Antibiotics: A success story for investor pressure?
There’s now growing acceptance that unnecessary and excessive use of antibiotics poses significant risks.
When engaging with companies on some of the big ESG
topics, changing ingrained behaviours can often be akin to
turning an ocean liner. Progress can be slow.
So it is worth celebrating the successes, where pressure from
investors has made a real difference.
We’ve seen it just recently with the issue of antimicrobial
resistance (AMR), where a concerted effort over the last three
years has led to tangible steps made to reduce the use of
antibiotics in agriculture.
The scale of the problem
There’s now growing acceptance that unnecessary and
excessive use of antibiotics poses significant risks. Drug-resistant infections are already responsible for 33,000 deaths
in Europe per year*, while some estimates put the economic
impact as potentially greater than the Global Financial Crisis
With more than half of global antibiotic use in agriculture,
rather than human medicine, companies are under pressure
to re-evaluate their supply chains and we’ve seen tougher
legislation to combat the problem in recent years, particularly
in Europe and parts of Asia.
There’s evidence that they are taking note. Fast-food giant
McDonalds, for example, has acknowledged that antibiotic
resistance is a ‘critical public health issue’ and has pledged to
use its scale to identify antibiotic usage across its global supply
chain and establish reduction targets. Meanwhile, retailer
Costco has revised its animal welfare policy to restricting
animal antibiotic use – and will assess the feasibility of
eliminating the routine use of medically important antibiotics
among supplier farms by December 2020.
An important factor behind companies taking more decisive
action has been collective pressure from investors. A prime
example of which is the collaborative engagement led by
the Farm Animal Investment Risk & Return (FAIRR) initiative,
which we became involved with when it launched in 2016.
Through three phases of engagement, the initiative,
involving 74 institutional investors, targeted UK and US
fast-food and casual dining companies. It has sought to
address the issue of AMR and work towards a reduction or
structured process to phase out the nontherapeutic use of
antibiotics in food supply chains.
Progress has certainly been made. Before the initiative
started, no company had an antibiotic stewardship policy;
on its completion, the vast majority of companies either
had one in place or in development. In addition, a large
proportion have committed to reduce or prohibit the
routine use of medically important antibiotics in line with
We’re not there yet
Before claiming victory though, it is worth highlighting
there is a long way to go. We, along with other investors, met England’s Chief
Medical Officer at the start of the year, as she was trying to
understand the role investors can play alongside companies
and governments in tackling the issue.
There was without doubt a feeling of optimism at the
progress made so far, but it was acknowledged that poor
practices remain and markets such as India were described
as a ‘mess’.
From the point of view of businesses, there is still a leap
from acknowledging the problem to actually taking action
to address it (and a further leap from there in how well this
is disclosed to investors).
Our investment perspective
Of course, as with any ESG topic, we approach this area as a
source of potential investment opportunity as well as taking
account of the risks.
For example, some companies are focusing on scientific
solutions to animal nutrition. Chemicals company BASF has
developed a formic acid Amasil®, which eliminates salmonella
in swine and poultry feed. Meanwhile, bioscience company
Chr Hansen has developed testing kits for dairy farmers in the
Russian market to test for antibiotic residues in milk.
A second, longer-term benefit has been the benefit to our
engagement process. While the majority of our engagement is
on a one-to-one basis, collaborative efforts, such as FAIRR can
give us a broader insight into the ESG and Stewardship best
practice and enable us to improve the conversations we have
in the future – with the ultimate potential for better investment
This information is issued and approved by Martin Currie
Investment Management Limited (‘MCIM’). It does not
constitute investment advice.
Market and currency movements may cause the capital value
of shares, and the income from them, to fall as well as rise and
you may get back less than you invested.
The opinions contained in this document are those of the
named manager(s). They may not necessarily represent the
views of other Martin Currie managers, strategies or funds.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not
be assumed that any of the security transactions discussed here were or will prove to be profitable.