Mon, Aug 10, 2020

Got Milk? No, Got ESG Due Diligence

On January 14, 2020, Larry Fink’s annual letter to clients indicated that not only was climate change to be BlackRock’s key ongoing concern for the year but, for the first time, Fink called out managing environmental issues and their impact on the global economy as the key to long-term shareholder value. The 2020 World Economic Forum further solidified and emphasized the importance of sustainable investment and environmental, social and governance (ESG) factors.1 Although climate change and its related impact on the global economy have been topics at Davos since 2011, commentators and the media indicated that, this year, climate change was one of the most important focuses (in addition to the U.S.-China trade war and foreign influence in governments and economies). This year, high profile Davos guests such as Prince Charles of the UK and several big banks and corporations, including Citigroup and UBS, expressed concern over climate change and the global economy and made a plea for all companies and governments to become more sustainable and control carbon pricing. 2,3

BlackRock’s announcement and Davos’ focus on climate change may have been the explicit statement of its importance to the financial markets. However, climate change’s impact on the financial markets may already have been indicated by the management of companies in certain industries, such as food and beverage. Sustainability-focused business decisions are already impacting the market, and future investments in sustainable and ESG compliant companies will continue to increase. An overview of the food and beverage industry indicates that investments have been on this track for at least the last quarter. For companies producing animal-based products, there is years’ worth of evidence demonstrating the reality of the decline in sales.4 This article illuminates how certain investments and corporate changes demonstrate the increased incorporation of ESG consideration into financial valuations, as well as, how Kroll can assist investors in performing due diligence for relevant companies.5

 Meat and Milk

Starting in early 2019, the food and beverage industry demonstrated the market’s reaction to climate change concerns. Cows have long been associated with increasing greenhouse gases in the environment.6 Companies seeking to be more sustainable or eco-friendly are now circumventing the necessity of large cow farms by creating alternatives to standard animal-based milk and meat products. According to News Medical Life Sciences, 10% of global consumers identify as either “flexitarian” or vegetarian.7 As such, investments in food and beverage startups reflect consumer preferences, with plant-based alternatives to meat and dairy products accounting for one-third of total investments in food and beverage startups in 2018.8 For instance, Beyond Meat Inc.’s 2019 IPO ranked in the top 20 of U.S. IPOs in the last ten years, ultimately raising around $219 million (mn), and Impossible Foods’s funding exponentially grew over several rounds of venture capital funding, ultimately raising around $687.5 mn by 2019.9,10,11,12 The Good Food Institute, a Washington D.C.-based nonprofit promoting alternative meat and animal-based products, reported that plant-based meat sales grew six times faster than traditional meat product sales during the first fiscal quarter of 2020.13 Other plant-based animal product alternatives, like milk, have also disrupted the food and beverage market. Between 2018 and 2019, cow milk sales declined 6%.14 By February 2020, two major cow milk companies, Borden Dairy Co. and Dean Foods, Dairy Foods’ third largest dairy processor by sales, filed for bankruptcy. Before that, in 2019, Dean Foods’ stock dropped by 80% and Borden Dairy Co. lost $42.4 mn.15,16,17

In performing due diligence on ESG investments into food and beverage companies, Kroll analyzes several areas of importance, including regulatory and legal actions against the company, socially and politically impactful protocols, actions taken by the company and the background of key figures in the company.


The U.S. Food and Drug Administration (FDA) and several states, including Wyoming, Missouri and Mississippi, are either contemplating legal labeling requirements for meat alternatives or have already proposed laws to address concerns posed by traditional meat companies.18,19 Kroll’s specialists are up to date on policy, legal and regulatory affairs, and we know what issues to look out for when performing due diligence or risk assessment analysis.

Additionally, perhaps especially for alternative and plant-based meat products, intellectual property disputes can be a concern. In Beyond Meat’s April 22, 2019 SEC filing introduced prior to its IPO, the company indicated that it was already involved in a trade secret lawsuit in California state courts with Don Lee Farms regarding the latter’s manufacturing processes. Beyond Meat has one issued U.S. patent, 21 global pending patents, proprietary manufacturing trade secrets and at least eight trademarks, but still informed potential investors that these protections may not be adequate to stop intellectual property disputes.20 At Kroll, our specialists have performed due diligence for numerous of the top IPOs in the last decade and possess foresight necessary to pay particular attention to certain subject matter litigation depending on the company’s industry.

Social and Corporate Governance 

Because decisions to make ESG investments can be about more than just the environmental actions and values of a company, due diligence is important for investigating a company’s social and governing actions and principles. These considerations include a company’s track records with customer interactions, labor and employment relations, board membership and political contributions. 21 During a 2017 BakerTilly discussion on M&A, panelists indicated that, especially in the food and beverage industry, social and corporate governance issues, such as workplace safety and cleaner equipment, were an important consideration during due diligence.22


As Larry Fink indicated, ESG credentials will be under much greater scrutiny by investor-companies in the coming months and years. The way companies treat their employees and customers, especially during global crises, the sustainability of the products and services in their revenue stream, and the probity of their leaders will be heavily scrutinized prior to those investments. ESG focused due diligence, already on the rise in the food and beverage industry, will likewise become a routine part of the investment decision process. 

1 BlackRock. 2020. 2020 Davos Brief | Blackrock Investment Institute. [online] Available at:
2 The Wall Street Journal. 2020. Davos 2020: Updates From The World Economic Forum. [online] Available at:
3 McKeever, V., 2020. Who Said What At Davos 2020. [online] CNBC. Available at:
4 In February 2014 the National Milk Processor Education Program ended the eponymous “Got Milk?” campaign due to declining milk sales. Schultz, E.J., 2014. 'Got Milk' Dropped As National Milk Industry Changes Tactics. [online] Available at:
5 Clean and green energy (nuclear and renewable) are not being referenced in ESG investment discussions in this article because the breadth of details of that industry.
6 Singh, M., 2014. Gassy Cows Are Warming The Planet And They’re Here To Stay. [online] NPR. Available at:
7 2020. Globaldata: Meat Substitutes Will Continue To Be On Demand As 5% Of Consumers Identify As ‘Flexitarian’. [online] Available at:
8 Devenyns, J., 2019. Dairy And Meat Alternatives Rake In The Most Investments In 2018. [online] Food Dive. Available at:
9 While Beyond Meat’s stock has decreased ~40 percent since its IPO, market analysts indicate that this may be due less to the company’s novelty as an alternative meat source running out and more to the fact that competition for the company is growing as other companies like Tyson, Nestle (the “Incredible Burger”), and JBC develop their own plant-based meat products. Garret, O., 2019. Beyond Meat Will Crash When Investors Realize What It's Really Selling. [online] Forbes. Available at:
10 Murphy, M., 2019. Beyond Meat Soars 163% In Biggest-Popping U.S. IPO Since 2000. [online] MarketWatch. Available at:
11 Ashworth, W., 2019. 7 Stocks To Buy To Ride The Vegan Wave. [online] InvestorPlace. Available at:
12 Azevedo, M., 2019. Investors Serve Impossible Foods $300M In Funding. [online] Crunchbase News. Available at:
13 Nunes, K., 2020. Meat Alternative Investment Increases During Q1. [online] Meat + Poultry. Available at:,the%20first%20quarter%20of%202020
14 Isidore, C., 2020. One Of America's Oldest And Largest Milk Producers Files For Bankruptcy. [online] CNN. Available at:
15 Valinsky, J., 2019. America's largest milk producer files for bankruptcy. [online] CNN. Available at:
16 Fields, D., 2019. Investors Thirst For Plant-Based Milks. [online] Forbes. Available at:
17 2019. Top 100 Dairy Companies. [online] Dairy Foods. Available at:
18 Finn, T., 2019. Burger King’s Plant Burger, State Meat Label Laws Could Collide. [online] Bloomberg Government. Available at:
19 Magner, E., 2018. Is Atl-Milk Still Milk? Inside the Food Lexicon Debate the FDA has Final Ruling On. [online] Well and Good. Available at :
20 SEC. 2019. Amendment No. 5 To Form S-1 Registration Statement: Beyond Meat, Inc. [online] Available at:
21 CFA Institute, ESG Investing And Analysis. [online] Available at:
22 BakerTilly. 2017. Challenges Faced During Food Company Acquisitions. [online] Available at:


Compliance Risk and Diligence

The Kroll Investigations, Diligence and Compliance team partners with clients to anticipate, detect and manage regulatory and reputational risks associated with global ethics and compliance obligations.

Financial Services Compliance and Regulation

End-to-end governance, advisory and monitorship solutions to detect, mitigate, drive efficiencies and remediate operational, legal, compliance and regulatory risk.