TL;DR: Chipotle’s limited ESG reporting needs to improve as a way to assure customers that it is doing what it says it will do.
While Chipotle is a business that appeals to the new type of customer – the more environmentally and socially discerning clientele – it does not meet standards set by the new generation of ESG leaders. Transparency is a baseline standard for ESG, and Chipotle falls short of meeting best practice.
ESG Spotlight: Transparency
Transparency is important because it makes companies accountable. Unless a company reports on the progress of its ESG programs, its commitments will look more like greenwashing, leaving the company with no accountability for what it says in public.
To Chipotle’s credit, it addresses some of its pressing challenges in its 10-K report, indicating that it considers these issues material from a legal and financial perspective. It integrated its new food safety program in its regulatory filing, in a clear message to investors that it is serious about improving its performance in 2016. Disclosing its aggressive food safety procedures to investors is one thing, monitoring and disclosing progress to the public is another. ESG analysts will be keeping a close eye on the progress of Chipotle’s food safety program to gauge whether there is a risk of recurrence. Disclosure of progress is one indicator of strong management and failure to disclose will only put the company in a negative light.
Chipotle is at a crossroad – continue with its limited ESG reporting, or start meeting best practice. It is interesting to note that from July to December 2015, Chipotle issued just four press releases dedicated to the outbreaks, all with a positive spin on the company. Its Q3 financial results release did not even mention management’s outlook on the impact of the first outbreaks. The company cooperated with the CDC’s investigation into the outbreaks, but as Bloomberg reported, the information it gave to the CDC on its supply chain was not granular enough, which comes as a bit of surprise given Chipotle’s emphatic assertions on the strength of its supply chain management. Clearly the company needs to be more accountable and the first step is to be more transparent.
Thus, I end this three-part series with a short note to Chipotle.
Dear Chipotle Management:
Be transparent with the progress of the food safety program. Share monitoring and audit results. Report all the other changes that will be made to maintain and improve the program. Being transparent does not mean having to tell a positive story all the time. It is ok to share bad news. What is important is you share it and you share what you are doing about it.
A former customer