US food and agricultural producer, investment grade debt issuer
Background: The company is privately owned. At the time of our engagement, its Prime corporate ESG rating was the worst possible at 5 (with 1 being the best possible rating), weighed down by its social and governance scores (each 5).
Engagement: The objective of the engagement was to discuss the company’s low Prime corporate ESG rating and to improve its ESG-related disclosures, particularly in relation to social and governance factors. The company has had major social controversies, and we sought to understand how the company is addressing these to minimise the risk of reoccurrence.
As a private company, it discloses less than peers of a similar size. The company recognises this and stated it is looking to disclose more; for example, it has strengthened reporting of its Scope 1, 2 and 3 carbon emissions, and the company now submits climate, water and forestry questionnaires to CDP. However, the company’s social and governance disclosures are weak. For example, it is reluctant to share information on its senior leadership team, particularly the board, given it is a family-run company and wishes to retain the privacy of its board members. We explained that, due to the size of the organisation, we except it to provide disclosures to a similar level as its public peers.
We also discussed upcoming Corporate Sustainability Reporting Directive regulations which apply to the company. It highlighted it will disclose more in upcoming reports to ensure alignment with investor expectations and changing regulations. However, it was not clear whether it will publish more detail on board composition.
It is not clear how suppliers’ social performance is tracked at the group level. According to MSCI, only some top-level suppliers have been audited. We explained to the company that it should report this percentage, targeting 100% over time, and details of corrective actions should be provided. This would provide stakeholders with increased confidence that social supply chain risks are being appropriately managed.
We also recommended to the company that its sustainability report should focus on metrics and include year-on-year trends and explanations of movements in performance, rather than its current approach to ESG reporting, which is very qualitative in nature.
Outcome: Having provided our input to the company and the banking syndicate, we will monitor the company’s disclosures for improvements and will re-engage after any updates.