Investor Engagement Prompts Aramark To Adopt No Deforestation Policy

Summary

• Green Century withdrawals shareholder resolution filed with Aramark.
• No-deforestation policy should reduce both reputational and financial risks for the company.
• Aramark's first major test of policy will occur in mid-2019 when it sources palm oil that is RSPO-certified.

Faced with investor pressure, food service provider Aramark (NYSE:ARMK) announced on January 23, 2019, that it plans to put into effect a no-deforestation commitment by 2025. As a result, Green Century Capital Management withdrew its shareholder resolution it had filed with Aramark. Aramark's commitment will likely reduce reputational and financial risks for the company.

The company, headquartered in Philadelphia, says it will implement a No Deforestation, No Peat, No Exploitation (NDPE) policy throughout its global supply chain. Its first action will include an assessment of its supply chain this year in all markets where it is operating in order to better understand where deforestation threats are. Aramark is seeking to curb both legal and illegal deforestation in the commodities it uses, which include soy, palm oil, beef, and pulp/paper. By June 30, 2019, Aramark plans to source palm oil from only suppliers that are certified by the Roundtable on Sustainable Palm Oil (RSPO).

Aramark, which serves two billion meals per year, sources supply from various markets including Latin America, where deforestation risks are high in key producer countries. In Brazil, for instance, the combination of rising soy exports to China and the new presidency of populist Jair Bolsonaro may lead to increased deforestation risks. On the other hand, the Cerrado Manifesto has gained momentum among key players. The Manifesto calls on soy producers, investors, fast-moving consumer goods (FMCG) companies, and retailers to commit to zero deforestation in the Cerrado. Some 70 downstream companies signed the Cerrado Manifesto Statement of Support, in addition to 50 investor signatories.

We have a long-standing commitment to advancing sustainable sourcing practices in a way that minimizes impacts to people, animals, and the environment; we are proud to announce our commitment to address deforestation in our supply chain by 2025"

- Aramark Vice President of Sustainability Kathy Cacciola said in a statement.

Besides Green Century's engagement, NGOs and other investors have pressured the food service provider to overhaul its sustainability policies. For instance, the New York State Common Retirement Fund also filed a shareholder resolution with Aramark, urging the company to follow its peers in increasing ambition to boost transparency and curb deforestation. CDP Forests gave Aramark an F grade in 2017 for its actions through all soft commodities and labeled it as "high risk" for financial institutions.

Green Century will work with Aramark to develop and implement its new policies. Jessye Waxman, Green Century Shareholder Advocate said:

Aramark was very responsive to our concerns about deforestation...

This commitment will help protect Aramark's competitiveness and the environment, and is a great first step in an ongoing collaboration."

Green Century has been active in persuading companies along the agricultural commodity supply chain to bolster their no deforestation commitments. For instance, after Green Century engaged with Bunge (BG) last year, the major soy trader strengthened its policies to reduce deforestation in Brazil.

Given that more companies are committing to no deforestation, Aramark's policy change should mitigate reputation and financial risks, a positive for investors.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.