Climate Disasters

Climate-related weather disasters including droughts, floods, hurricanes, and wildfires have significant adverse financial impacts on factory farming operations.

These impacts reverberate along the factory-farming value chain and include losses of infrastructure and large numbers of densely populated livestock, shortages or high prices of feed inputs, operation-halting power outages, shipping channel disruption, and increased insurance costs. Negative environmental impacts are also among the climate-disaster related financial risks associated with factory farms.

Storms commonly cause billions in damages to factory farming operations and surrounding communities

When Hurricane Matthew hit the livestock-intensive regions of North Carolina in 2016, the storm not only destroyed infrastructure and killed roughly two million animals housed in just 140 barns, but also raised the risk that spillover from animal-waste lagoons would contaminate public water supplies. During the months following the storm, more than forty institutional investors managing over $1 trillion in assets sent joint letters to Cargill, JBS, Perdue, and Smithfield—four of the world’s largest meat producers—to reduce water pollution from their feeding, slaughtering and processing operations.^[1] 

When Hurricane Florence hit the state two years later, the storm killed roughly 5,500 pigs and 3.4 million chickens (approximately two million of which belonged to Sanderson Farms), and extreme flooding resulted in the breaches of dozens of factory farm waste lagoons. Millions of gallons of waste carrying insecticides and pharmaceuticals as well as pathogens including salmonella and nitrates spilled into rivers, streams, and groundwater.^[2] Commenting on the estimated $24 billion in environmental damage linked to the state’s factory farming operations, the director of animal and poultry waste management center at North Carolina State University commented, “Certainly it's tragic but agriculture is a leaky system. It's prone to all sorts of weather related perils and that's just unfortunately the way it is."^[3]

In late August 2020, a derecho storm tore through Iowa, Illinois, and Indiana, causing billions of dollars’ worth of damage to corn, soybean, and livestock farming operations.^[4] Iowa Governor Kim Reynolds designated counties across the state “disaster areas” as President Trump authorized $4B in emergency aid. One industry veteran described the storm’s impact this way: “$4 billion in crop losses. 14 million acres of crops destroyed. One third of Iowa’s crops destroyed. Corn and soybeans hit the hardest. Farmers, cattle ranchers and hog raisers already at wit’s end and facing record number of bankruptcies across the Midwest, not to mention suicides, find themselves now suffering not just a pandemic of biblical proportions but a storm with 100-mile-per- hour winds that blew down acres and acres of corn and soybeans, silos, trees, homes and barns. Now, what?”^[5]

Green Swan Risks and factory farming

According to the Switzerland-based Bank for International Settlements (BIS), an international financial institution owned by central banks that seeks “to serve central banks in their pursuit of monetary and financial stability, to foster international cooperation in those areas and to act as a bank for central banks,” climate disasters rank among the “potentially extremely financially disruptive events that could be behind the next systemic financial crisis.”^[6] In the organization’s January 2020 report, which it released on the eve of the 2020 World Economic Forum Annual Meeting in Davos, BIS coined a new term for climate catastrophes: green swan risks.

Unlike “black swan” risks, which investors define as low-probability, high-impact events that disrupt financial markets, green swan risks are not only inevitable but also predictable, given that consistent and measurable impacts of known human behaviors cause them. As one financial services industry analyst has described, green swan risks are those “we humans create for ourselves by pumping contaminants into our air and water, destroying our ecosystems, and destabilizing our climate.”^[7] 

According to the BIS, there are two types of green swan risks: “physical” risks and “transitional” risks.

Physical risks refer to potential losses to businesses and investors that arise out of extreme and financially disruptive events. Such events include hurricanes, droughts, fires, flooding, and widespread disease. Around the world, factory farms are increasing the likelihood and all such events among others, including the degradation and destruction of water and land.

Transition risks refer to potential losses to corporations and investors arising out of businesses’ failure to successfully navigate a low-carbon transition. As the BIS explains, a carbon-emitting entity that is unable to adapt to regulations, technological breakthroughs or limitations, reputational impacts, or shifts in market preferences and social norms puts its investors’ holdings at risk.^[8] Increased regulatory pressure, advancing alternative protein technologies, reputation-damaging publicity, and shifting consumer preferences and social norms evidenced by the global rise of the popularity of plant-based meat, eggs, dairy, and seafood all pose significant challenges to conventional factory farming operations.

Importantly for animal agriculture investors, physical and transition risks are combining to pose a formidable threat to factory farming operations and their backers alike—a threat that will only compound as the planet becomes hotter and climate catastrophes proliferate and intensify. As significant, assessing green swan risks is relatively uncharted territory, and investment analysis-as-usual is insufficient to the task. As the BIS explains, “Traditional backward-looking risk assessments and existing climate-economic models cannot anticipate accurately enough the form that climate-related risks will take.”^[9]

Footnotes and Sources