Chipotle being asked by shareholders to provide sustainability report; movement to be voted on at company's annual meeting in May

Nevin Barich

CHICAGO , March 5, 2014 (Bloomberg LP) – Chipotle Mexican Grill Inc., which touts its natural ingredients and humanely raised meat, is being asked to show whether it practices what it preaches.

Up for a vote at the company’s annual meeting in May will be a proposal forcing Chipotle to create a yearly sustainability report with information on its Food With Integrity program, energy use, waste management and labor standards. The 1,550- store burrito chain founded by Co-CEO Steve Ells has for more than a decade touted its sustainable-farming initiative and recently created an Internet show called “Farmed And Dangerous” that criticizes industrial agriculture.

“They’ve really put their brand behind this message of sustainability and better farming techniques and cleaner agriculture,” said Adam Kanzer, managing director at Domini Social Investments LLC in New York, one of the resolution’s filers. “We want to understand: Is it true? How is it done? How do you manage it?”

Chipotle failed to reach an agreement on the additional disclosures with Domini and Boston-based Trillium Asset Management LLC, the proposal’s other filer. That means a sustainability-reporting resolution will go on Chipotle’s proxy statement. Domini owned 5,835 shares of Chipotle as of Sept. 30, according to data compiled by Bloomberg.

While Denver-based Chipotle doesn’t produce such a report, its website has facts about its food standards. About 56 percent of Standard & Poor’s 500 Index companies provide a corporate sustainability report, according to GMI Ratings, which evaluates governance risks at public companies. GMI’s latest report on Chipotle said the company “has been flagged for disclosure weakness relative to peers” in terms of its environmental reporting.

‘FINITE RESOURCES’

“We have never done formal sustainability reporting quite simply because we have finite resources,” Chris Arnold, a Chipotle spokesman, said in an e-mail. “We’d rather invest those resources in doing things that actually drive change, than in talking about that change.”

Chipotle’s website defines naturally raised animals as those that are “raised in a humane way, fed a vegetarian diet, never given hormones, and allowed to display their natural tendencies.” It defines local produce as being grown on farms within 350 miles (560 kilometers) of a restaurant. Additionally, the company has committed to making its food free of genetically modified organisms this year.

Trillium and Domini are asking that Chipotle, along with more disclosure about the company’s farming standards, give shareholders more information on its carbon footprint, such as food packaging and store water use, as well as labor practices.

‘PROBABLY POSITIVE’

Chipotle’s green efforts aren’t widely known, said Sara Senatore, a New York-based analyst at Sanford C. Bernstein & Co. who has the equivalent of a buy rating on the shares.
“If there’s something that increases awareness of what they’re doing, it’s probably positive” and may even attract new customers, she said. “People care about sustainability.”

Ells, who founded Chipotle about two decades ago, in 1999 began buying naturally raised pork to start the chain’s Food With Integrity program, according to the company’s website. In 2009, Ells spoke to the U.S. Congress to support a bill designed to limit antibiotic use in farm animals.

Chipotle, which doesn’t spend much money on advertising relative to other dining chains, has created short, animated films to educate Americans about industrial farming. It also has sponsored festivals with organic fare and local food and drink purveyors.

That strategy has largely paid off. Chipotle’s sales have more than doubled during the past four years, reaching $3.21 billion in 2013. The stock jumped 79 percent last year, while the Standard & Poor’s 500 Restaurants Index gained 23 percent.

BEEF STANDARDS

Last year, the company said it was considering changing its standards to let it serve beef treated with antibiotics due to illness. There haven’t been any changes to the company’s beef standards, Arnold said.

Chipotle recently hasn’t been able to get enough sustainably raised beef to meet demand and is looking at ways to increase its supply of naturally raised beef including finding new suppliers and using different cuts of meat, Arnold said. Chipotle will “continue to let our customers know when we don’t have enough naturally raised beef,” he said.

Last year, 86 percent of beef, 99 percent of chicken and all of the pork Chipotle sold was what it defines as naturally raised. In total, 94 percent of all the meat it sold was naturally raised, less than the 99.9 percent in 2012.

“They’re not terribly transparent with setting goals and targets within the Food With Integrity program,” said Susan Baker, vice president of shareholder advocacy and corporate engagement at Trillium, which first contacted Chipotle in 2008 about its pesticide policies.

“They could really benefit and improve their credibility around the Food With Integrity philosophy with more meaningful reporting,” she said.

--Editors: Kevin Orland, John Lear

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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