ESG Investment and Animal Welfare
September 2023

Certified Nonprofit Organization Animal Rights Center
New Shibuya Coporas 1009, Udagawacho 12-3, Shibuya-ku, Tokyo
03-3770-0720
https://arcj.org

Introduction:
The significance of animal welfare is growing as an important value for many food companies.
Animal welfare has become a crucial issue for companies across various sectors in the foodindustry, including retail, hospitality, processed food manufacturers, wholesalers, trading
companies, and producers. This shift is driven by factors such as consumer interest, pressure
made by animal welfare organizations, increased media coverage, the need for sustainableproduction and management, ensuring traceability by B to C companies, and market
opportunities for companies adopting higher animal welfare standards. However, theimportance of animal welfare is often overlooked in financial institutions, which correlates withthe awareness of animal welfare among the general public. Nevertheless, internationally, it isbecoming a key theme for companies dealing with food, and gaining knowledge in this area willbe essential in the future.

Trends in Financial Institutions:
A decade ago, animal welfare was not a notable aspect in the financial industry. However, it is
one of the ESG elements that investors closely monitor most. This is particularly prominent in
the food and cosmetics sectors.
The BBFAW (Business Benchmark on Farm Animal Welfare) benchmark evaluates the practices
of major food companies globally, aiding institutional investors in understanding how to assessanimal welfare. In 2023, the FAIRR Initiative began investigating risks associated with stranded
assets related to the livestock food system, such as animal welfare and antibiotic-resistantbacteria.1
Robert Black, the Responsible Investment Manager at Chronos Sustainability, highlighted in anarticle of ESG INVESTOR that animal welfare is a crucial issue in light of sustainability for bothcompanies and investors. He noted that the advantage of animal welfare as an ESG theme liesin the clear definition of global standards and expectations for excellent practices andperformance.2 According to the International Monetary Fund (IMF), one of its seven practices
related to livestock is animal welfare. The IMF encourages investing in livestock companies thatimplement animal welfare management systems through industry-specific excellent
management practices and available technologies. They also point out the increasing scrutiny
on animal welfare by general consumers, food retailers, industry associations, governments,and financial institutions.
In the cosmetics sector, it is important to note the animal testing issue remains a concern for
financial institutions.

1
2

https://www.fairr.org/news-events/insights/why-animal-welfare-is-an-investment-risk
https://www.esginvestor.net/is-farm-animal-welfare-a-sustainable-investment-blind-spot/Domestic Trends:
Awareness in domestic financial institutions is rising.
The Ministry of Agriculture, Forestry, and Fisheries conducted a study on the impact of ESG
investment on the food industry. Animal welfare was explicitly mentioned as one of the ESG
issues in the report. During a session of the Agriculture, Forestry, and Fisheries Committee onApril 13, 2023, Tetsuro Nomura, former Minister of Agriculture, Forestry, and Fisheries,
mentioned the increasing focus of investment institutions on animal welfare. Financial
institutions in Japan, such as JP Morgan Securities Co., conducted seminars on animal welfarefor institutional investors in the food, cosmetics, and apparel sectors from 2022 to 2023. While
instances of explicitly mentioning animal welfare in domestic financial institutions' stewardshipreports and sustainability reports are still limited, they are becoming more evident.
The Animal Rights Center engaged with 16 institutional investors and 34 banks and credit
unions from 2022 to 2023. The engagement aimed to promote a correct understanding ofanimal welfare, trends in domestic and international food companies and production, the needfor public disclosure of animal welfare as ESG information, the necessity of incorporating
animal welfare into indicators for investment and financing, and promoting the understanding ofevaluation points. A survey conducted concurrently with this engagement revealed that only
about 10% of institutional investors and banks and credit unions were familiar with animalwelfare, while the majority learned about it for the first time. However, in the case of banks andcredit unions, those dealing with livestock farmers or related companies tended to have someawareness of animal welfare. For institutional investors, some were actively collecting
information on animal welfare, and others already included it in their investment indicators.
After understanding animal welfare through engagement, approximately 40% claimed they could
convey the importance of animal welfare to customers, about 10% expressed the desire toincorporate it as an indicator for investment and financing, and just under 10% stated they would
request information disclosure from companies. This suggests that over 90% are considering
actively incorporating animal welfare information into their business practices.

Information Related to Animal Welfare that Food Companies Should
Disclose:
Food companies utilizing animal products (eggs, chicken meat, pork, milk, beef, etc.) are
expected to disclose specific information and compare it to global standards.
They should have a comprehensive policy and explicitly express the intention to eliminate
confined breeding practices such as stalls for pigs, cages for chickens, crates and tethering forcows and overcrowding, to concretize the five freedoms of animal welfare. Additionally, theyshould promise effective stunning methods during slaughter, commitment to reducing
unnecessary pain such as painful surgical procedures, and other initiatives.

Information Disclosed by Many Companies Overseas:
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Animal welfare policies and declaration of promoting the five freedoms
Hens:○ Future goals■ Transitioning to cage-free or free-range eggs, with varying target years
based on regions globally (e.g., Europe, North America, Oceania by 2025;
Southeast Asia by 2028; East Asia and Japan by 2030)■ Transitioning to eggs from farms that do not practice induced molting○ Disclosure of Current status■ The ratio of cage free eggs per the region
Chickens:○ Future goals■ Switching to stocking densities below 30 kg/m²■ Transitioning to slow-growing breeds■ Switching to gas as the method for stunning during slaughter○ Disclosure of Current status■ Metrics such as stocking density matching global standards 33 kg/m²■ Percentage of pre-stunning during slaughter (electric or gas)
■ Percentage of natural light■ Percentage of slow-growing breeds■ Percentage of enrichment introduction
Pork:○ Future goals■ Transitioning to 100% group housing for sows, namely stall-free, by 2030
○ Disclosure of Current status■ Percentage of group housing for sows
■ Percentage not using farrowing stalls■ Percentage not performing teeth cutting■ Percentage using anesthesia during castration■ Percentage not performing tail docking or using anesthesia during taildocking■ Percentage of enrichment introduction
Dairy cows and Beef:○ Future goals■ Transitioning to free-stall housing■ Aiming for grass-fed○ Disclosure of Current status■ Percentage of free-stall housing■ Percentage of grass-fed
Animal proteins○ Transition Goals for Alternative Proteins○Current Initiatives

Financial institutions play a crucial role in urging them to disclose in case companies fail todisclose such information outlined above.
※Typically, meat-producing companies are required to disclose more detailed information.
※Animal welfare for livestock animals is still undergoing new research and evolving. Therefore, indicators
continue to evolve. The above indicators are as of September 2023.

Conclusion:
By committing to high animal welfare early on, companies can gain new opportunities in themarket, hence it’s natural that global food companies are now competing to achieve higher
animal welfare.
The essence of animal welfare lies not just in incorporating good practices for some livestock
but in eliminating harmful livestock practices, transitioning to a sustainable society, raising
animal welfare to levels acceptable by ethical standards, and aiming for an equal society where
everyone can access globally standardized livestock products. This perspective aligns with theUnited Nations' Sustainable Development Goals (SDGs). Achieving this requires a bottom-up
approach in Japanese livestock production, commitment from food companies to future
procurement, and support from NGOs, banks, and institutional investors.