Impact Update | Q3 2019

Investors take action on food systems, human rights in tech, banking sector responsibility & greenhouse gas emissions

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At Zevin Asset Management, we build responsible investment portfolios for our clients. We then address risks and create positive social impact by engaging with portfolio companies. In the third quarter of 2019, we challenged companies for positive change on several important issues.

Costco’s protein problems

The link between industrial agriculture, meat products, and greenhouse gas emissions is increasingly well understood. Demand for meat has gone global and surged 372 percent since 1960 with 70 billion animals consumed yearly. Significant climate change impacts come from a beef supply chain that is plagued by poor land use and deforestation, along with the cow-burp emissions that are laughable to some but nevertheless contribute non-trivially to the greenhouse effect. Beef especially carries a heavy water cost: one burger patty represents as many as 2,000 liters of water used in the supply chain.

Meat processing plant in Saudi Arabia.

Proteins are essential for humans, but increasingly they are creating risks for food companies, food retailers, and society at large. In addition to climate risk and land mismanagement, the food sector faces a looming crisis around its addiction to livestock antibiotics and widespread lapses in animal welfare can damage brands’ relationships with their customers.

We have teamed up with the UK think tank FAIRR to better understand how these forces affect the companies in our clients’ portfolios and, alternatively, how firms might access commercial opportunity by providing other, smaller-footprint, plant-based proteins. This year, FAIRR ranked 25 companies on how well they address environmental and social risk surrounding proteins. Kroger, a new supermarket name in many client portfolios, ranked fairly well. Meanwhile, Costco ranked relatively poorly. We consulted with FAIRR’s experts and sent Costco a series of pointed questions related to climate risk analysis, water reduction in the meat supply chain, animal welfare, and what the popular discount chain is doing to merchandise and scale plant-based meat substitutes, which are currently exploding in popularity.

Costco sells 90 million rotisserie chickens per year.

We also focused specifically on new, higher-risk poultry operations that the retail club plans to bring online in Nebraska over the next several years. Costco is the leading seller of rotisserie chickens in America, moving upwards of 90 million units per year at $4.99 each. This is the first time, however, that a US food retailer has attempted to control so much of its own chicken supply chain.

The advantages are clear: uniformity, cost savings, and Costco says that its chicken operation will provide fair price security for local farmers. Costco has said less about the standards and density with which chickens will be housed. Next quarter, we will press for a meeting with executives on Costco’s protein supply chain risks, which are growing as it directly enters the hen house.

China challenges in tech

If you live in the United States and you have a smartphone, there is a close-to-50 percent chance that it’s an iPhone. Having penetrated Western markets with its hardware, Apple hopes to get consumers on the upgrade cycle and sell them services like AppleTV+. But China remains a huge opportunity for smartphone sales, and Apple’s eagerness to do well in that market carries significant risks. Last quarter, as NBA teams came under pressure for free speech limits they accept in order to do business in China, several other giant US firms (including Apple, Walt Disney, Microsoft, and Nike) faced similar questions.

Responding to Chinese pressure, Apple pulled from its App Store an iPhone program that helped Hong Kong democracy protesters coordinate with each other and avoid police. (The app, while controversial, is still available on Google’s Android platform.) This comes amid renewed reports that Apple compromised the security of Chinese users’ data when it subcontracted local iCloud service to a China-based firm.

An Apple Store in China.

Apple CEO Tim Cook generally downplays human rights concerns, and he’s drawn praise for navigating trade tensions between China and the Trump administration. However, it’s clearer than ever that Apple is playing with fire: poor handling of human rights puts people in danger even as the company risks wearing out its welcome in China’s consumer market. Meanwhile, thousands of Chinese workers continue to face stressful and often unsafe conditions in Apple’s factories.

We have engaged with Apple across this range of issues for several years, and last quarter we submitted a shareholder proposal challenging the company to finally tie a portion of Tim Cook’s paycheck to social, human rights, and diversity metrics. The proposal (and a group of investor partners we assembled including SEIU and the State of Rhode Island treasurer’s office) will help turn up the heat on the above concerns, and we will report on progress.

What Else Is New?

• This summer, we joined a coalition of investors to call for changes that would strengthen the Equator Principles, an industry-wide commitment of global banks to address negative impacts of large project lending. Investors are pressing banks to go beyond those commitments and pay more attention to human rights, indigenous community concerns, and climate change risk.
• Together with another responsible investing firm, we wrote to Marriott, TJX Companies, Apple, and Costco, asking how those large employers might make it easier for all their workers to get to the polls and vote in local and federal elections.

• In a meeting with UPS, we reiterated our call for the logistics company to get a handle on greenhouse gas emissions in its sizeable airplane fleet. UPS has improved its emissions disclosure in response to our challenge earlier this year — but the new figures reveal just how far it has to go. We learned much about UPS’s encouraging electric vehicle plans and we urged the company to set an absolute carbon goal that does not ignore its airline.
• We challenged pharmaceutical makers AbbVie, GlaxoSmithKline, and Novartis to improve their policies and resources to help poor people around the world access medications in line with the United Nations Sustainable Development Goal 3: Good Health and Well-Being.

Thanks for reading and sharing. For more on this work and our broader advocacy, join us on our website, Medium, Twitter, and LinkedIn. And please don’t hesitate to contact Pat Miguel Tomaino (pat@zevin.com) with your questions, thoughts, and suggestions.

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