The Farm Animal Investment Risk & Return (FAIRR) Initiative has issued a second booklet of case studies that showcases how leading investors and investment service providers from around the world are integrating issues relating to factory farming into their investment processes. Cornerstone’s Michael Shavel was asked to contribute to the booklet regarding his work on antibiotics and animal farming. Other featured investors include ACTIAM, Australian Ethical investment, Coller Capital, IFC, New Crop Capital and Robeco Institutional Asset Management. Below we offer an excerpt from the FAIRR report, which can be accessed in full here.  A summary of Cornerstone Capital Group’s October 2015 report can be accessed here.

Michael Shavel, Cornerstone’s Global Thematic Analyst, explained to FAIRR that clients and prospects are increasingly asking about sustainability issues related to intensive farming. He said, “It is an important issue that is moving from the niche to the mainstream. Some clients are concerned that there are serious health issues potentially connected to the factory farming model and they want to know how they can align their portfolios with their concerns, or make sure they don’t own companies that are ignoring these issues”.

Assessing Managers

On behalf of its investment management clients, Cornerstone Capital Group performs due diligence on managers, evaluating both their financial performance and the degree to which they incorporate ESG factors into investment strategies.

For clients with a focus on animal welfare and factory farming, the firm leverages its research to include questions related to these topics into the manager due diligence process. Shavel explains, “Where relevant, we ask portfolio managers questions on areas such as the food safety supply chain to get a sense of whether they take these issues seriously. It becomes clear pretty quickly whether they have considered intensive farming issues without any depth”. For example, if the manager owns a poultry producer, Cornerstone will ask how that manager thinks about the development of the antibiotic-free chicken market and what impact it might have on margins and future market share.

Antibiotics and Animal Health

One of Cornerstone’s flagship reports and work streams has been their thesis on antibiotics and animal health. In brief this argues:

  • That antibiotic resistance is a growing concern and that the misuse and overuse of the drugs in animal agriculture is one of the drivers;
  • That a confluence of regulatory action (see table) and heightened consumer awareness is exerting pressure on livestock producers to reassess their usage of antibiotics; and
  • That there is both investment risk for those companies ignoring this trend and investment opportunity – for example in a number of other specialty and nutritional feed additives that are utilized for similar purposes.

Shavel elaborates on this theory, pointing to growing consumer demand for meat and poultry raised without the routine use of antibiotics. Market research firm IRI, he notes, found that in the year up to 25 Jan 2015 sales of antibiotic-free chicken increased 25% in dollar terms to 11% of overall chicken sales in the US.

This changing consumer demand, and changing regulation presents significant near-term and long-term risk to earnings for some animal-health companies. And Shavel points to US poultry producers Sanderson Farms as an example of a company that has so far resisted the industry’s moves to curb antibiotic use.

Turning Risk into Opportunity

Cornerstone’s research argues that as nutritional feed additives are generally produced by major chemical companies and sit as only a small portion of overall revenues, investors should look to companies with more concentrated exposure to prebiotic and probiotic feed additives for a chance of good returns. Shavel points to companies like Danish biotech firm Novozymes, who recently partnered with Adisseo to develop a new probiotic product for poultry that could act as an alternative to using antibiotics as a growth promoter. “It’s important to watch these companies,” says Shavel, “because if the data around some of their products is compelling it could be scaled up and really move the needle for a business of their size.” Cornerstone has also highlighted other areas of potential opportunity such as vaccines and biosecurity – i.e. alternative processes, systems or products that can help replace antibiotics and reduce the chances of an infectious disease being carried on farms.

Beyond Antibiotics

Shavel acknowledges that the overuse of antibiotics is not the only ESG issue associated with factory farming, but says that Cornerstone has yet to do in-depth research on other factors such as environmental damage. “On a personal level,” he adds, “it’s clear to me that advances like antibiotics have enabled factory farming to be one of the primary methods for feeding the world but that some rethinking of intensive farming is going to need to come into play”.

Antibiotics and Animal Welfare

Shavel also points to the complex, ongoing discussion on the relationship between antibiotics and animal welfare. He says, “We’ve observed consumers campaigning for ‘no antibiotics for animals ever.’ But when engaging with companies on this we also hear the argument that antibiotics are necessary to treat certain types of disease (even on less intensive/non-factory farms), and refusing to treat sick animals wouldn’t be consistent with animal welfare obligations. Thus there is an important nuance, says Shavel, between slogans such as ‘no antibiotics ever’ and investors’ calls for an end to the routine use of antibiotics important to human health in their global meat and poultry supply chains.


The FAIRR Initiative is a collaborative investor network. It aims to raise awareness of the material impacts that factory farming can have on investment portfolios and works to help investors share knowledge and form collaborative engagements on issues related to factory farming.

Michael Shavel is a Global Thematic Analyst at Cornerstone Capital Group.  He is responsible for researching industries, companies and trends in the field of sustainable finance.  Prior to joining the firm, Michael was a Research Analyst on the Global Growth and Thematic team at AllianceBernstein where he covered the energy, industrials, and materials sectors. He holds a B.S. in Finance from Rutgers University and is a CFA Charterholder.