Climate change and factory farms

Factory farming is a both a leading cause of climate change and susceptible to negative financial impacts because of it.

The factory farming, transport, and slaughter of roughly 90 billion land animals each year contributes an estimated 37% of global greenhouse gas emissions (GHGs)—more than all forms of human transportation combined.^[1] Factory farming is also the leading industrial emitter of both methane and nitrous oxide, each of which has a more destabilizing effect on climate than carbon dioxide.^[2] 

Industrialized animal agriculture is also the leading cause of deforestation. Each year, the world’s largest meat, dairy, and egg producers contribute to the clearing of millions of acres of tropical forest for livestock grazing and soy production, 70 to 75 percent of which becomes feed for billions of factory-farmed chickens, pigs, and fish.^[3] Whether forests are cleared or burned, their destruction releases sufficient carbon into the atmosphere to make deforestation responsible for 10 to 15 percent of total global greenhouse gas emissions, raising animal agriculture’s total contribution to between 20 and 30 percent.^[4] 

Climate change directly threatens factory-farming operations

Climate change poses numerous threats to industrialized animal farming operations. One is loss of livestock productivity due to heat stress. Among cattle, poultry, and swine, high temperatures lower feed intake, limit weight gain, and have a negative impact on fertility as well as milk and egg production. High temperatures also increase livestock mortality rates. As of 2019, researchers estimated the annual cost of heat-stress losses at between $1.9B and $2.7B in the U.S. alone.^[5] According to the USDA, approximately half of these losses accrue to the dairy industry, owing primarily to decreased output.^[6] 

Additional climate-change related losses to factory farming operations include those related to shortages and increased prices of water, the increased prevalence of parasites, and the destruction of livestock and infrastructure by climate-change-related extreme weather events including floods, hurricanes, tornadoes, and wildfires. Such climate-related disasters may also result in animal-feed supply chain interruptions that drive up the cost of this critical input, resulting in increases in raw material and operating costs that could negatively impact corporations’ financial performance in the short and long-term. As Tyson explains in its 2019 10-K filing, “Fluctuations in commodity prices and in the availability of raw materials, especially feed grains, live cattle, live swine and other inputs could negatively impact our earnings. Our results of operations and financial condition, as well as the selling prices for our products, are dependent upon the cost and supply of commodities and raw

materials such as beef, pork, poultry, corn, soybean, packaging materials and energy…. Production and pricing of these commodities are determined by constantly changing market forces of supply and demand over which we have limited or no control. Such factors include, among other things, weather patterns throughout the world, outbreaks of disease, the global level of supply inventories and demand

for grains and other feed ingredients, as well as agricultural and energy policies of domestic and foreign governments. Volatility in our commodity and raw material costs directly impact our gross margin and profitability.”^[7]

Climate change-related regulation poses a serious financial threat

Increasing concern about climate change may also result in the increased regulation of factory-farming operations. Regulation could take the form of carbon taxation and/or required emissions reductions. Either would negatively impact factory farming operations, and each is on the radar of the world’s largest meat, dairy, and seafood producers. As Tyson warned investors in its 2019 10-K filing, “Increased government regulations to limit carbon dioxide and other greenhouse gas emissions as a result of concern over climate change may result in increased costs, capital expenditures and other financial obligations for us.”^[8][a]

Some countries are already considering imposing carbon emissions-related regulations on factory farming operations. Germany is contemplating raising the current seven percent value-added tax (VAT) on meat to 19 percent. Denmark, New Zealand, and Sweden are evaluating similar moves. In May 2020, the EU Commission announced its “Farm to Fork” strategy, a component of the EU’s Green New Deal. In addition to limiting factory farming’s contributions to climate change, the strategy involves mandatory labeling requirements designed to “empower consumers to choose healthy and sustainable diets” by informing purchasers about “the nutritional, climate, environmental and social aspects of food products.”^[9] 

At the same time, scientists and economists around the world are increasingly calling on these and other national governments to reconsider their support of industrialized animal agriculture, including by shifting tax and credit incentives and redirecting roughly $500M in subsidies away from environmentally degrading methods of food production.^[10] As the global Food and Land Use Coalition has described the impetus for its support of governments’ efforts to develop multi-pronged low-emission strategies, “Leaving food and land use systems on the current pathway would put the Sustainable Development Goals (SDGs) and Paris Agreement climate targets out of reach and undermine food security, creating needless human suffering, market disruption and political instability.”^[11][b]

Investors’ climate-related concerns are already driving engagement and divestment

Few factory farming-based food producers have either set emissions targets or committed to lowering them. And in recent years, concerned investors have begun engaging with them on this point and pressing them to mitigate climate change-related financial risks. In 2019, the London-based Legal & General Investment Management (LGIM) divested from Hormel over the company’s “persistent inaction to address climate risk.”^[12] The asset manager also placed retailers Kroger and Loblaw and foodservice giant Sysco on its exclusion list. Discussing the decisions, LGIM’s Head of Sustainability and Responsible Investment Strategy Meryam Omi noted, “Talks without action are no longer fit for purpose given the urgency to address climate change. This is no fad. The world is truly in the midst of a climate emergency, which could have drastic consequences for markets, companies and, therefore, our clients’ assets.” ^[c]With $1T in AUM, LGIM has a significant amount of assets to protect.^[13]

Other companies are following LGIM’s lead. By late 2019, the Oslo-based Storebrand Asset Management had placed both JBS and Cargill on its exclusion list owing to concerns regarding corrupt conduct and climate change-accelerating deforestation. Around the same time, Norwegian pension fund KLP, which manages $80 billion in assets, began openly contemplating divestment from agricultural giants Archer Daniels Midland (ADM), Cargill, and Bunge due to the companies’ continued contributions to deforestation. Investors’ and asset managers’ concerns about their own carbon footprints are likely also informing divestment decisions. As an Amundi portfolio manager observed, “It’s possible that we’ll see this type of banning or investors deciding not to invest in livestock companies or meat processors. If you are invested in livestock companies, your CO2 footprint will be too high.”^[14]

Corporate buyers of meat, dairy, and egg products under pressure to reduce climate impact are pressuring factory farming operations to reduce their own

Factory farming operations are coming under pressure from buyers who are concerned about their carbon footprints. McDonalds recently announced its commitment to a 31% reduction in emissions intensity across its supply chain by 2030. According to the company’s announcement, “McDonalds will prioritize action on the largest segments of its carbon footprint,” including meat production.^[15] Walmart has made a similar commitment, asking its suppliers, including factory farming operations, to leverage the company’s emissions reduction toolkit to reduce emissions by one gigaton by 2030.^[16] 

Other buyers of factory farmed animals are taking the more radical step of eliminating them from their supply chain altogether. In late July 2020, Kentucky Fried Chicken (KFC), which purchases more factory farmed chicken than any other quick service restaurant (QSR) in the world, issued a press release announcing it was taking the “the next step in its innovative concept of creating a ‘restaurant of the future’ by launching the development of innovative 3D bioprinting technology to create chicken meat.”^[17] Describing the move as a “response to the growing popularity of a healthy lifestyle and nutrition, the annual increase in demand for alternatives to traditional meat and the need to develop more environmentally friendly methods of food production,” KFC also cited research from American Environmental Science & Technology Journal indicating creating meat from cultured cells has “minimal negative impact on the environment, allowing energy consumption to be cut by more than half, greenhouse gas emissions to be reduced 25 fold and 100 times less land to be used than traditional farm-based meat production.”^[18]

---