A three-year global investor engagement with fast-food giants has resulted in significant progress on climate target setting but has raised concerns for investors about the management of both emissions and water usage in the industry’s supply chain, according to a new progress report published today by global investor network FAIRR and sustainability organisation Ceres.

Led by an $11trn investor coalition, the Global Investor Engagement on Meat Sourcing focused on six leading fast-food companies with a combined market cap of more than $281bn: Chipotle Mexican Grill, Domino’s Pizza, McDonald’s, Restaurant Brands International (RBI, owner of Burger King), Wendy’s and Yum! Brands (owner of KFC, Pizza Hut and Taco Bell). 

The coalition, which includes more than 90 investors, urged companies to de-risk their meat and dairy supply chains by setting ambitious targets to reduce greenhouse gas emissions, while reducing water usage and their impacts on water quality.

The report, Global Investor Engagement on Meat Sourcing Progress Update 2022, reveals that all six fast-food companies have now publicly set, or committed to set, science-based targets approved by the Science Based Targets initiative (SBTi). 

The SBTi is a partnership between non-profit CDP, the UN Global Compact, the World Resources Institute and the World Wide Fund for Nature driving climate action in the private sector by enabling organisations to set science-based emissions reduction targets.

Wendy’s and Domino’s have confirmed they will submit targets for approval by the SBTi. All other companies have had their science-based targets set and approved by the SBTi.

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However, only two of the six companies, RBI and Yum!, disclosed total emissions derived from animal agriculture. Both companies listed meat and dairy suppliers as responsible for more than half (57% and 51%, respectively) of their total emissions. Investors have warned that this lack of transparency in the animal agriculture supply chain could undermine the efforts of food brands to tackle climate risk.

Cristina Figaredo, senior manager for research and engagement at FAIRR, said: “Regulators and influential frameworks such as the SBTi are tightening requirements for the food sector to report and act on climate. So, investors are very concerned that ambitious climate targets by fast-food companies are not translating into action along the supply chain.

“The lack of alignment of supplier policies with corporate climate ambitions risks undermining the efforts of these high-street brands to tackle climate risk. Their performance on water is also alarmingly poor, and efforts to mitigate risks related to water scarcity and pollution have stagnated over the past year.”

According to the report, none of the fast-food companies have set enterprise-level targets to reduce water pollution and consumption across their supply chains (covering their own operations and throughout the value chain, including direct and indirect suppliers). 

This is despite the food industry ranking as the largest driver by far of water consumption, water pollution and other water-related impacts globally, the report warns. While some companies, including Wendy’s, McDonald’s and Yum!, have begun setting targets to address the water impacts in their operations, investors continue to stress that they are failing to address larger risks within the agricultural supply chain

This is especially important because the agricultural supply chain makes up the bulk of companies’ water footprint, the report explains. Domino’s 2020 materiality assessment found that the production of ingredients accounted for 88% of its overall water consumption.

Currently, RBI has not disclosed any efforts to analyse water risks in its operations, while McDonald’s is the only company that has conducted a comprehensive water risk assessment that includes its supply chain. This means five of the six companies may be unaware of how much water is being drawn from areas of high water stress and resulting water scarcity risks, the report warns.

Daniel Shepard, senior associate of investor engagement for water at Ceres, concludes: “The time is now for companies to double down on their commitments and demonstrate real impact. We are particularly focused on advancing better water risk management in supply chains, an often overlooked – but equally important – side of the climate change coin.”