Targets turnaround — Five out of six fast-food brands in $11 trillion global investor engagement have now publicly stated they will set, or have already set, science-based targets (SBTs) to reduce their emissions — up from just two companies last year.
Weak on water — Companies have been much slower to address water scarcity and pollution risks to their meat supply chains
Slow progress on TCFD — Despite progress on climate commitments, none of the six companies have completed or disclosed a TCFD-aligned climate scenario analysis, despite this being mandatory in the UK by 2025 and the US Federal Reserve calling for increased disclosure against climate risks.
London and Boston, 30 April 2021 — A two-year global investor engagement with fast food giants has resulted in companies ramping up their climate commitments in the face of growing investor pressure to decarbonise their supply chains.
Investors focussed the engagement on six leading fast-food chains with a market cap of $260 billion: Chipotle Mexican Grill, Domino’s Pizza, McDonald’s, Restaurant Brands International (owners of Burger King, Popeyes and Tim Hortons), Wendy’s Co. and Yum! Brands (owners of KFC, Pizza Hut and Taco Bell).
Fast-food gets greener
As of today, five of those fast-food chains (McDonald’s, Yum! Brands, Chipotle, Domino’s and Wendy’s) have either set, or stated they will set, aggressive SBTs to reduce their emissions. That’s in contrast to last year when only one company (McDonald’s) had set a science-based target (SBT), and one (Yum! Brands) had announced its intention to set an SBT. This rapid uptake of ambitious pledges in just one year shows the fast-food sector is accelerating action on climate amidst rising pressure from investors.
Just this week, Yum! Brands announced that its SBT had been approved. The company aims to reduce Scope 1, 2 and 3 emissions by 46% by 2030, consistent with reductions required to keep global warming within 1.5 degrees and will reach net-zero emissions by 2050. This new target means Yum! Brands now has the most ambitious climate commitment among its peers in this engagement.
In addition to those five companies, a sixth company, Restaurant Brands International (RBI), has disclosed that it will set a global GHG target that includes its Scope 3 emissions, though it remains unclear whether it will be approved by the Science Based Targets Initiative (see Fig.1 below for a full list of commitments).
The coalition, facilitated by global investor network FAIRR and sustainability organisation Ceres, originally launched in January 2019 with the backing of investors with combined assets of $6.5 trillion. Since then, it has grown by 75% to include over 90 investors with combined assets of $11.4 trillion, signalling an increased awareness amongst investors of the threats posed to food systems by climate change, water scarcity, and water pollution.
The firms were asked to de-risk their meat and dairy supply chains by setting ambitious targets to reduce their greenhouse gas emissions, to undertake climate risk scenario analysis, and reduce the water usage and water quality impacts in their animal protein value chains.
Investors aren’t the only ones with an appetite for change; consumer shifts are also pushing fast-food firms to go green. McDonald’s is set to test a vegan McPlant burger in key markets this year, Domino’s added plant-based options last year, and Burger King, who launched a new plant-based ‘Rebel Whopper’ in the UK in January, has announced its ambitions to transition up to 50% of their UK menu to plant-based protein by 2030. All cite soaring public demand for meat alternatives as drivers for these new product offerings, which is being driven by concerns over health risks, animal welfare and the environmental impact of livestock farming.
Climate risks remain
Fast food faces significant climate risk. This year, US livestock producers face 30% higher feed costs due to expanding drought, Texas livestock farmers lost $228 million last month to storm damage, with newborn calves killed, grazing fields destroyed, supply chains disrupted and feedlots running empty. Climate change is already proving costly for the industry, and FAIRR has calculated that potential future carbon taxation could cost 40 leading global protein producers a further $11.6 billion.
Yet investors are concerned that the sector has yet to assess the resilience of its protein sourcing strategies in a 2-degree global warming scenario. This type of scenario-specific assessment is a key recommendation of the Task Force on Climate-Related Financial Disclosures (TCFD).
TCFD-aligned climate disclosure in the agriculture, food and forest products sector linked to company strategy fell by 7% between 2017-2019 and the engagement finds limited progress on TCFD climate risk analysis by all six companies. These are concerning findings for investors given that UK companies will be legally required to report against TCFD by 2025 and the US Securities and Exchange Commission (SEC) has also begun to explore potential regulations that would require companies to disclose their contributions and exposure to global warming.
Weak on water
Although all six companies now acknowledge the materiality of water risks to their supply chains, half haven’t disclosed any assessment of water risks in their supply chains, while efforts to reduce supply chain water use and pollution have been limited in scale and scope.
Kirsten James, Director of Water, Ceres said: “It’s encouraging to see the amount of progress by the fast-food sector in tackling climate action in just two years. However, we need these same companies to step up and make strong commitments to address water scarcity and water pollution, which also create substantial risks within dairy and meat supply chains. We hope that with continued deep engagement, investors can help raise up sustainable water management as the next frontier in fast food sustainability.”
As the third phase of the investor engagement opens to additional investor participation, ongoing dialogues will focus on tackling water risks and improving climate scenario analysis as companies work to achieve their ambitious climate targets.
Jeremy Coller, Head of Jeremy Coller Foundation, Founder of FAIRR and CIO of Coller Capital said: “For two years, investors have pressured fast-food giants to come up with a recipe to stem their huge levels of climate risk. In this breakthrough year, we’re seeing that work bear fruit: fast-food chains managing over 100,000 restaurants worldwide are now setting, or planning to set, aggressive climate targets aligned with a commitment to keep global warming below 2°C. An essential ingredient in meeting these ambitious targets will be protein diversification. Fast food needs to see a meaningful shift towards sustainable plant protein products if it is to deliver on its commitments.”
Eugenie Mathieu at Aviva Investors said: “As investors, we have a vital part to play in the fight against climate change to safeguard our clients’ investments and ensure the stability of our planet and its natural resources. Fast food is a sector that’s highly vulnerable to climate-related risk so it’s encouraging to see so many of the firms in this engagement taking significant steps to reduce their carbon footprint.
“However, we now need companies to apply the same level of urgency to the water risks in their value chains. It’s been estimated that US$301 billion of business value is at risk unless companies improve and innovate around water use, pollution and management. Meat and dairy production uses one-quarter of all the global freshwater used worldwide, so we expect better stewardship from the sector. Investors will be watching closely to see how they manage this pressing issue.”
Stephanie Mooij, Responsible Investment Manager at Aegon Asset Management said “The growing number of fast-food companies adopting ambitious emissions targets will be reassuring to ESG-conscious investors that are increasingly aware of the costs of climate change.
“However, as companies work to achieve their targets, we need to see greater adoption of TCFD-aligned scenario analysis to help companies and their investors understand the implications of a warming planet on business models, and think strategically about both the risks and the opportunities it poses across their value chains. We’re proud to have been part of this collaborative engagement to help drive a more sustainable food system that is resilient and ready for the low-carbon economy.”
Aurora Samuelsson, ESG Investment Analyst at Skandia Mutual Life Insurance Co said: “For many years, fast food has lagged behind other high-emitting sectors when it came to acknowledging and acting on the very serious material and reputational risks associated with rising global temperatures.
“Since this engagement started two years ago, it’s been positive to see these companies committing to reduce their emissions in line with climate science and the goals of the Paris Agreement. This shows how important climate mitigation and adaptation is becoming. With investor and consumer scrutiny rising, it’s simply too costly to ignore. We look forward to seeing the steps these firms will take to achieve these targets, including the diversification into innovative sustainable protein products that is already underway.”
Figure 1 – Company Commitments (as of 26 April 2021)
COMPANY
TARGET STATUS
TARGET VALIDATION
McDonald’s
Science-based target
Yum! Brands
Science-based target
Chipotle
Formal commitment to SBTi
Science-based target
Domino’s
Publicly stated intention to set SBT
Science-based target
Restaurant Brands International
Publicly stated intention to set a GHG target
Unknown
Wendy’s Co.
Publicly stated intention to set SBT
Science-based target
Notes to editor
For more information, including interviews and comment, please contact:
FAIRR Initiative: Sophie Grant, ESG Communications (London)
T: +44 (0) 7817371323 | E: sophie@esgcomms.com
Ceres: Miranda Cawley, Ceres (Boston)
T: +1 617-247-0700 ext. 223 | E: mcawley@ceres.org
Note that investors with combined assets of over $11 trillion are backing the Ceres/FAIRR climate and water engagement which is the subject of this press release. The FAIRR Initiative has more than 200 institutional investors with over $38 trillion of combined assets participating in its activities. The Ceres Investor Network on Climate Risk and Sustainability comprises 163 institutional investors, collectively managing more than $25 trillion in assets.
About Ceres
Ceres is a nonprofit organisation working with the most influential capital market leaders to solve the world’s greatest sustainability challenges. Through our powerful networks and global collaborations of investors, companies and nonprofits, we drive action and inspire equitable market-based and policy solutions throughout the economy to build a just and sustainable future. For more information, visit ceres.org and follow @CeresNews.
About FAIRR
The FAIRR Initiative is a collaborative investor network, founded by Jeremy Coller, with a membership of $33 trillion assets under management. FAIRR works with institutional investors to define the material ESG issues linked to intensive livestock and fish farming systems and provide them with the tools necessary to integrate this information into their asset stewardship and investment decisions. This includes the Coller FAIRR Protein Producer Index, the world’s first comprehensive assessment of the largest global animal protein companies on environmental, social and governance issues. Visit www.fairr.org and follow @FAIRRInitiative.
