Predicting Food Safety Risks with ESG

The acronym ESG (Environmental, Social and Governance) is new to many, but the term has been in existence since 2005.

In 2004, United Nations Secretary-General Kofi Annan invited more than 50 CEOs of critical financial institutions to participate in a joint initiative. A year later, they released a report, “Who Cares Wins: Connecting Financial Markets to a Changing World,” that became one of the determining elements for including ESG factors in capital markets.

Around that time, the United Nations Environment Programme Finance Initiative (UNEP/FI) released “Freshfield Report,” which showed how ESG issues are essential for financial valuation. Together, these reports served as the foundation for the New York Stock Exchange ESG Investment and Sustainability Initiatives in 2006 and 2007.

Today, ESG issues are determining factors for more than financial decisions for investors. They are used to set corporate goals, guide operational strategy, assess risk factors for insurance companies, influence global credit ratings and offer consumer guidance for purchases. Corporations are linking executive bonuses to ESG assessments, business performances and diversity among management and employees.

For example, Chipotle is tying 10% of officers’ annual incentive bonus to sustainability goals. McDonald’s is factoring diversity goals into executive bonus payouts. Starbucks identified 20% of CEO bonus as being ESG related. Papa John’s is tying its corporate incentive to ESG, and qualified employees can earn ESG bonuses too. Wendy’s uses ESG as a qualifier for 15% of executive-level bonuses. The Clorox Co., Unilever, PepsiCo and Nestle have linked ESG to their executive bonus packages.

ESG metrics differ for various organizations. Climate change, pollution, waste, human rights, diversity, equality and inclusion, data security and privacy, conflicts of interest, bribery and corruption, political contributions and affiliations and whistleblower protections are among the many metrics that an organization may measure.

While many can point to these as a step in the right direction, can a more deliberate focus on ESG and food safety be on the horizon?

Speaking recently with food safety leaders from Ghana, India and Ireland, Food and Drug Administration (FDA) Deputy Commissioner for Food Policy and Response Frank Yiannas stated that he believes “new digital technologies offer the potential to help us predict and prevent food safety problems and better detect and respond to problems when they do occur. Leveraging the power of data is going to allow us to solve some of our food safety challenges that I never thought we could solve.”

While traceability and transparency are important in the data we use, so, too, is the breadth of data. Taking a broader look at information through ESG lenses, we can see how some red flags at companies with major food safety failures might have initiated earlier concerns.

Peanut Corporation of America executives (relative to their huge Salmonella outbreak) were indicted for fraud, conspiracy and obstruction of justice — not actually for harming or killing consumers.

In addition to the record $25 million food safety fine for its 2015-2018 outbreaks, Chipotle also paid a $1.3 million fine for child labor law violations. Recently, during the investigation into the rodent infestation and recall of FDA-regulated items from Family Dollar stores, the company also paid a $1.5 million fine for labor law violations.

Concerns seemingly unrelated to food may not impact its safety, but they do paint a clearer picture of a company’s record of compliance and ethics — perhaps providing reason to question a company’s state of regulatory compliance.

One case to consider is Abbott Laboratories. In 2012, the company paid $1.5 billion to resolve criminal and civil investigations of off-label promotion of the medication Depakote. In 2013, it paid $5.475 million to settle claims of paying kickbacks to physicians. And in 2021, the company paid more than $198 million to resolve allegations it violated the False Claims Act.

Today, families are struggling with a worldwide formula shortage after the FDA requested Abbott Labs recall its brand of powdered infant formula products because of possible Cronobacter sakazakii and Salmonella contamination.

Nearly all recalls and outbreaks are identified after people are harmed. Not every failure in food safety can be stopped before it happens, but without looking at a variety of indicators — including ESG measurables that go beyond food concerns — consumers will continue to be counted as acceptable liabilities.