Reproduced with permission from Daily Environment Report, 243 DEN A-2 (Dec. 18, 2015). Copyright 2015 by The Bureau of National Affairs, Inc. (800-372-1033) <http://www.bna.com>
Chipotle Investors Renew Call for More Transparency After Food Safety Scare
In the wake of a food safety scare at Chipotle Mexican Grill Inc., investors are renewing calls for greater transparency on how the company, known for its commitments to sustainable and responsible sourcing, actually lives up to them.
The buy-local burrito chain recently looked at every ingredient it uses, from farm to fork, and tightened its supplier standards after an E. coli outbreak sickened dozens of customers across the U.S.
But the fact that Chipotle couldn’t fully pinpoint the source of contamination is raising questions over whether the company has a good handle on its especially complex supply chain. The Denver-based company’s pledge to source more locally grown and organic produce and ‘‘responsibly raised’’ meat means it buys from a collection of farms that are smaller and more vulnerable to disruptions than the distributors commonly used by fast food chains.
In search of hard data on how Chipotle upholds its sourcing standards, Domini Social Investments LLC has filed a shareholder proposal asking for an annual sustainability report. The goal, Domini says, is not to attack the company for its stance, which the investors very much support, but rather to hold it accountable.
‘‘It’s promoting itself as a more environmentally responsible alternative to its competitors,’’ Adam Kanzer, who directs Domini’s shareholder advocacy, said. ‘‘When you do that, you need to be prepared to back it up with data. And if you don’t, you’re creating a reputational risk.’’
The idea was proposed twice before by Domini and Trillium Asset Management LLC. Both times it got support from about 30 percent of voting shareholders—and pushback from Chipotle itself.
Reporting ‘Means to End.’ While the company regularly touts its sustainability credentials on its website and in marketing videos, it has resisted the idea of sustainability reporting.
Chipotle does talk about sourcing and food safety in its annual financial report. There, the company acknowledges it could be at ‘‘a higher risk for food-borne illness outbreaks than some competitors’’ due to its preference for fresh rather than frozen ingredients and the way its food is cooked, mostly in-house.
And compared to its peers, Chipotle doesn’t appear to be under-reporting occupational health and safety issues, which includes food safety considerations, according to an analysis conducted by ESG data firm eRevalue.
Susanne Katus, eRevalue’s head of business development, said these issues received limited attention in financial reports from Chipotle and its competitors, such as McDonald’s and Yum! Brands, which owns Taco Bell, KFC and Pizza Hut. The question is whether adding sustainability reporting may have helped Chipotle identify potential problems it might not have seen otherwise.
‘‘Sustainability reporting is a means to an end,’’ said Katus, who came to eRevalue from the Global Reporting Initiative, provider of the world’s most widely used standard for non-financial reporting. ‘‘Through the process of reporting, that’s really where the change starts to happen since it requires you to think about corporate valuation and risk in ways that you might not have considered them before.’’
Reporting vs. Action. Part of the investors’ argument is that other restaurants—like McDonald’s, Darden, Dunkin Brands and Starbucks—publish sustainability reports, so Chipotle should too. In fact, Chipotle’s disclosure on environmental, social and governance topics scores lower than the restaurant industry average in Bloomberg’s ranking system.
But even as such reporting becomes a common prac- tice for many businesses, Chipotle said in last year’s proxy materials it ‘‘has made a deliberate decision not to do so, preferring to devote our resources instead to actually taking actions and adopting practices that we believe will have a positive impact on the sustainability of our business.’’
Kanzer says there shouldn’t be a tradeoff between sustainability reporting and being sustainable. ‘‘That’s sort of like saying ‘we can generate revenues or we can provide financial statements to our investors, but we can’t do both,’ ’’ he said.
Chipotle did not respond to a request for comment.
BY ANDREA VITTORIO
To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com
To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com
The shareholder resolution on sustainability reporting is available at http://src.bna.com/bBT.
