Corporate Animal Welfare Disclosures In China

中文

Currently there are no national animal welfare laws in China. The nation’s only animal-related legislation aims to protect endangered wild animals, strictly for the benefit of humans. Because of this, China’s food industry is likely contributing to the suffering of millions of farmed animals without any regulations or consequences.

However, the situation in China isn’t entirely grim. For example, there is no longer a national mandate requiring cosmetic products to be tested on animals, and the government now punishes individuals for making rare wild animal transactions. Indeed, Faunalytics research found that 52% of Chinese consumers would support or strongly support a law requiring farmed animals to be treated more humanely.

With growing support for animal welfare in China, the authors of this study wanted to know how food corporations are responding. Specifically, they note that shareholders and members of the public are becoming more interested in corporate transparency when it comes to farmed animal welfare. However, while China’s food corporations are known to disclose their corporate social responsibility (CSR) efforts, it remains unclear how much information they disclose about their animal welfare practices.

To understand the landscape of animal welfare disclosures in China, the authors looked at the corporate reports of 37 prominent Chinese food companies in 2019. These reports included any financial, CSR, and sustainability-related reports released to shareholders and the public. They predicted that companies with the following characteristics would have higher animal welfare disclosure standards:

• Larger companies: While this may seem counterintuitive to animal advocates fighting against factory farms, the authors reason that larger Chinese companies likely have more shareholders to answer to, as well as the incentive to be transparent so they can secure more financial capital.
• Companies with higher financial leverage: In other words, companies with higher financial debts are likely motivated to be transparent to satisfy their lenders. 
• More profitable companies: Again, this may seem counterintuitive to advocates familiar with the harms of profitable Western factory farms. However, the authors suggest that profitable Chinese companies may use animal welfare standards as a way to promote their wealth and success.
• Companies with larger boards of directors: More board members means more people to oversee the company’s practices and hold it accountable for its animal welfare disclosures.
• Companies with more independent directors: Independent directors are outsiders who represent the interests of various stakeholders. The authors predict that having a higher proportion of independent directors would make a company more accountable for reporting its animal welfare efforts.

Finally, they also hypothesized that companies with CEOs who serve dually as the board of directors would have lower disclosure standards, because such “CEO duality” can weaken a board and make it less independent from the company’s overall activities.

After analyzing the corporate reports, the authors found that, in general, animal welfare disclosures are still a rarity among food companies in China. On a scale of 0 to 4 (with 0 meaning no mention of animal welfare and 4 meaning a detailed and fully transparent description of animal welfare practices), none of the 37 companies ranked higher than 2. Specifically, they disclosed vague (if any) details about their animal welfare considerations — one company simply mentioned that animal welfare is one of 19 factors it considers, while another stated that it “creates a quality life of ‘eat well, drink well and rest well’ for dairy cows” without explaining what this means.

Regarding the authors’ original predictions, they found that company size, board size, having a higher proportion of independent directors, and CEO duality did impact a company’s animal welfare disclosure standards. Meanwhile, there was no association between animal welfare disclosures and financial leverage or profitability. One reason the authors think that profitability did not affect disclosures was because investors are already happy with a profitable company’s performance, meaning it wouldn’t feel as much pressure to be transparent.

Because animal welfare disclosure is voluntary in China, establishing independent organizations and government agencies to enforce animal welfare disclosures may go a long way to improving farmed animal welfare. For example, establishing a Chinese branch of the Business Benchmark on Farm Animal Welfare is one opportunity for animal advocates to push for change in this area. While China’s disclosure policy, particularly in the meat and milk industry, is far from being perfect, policy reform and continued pressure from advocates and other stakeholders can push companies in a more positive direction.