address these risks in order to protect long-term shareholder value, even while navigating the urgent threats posed by the pandemic.