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July 11, 2008

Green Fast Food: Really Here or a Green Dream?
    by Anne Moore Odell

The fast food industry is seeing a growing demand for environmental sustainability. How can investors, consumers, and other stakeholders know which restaurants are truly embracing sustainable development and which are only greenwashing their practices? -- With a third of all children in the US eating a fast food meal on any given day, the fast food industry is far reaching. The industry seemingly has a hold in every corner of American life and industry, from health care to agriculture, from transportation to marketing. Consumers, shareholders and other stakeholders are starting to look at the fast food industry and demand more accountability for both the food it serves and how it produces that food.

Signs exist that the fast food industry is moving to reflect people's desires for healthier choices and greener products. The ban on trans fats in New York City is just one example of how quickly the restaurant industry can move to answer public demand or governmental policy. However, many shareholders may wonder if enough is being done by fast food chains to protect the environment, and how to tell the responsible burger and pizza peddlers from the rest.

Ellen Kennedy is a senior social research analyst at Calvert Group, which specializes in mutual funds that invest in socially and environmentally responsible companies. Kennedy identified four high-impact issues for socially responsible investors regarding fast food: the company's environmental footprint, workplace issues, animal welfare and product safety, and marketing to children.

"Like Wal-Mart, large fast food companies can influence whole categories of suppliers by virtue of their purchasing decisions, "said Kennedy. "So one way to think about fast food operations is to start with each ingredient and follow it through the supply chain to disposal or recycling. For example, we know that global seafood supplies are predicted to crash in the 2040s. Does the company sell fish species that are threatened? Does the company have good seafood supplier standards that are independently monitored? Does the company source shrimp that have been farmed with high levels of pesticides or antibiotics? How is the fish processed, transported, and refrigerated? What does the company do with trash and organic waste?" Kennedy continued.

Eighteen years ago, Michael Oshman helped create the Green Restaurant Association (GRA), a third party non-profit that works to certify restaurants as green. So far 256 restaurants have received certification or are in the process of getting certified. GRA defines a green restaurant as one that is Styrofoam free, has a full scale recycling program, has made four new environmental changes, and is committed to make four new pro-environmental changes every year.

"In the last year we have tripled the amount of restaurants that are certified or on the way to being certified, " Oshman told

GRA has also recently signed a partnership with PepsiCo (ticker: PEP) and Sysco Corporation (ticker: SYY), both of whom approached GRA to consult with them to help make the businesses they own more sustainable.

Yet certified green restaurants make up only a very small percent of the restaurants in the US. With 40% of restaurants surveyed by Fast Casual magazine using Styrofoam take out containers, they won't be green any time soon. Most restaurants haven't been part of a third party verification system and don't readily supply information on their environmental impact for consumers and stakeholders to verify what is a real commitment to the environment and what is just green hype.

Investors need to look first at the sustainability fundamentals: good disclosure, a trend of positive performance on issues of environment, labor relations, animal welfare, and product nutrition, and policies and programs that extend to operations of franchised locations and suppliers.

"Fast food companies that show CSR leadership are by no means perfect, but are more willing to engage stakeholders and report on how they have learned from mistakes," said Kennedy. "Some of the most clear-eyed critics of the industry are the long-time NGO advocates who have developed relationships with companies over years, or even decades. They often have a sense of which companies "you can work with" and which ones give the run around."

"It's really all about the results and measurable outcomes," said Annika Stensson, director of media relations for the National Restaurant Association. "The investors, of course, have to understand the issues to fully comprehend what efforts have an impact. For example, while not the sexiest of environmental issues, saving energy is one of the most impactful ways to go. By simply changing light bulbs, training staff to conserve energy, using energy-saving, an establishment can make a big difference."

"Going Green is Red Hot," a new report from Fast Casual magazine, covers the benefits of going green for quick serve restaurants, both for their bottom line and the environment. Valerie Killifer, senior editor, and Fast Casual magazine, told, "Many restaurants have worked individually on their initiatives, such as Hardee's recent announcement to switch to energy-efficient lighting, Subway's opening of an eco-store in Florida, and Taco Bell's switch to water and energy saving gas grills. And others, such as EVOS, have built their entire concept around the idea of environmental sustainability."

The report states that the "most obvious trend area for green growth has been restaurants providing their customers with eco-friendly food in eco-friendly containers and wrappers."

"It's all about due diligence, "said Killifer. "If you don't believe a brand is living up to their word, chances are they're not. A lot of the big brands also may embellish the actual amount of resource conservation going on because of their efforts. Don't get caught up in their numbers, speak with someone who can provide a realistic picture of the actual amounts saved."

Kennedy pointed to McDonald's (ticker: MCD) as an industry leader on several sustainability issues, including disclosure, environment (such as sustainable fisheries and recycling), promotion of minority entrepreneurs, and animal welfare. She also singled out Darden Restaurants (ticker: DRI), the parent company of Olive Garden, Red Lobster and others, as a leader on diversity programs.

"If you consider Starbucks a fast-food company, it shines in a number of areas," said Kennedy. "For example, it is a signatory to the Global Compact, which requires businesses to adopt certain policies supporting sustainability, human rights, and transparency. By 2006, 20% of its US and Canadian stores relied on renewable energy sources. Starbucks has a program to reduce its greenhouse gas emissions has innovative environmental programs throughout the life of its key products."

Calvert Group has had dialogues with several fast food and casual food chains. In 2007, Calvert met with McDonald's to thank them for their progress on certain issues and ask them to address other issues, for example, to explicitly refer to all of the International Labor Organization (ILO) core labor standards, including freedom of association, in the McDonald's policy framework. Calvert also asked McDonald's to address human rights and reputational risks in the company's supply chain. These risks are related to sourcing of key ingredients such as the destruction of rainforest to grow soya and access to water.

"The entire restaurant industry is making great strides toward more sustainable operations," said Stensson, of the National Restaurant Association. "In fact, our research shows that one-third of all restaurant operators say they will allocate a larger part of their budget to environmental efforts this year."

Stensson concluded, "The move toward sustainability is not a trend, it's a new way of doing business. We as an industry will likely never be completely carbon-neutral or a zero-waste producer, but we are making great progress toward a sustainable future by conserving resources."

"The smart companies are those that realize that overall, adoption of sustainable policies will likely benefit the bottom line, "said Kennedy. "We've seen how companies that anticipated high-energy costs are now benefiting, for example. Another emerging issue is the availability of clean water, particularly in more arid or less developed countries. Food companies that pay attention to these emerging sustainability issues will be much better positioned in times of volatility. I think that some fast food companies really do embrace sustainability on some issues. As an industry though, it still has a long way to go."

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