Sanderson Farms (NASDAQ: SAFM), a $4.3 billion market cap poultry producer headquartered in Mississippi, published its first SASB Standard report in September 2020. We caught up with Lee Southwell, Manager of External Financial Reporting, who has been at the company for over 14 years.
What made Sanderson Farms decide to report to the SASB Standards?
SASB really came to the forefront for us leading up to the 2020 annual meeting as a result of: 1) Engagement with our largest shareholders; and, 2) Blackrock CEO Larry Fink’s annual letter to CEOs published in January 2020, about a month before our annual meeting, calling for companies to disclose in alignment with SASB.
Many of our larger shareholders supported management and the board with their votes on two shareholder proposals presented at the 2020 meeting, at least in part, we believe, because they recognized the progress that we had made in ESG reporting over the years. However, engagement with Blackrock and Vanguard, two of our largest shareholders, made it clear that the expectation was for ESG reporting to continue to evolve and become more robust. Therefore, Sanderson Farms decided to report to SASB standards as it would allow for more robust ESG disclosure in a transparent, comparable, and decision-useful manner and meet the needs of our investors.
Once we committed to report on SASB metrics, it became a company-wide effort to publish the report. It took collaboration among the environmental, food safety, veterinary, safety and health, finance, and communications departments. While we felt our external reports already included much of the ESG information shareholders sought, we knew reporting to the SASB Standards would provide an easier-to-digest format for our key stakeholders.
Why is water management an important ESG issue for Sanderson Farms?
Water availability is one of the most important factors evaluated by the company in connection with site selection for new facilities, as we must ensure there is, and will be in the future, adequate water for the operation of the processing plants, hatcheries, feed mills, and for the independent poultry farms that are located near our complexes. Water management is important within our processing facilities to ensure we have sufficient water to clean and chill our poultry products and maintain sanitary facilities. This helps reduce the presence of pathogens on processed chicken and ultimately provide consumers with a safe product.
For a lot of companies, it can be a challenge convincing senior management that the benefits of ESG outweigh the costs. What did it take to convince your legal team and C-suite?
We have a culture of transparency, so when it came time to report using SASB Standards, it was under the leadership and direction of the C-Suite. When preparing the Corporate Responsibility Report in which the SASB metrics were presented, our CFO, who is also our Chief Legal Officer, was very involved in the process. Therefore, when it came time to gather and publish the data, no concerns arose.
Years back, when shareholders first began asking us to disclose information related to energy and water usage, management was reluctant to do so for competitive reasons. We disclosed this data to an anonymous benchmarking service, and we could see that we performed very well in those areas compared to our competitors, who also submitted data anonymously. As we were outperforming many of our competitors in these areas, we viewed our performance as a competitive advantage and were hesitant to disclose our data publicly. However, as we engaged more with shareholders and we better understood the value of disclosing, it became clearer we should disclose this information to increase the transparency of our ESG reports. As a result, we began externally reporting our water, electricity and natural gas usage in 2008, which became our baseline year.
What type of feedback have you received from investors on your SASB Standard disclosure?
After we published the report, we had stakeholder engagements with eight or so of our large institutional stakeholders and received positive feedback regarding our execution of the implementation as well as our responsiveness to shareholders.
We specifically received positive feedback on how we reported the antibiotic metric with 2018 data around the percentage of chickens that received medically important antibiotics compared to 2019. We reduced our use of antibiotics considered important to human health once we stopped providing every chick with preventative doses of the antibiotics gentamicin and virginiamycin. We stopped providing those antibiotics to every chick in mid-2019, and because we disclosed data for multiple years, investors were able to easily understand our results on this metric year-over-year.
What are some goals for further advancing your ESG reporting?
First, we have a goal of reporting our scope 3 GHG emissions and GHG related targets. We only began measuring GHG emissions in 2019, so we were unable to include this data in our first SASB report. We are currently working with a third-party provider to gather this data and to help us set realistic but aggressive goals and targets. We’re hopeful we will be able to report that data in the future.
Another goal is to be able to report on the metric, “Percentage of animal feed sourced from regions with High or Extremely High Baseline Water Stress.” Due to our complex grain supply chain, we were unable to gather data and report to this metric in the 2019 report. However, we know tracking feed sources in high stressed water regions is important to understand and will allow us greater insight into our animal feed supply chain.
A third goal is to begin incorporating other reporting frameworks such as GRI or TCFD into our disclosure. We’re on a reporting journey and incorporating other reporting frameworks may allow us to share our ESG story more holistically and share not only what is financially material to investors but also what is material to all stakeholders.
What advice do you have for companies that are beginning the process of integrating SASB Standards into their management and disclosure processes?
The main piece of advice I have is just get started.
Getting started will likely take collaboration among many groups or departments within the organization, so it is important to have a clear vision and support from senior management to align on. Getting started also could mean reporting even if you can’t report to all the metrics or topics. We knew we’d be unable to report on two metrics, but we made the decision to report on the data we had and communicate that we are working toward gathering the data for the unreported metrics for future reports.
As you get started, it’s important to be realistic on the potential outcomes. Using the SASB Standards requires transparency, which could result in reported data that show how you are succeeding in certain areas and could also result in reported data that might show areas for improvement. However, that transparency can also help your company align internally on where improvements efforts should be focused.
Lastly, it’s important to remember that ESG reporting, and disclosure is a journey and will evolve each year. Even if you have data for only some, but not all metrics, reporting what you have will help build momentum.