Investor Group Takes Aim at Antibiotics, Demanding Changes From Fast-Food Companies

Concern over the rise of drug-resistant superbugs is spreading beyond hospital wards and health clinics to the world’s major financial centers.

A number of large institutional investors are joining together to put pressure on food companies to curb the use of antibiotics in livestock, which the World Health Organization says is contributing to some infections becoming hard to treat with existing drugs. The WHO estimates that resistance to drugs—also known as antimicrobial resistance—could cost the global economy $100 trillion by 2050 if no action is taken.

The investor group, led by the nonprofit FAIRR Initiative, will push 12 of the largest quick-service restaurants in North America to commit to using antibiotics in their supply chains only when necessary. These companies include McDonald’s , Starbucks and Yum Brands, which runs restaurants such as Pizza Hut and KFC. 

Asset managers Schroders and Legal & General Investment Management, Australian pension fund Hesta and adviser EOS at Federated Hermes are part of the 71-member group, which in total includes firms managing or advising on $15.2 trillion of assets.

It is just the latest example of big global investors using their buying power to push for changes in how companies deal with broad social issues. The last time FAIRR pushed hard on the topic of antibiotics, between 2016 and 2019, it secured backing from over 70 institutional investors managing $5.5 trillion in assets combined. These funds notched up some successes, including getting more than a dozen fast-food companies to create policies concerning the use of antibiotics.

Now, the new group wants companies to show how they are implementing existing antibiotic policies across their supply chains and develop new policies to cover all the animal protein they sell. Investors also want to see specific targets and confirm that progress is being audited.

Fund managers have adopted different tactics to put pressure on corporate executives over superbugs, including filing resolutions at annual shareholder meetings and demanding talks with management. 

In April, McDonald’s urged shareholders to vote down a proposal co-filed by Hesta, Legal & General and French asset manager Amundi relating to its use of antibiotics. The proposal didn’t pass, but it won a larger percentage of shareholder votes than resolutions addressing the issue at each of the company’s previous two annual meetings.

Maria Ortino, senior global ESG manager at Legal & General, said the firm was concerned about risks posed to the global economy by antimicrobial resistance, and how clients’ assets might be hurt.

“It’s a systemic risk just like climate change,” she said.

That view underlines why some money managers are taking a leaf from the playbook of shareholder activists—who have scored some big wins on getting companies, especially oil and gas firms, to do more to address climate change. It also shows a broadening of concerns that institutional funds consider to be a risk to market stability.

Antimicrobial resistance could influence the market fundamentals that drive investment returns, including economic growth, said Debby Blakey, chief executive of Hesta, which has almost $50 billion in assets. At recent shareholder meetings, Hesta also joined with Amundi to file resolutions against U.S. meat producers Hormel Foods and Tyson Foods that related to the use of antimicrobials in livestock. Neither proposal achieved a majority of votes cast.

Some companies contend they are already taking action. When asked about the most recent shareholder resolution, a McDonald’s spokesperson said the company had a strong record of responsible antibiotic use across its supply chain. McDonald’s didn’t comment about the latest FAIRR campaign.

Yum Brands said it had animal-welfare policies that seek to improve animal health and minimize the use of medicines, particularly antibiotics. Tyson said it already had an antibiotic use program that addressed WHO’s antimicrobial guidelines.

Starbucks declined to comment, and Hormel didn’t respond to a request for comment.

A United Nations report this year said drug-resistant infections could rise from one million to 10 million annually by 2050. According to World Bank estimates, global gross domestic product could be dented by up to $3.4 trillion a year if antimicrobial resistance continues unabated. 

One challenge for investors is the sheer number of issues that could threaten their portfolios. Simon O’Connor, chief executive of the Responsible Investment Association Australasia, said antimicrobial resistance is vying for attention with issues including cybersecurity, human rights and the energy transition.

Fund managers often make proposals without much faith that they will pass. Instead, they argue that they help to build awareness and pressure management to stake out positions or explain their policies in public.

That was illustrated in the recent shareholder action against McDonald’s.

Investors assisted by U.S. nonprofit The Shareholder Commons argued in their proposal that McDonald’s had backtracked from a 2018 commitment to announce antibiotic-reduction targets for its global beef supply chain by 2020.

In recommending that shareholders vote against the resolution, McDonald’s said that it wanted to reduce usage, but with flexibility to treat sick animals as directed by vets. Shareholders voted down the proposal. Still, 18.7% of votes cast were in favor, up from 13.4% a year earlier when another resolution focused on antibiotics use was filed against the company.

Katie Frame, social engagement lead at Schroders, said there was a clear economic and social need to take action on antimicrobial resistance.

“The pandemic demonstrated the disruptiveness and financial materiality of global health issues,” she said. “Our belief is that over time the risks of antimicrobial resistance will continue to crystallize, driving investors to take action.”

Write to Alice Uribe at [email protected]