Where’s the beef? Engaging Texas Roadhouse on climate risk

Devastating droughts. Harsh heat waves. Frequent flooding. These are just a sampling of the calamitous weather events projected to have severe impacts on global agricultural output because of climate change. But such weather events are already affecting agricultural yields in the United States – which, in turn, are impacting prices and the availability of key commodities for the food sector. In 2022, unprecedented drought conditions in the Western US and Southern Plains led to a rise in livestock feed costs and a subsequent reduction in cattle inventory, driving up the cost of beef.¹ For restaurant companies like Texas Roadhouse, these factors contributed to a notable increase in food and beverage costs for the year, negatively affecting margins.²

At Boston Trust Walden, we expect the companies in which we invest client assets to actively address their contribution to climate change in line with the goals of the Paris Agreement as well as manage the associated risks and opportunities. As a signatory to the Net Zero Asset Managers (NZAM) initiative, we believe broad-based, absolute greenhouse gas (GHG) emissions reductions are the best way to achieve net zero emissions and mitigate the risks posed to companies and investors. We thus encourage companies in which we invest client assets to set or improve GHG reduction targets.

When it comes to the food sector, investor collaboration has been a critical mechanism to align companies toward a net zero future. As a member of the investor-led initiative Food Emissions 50, we ask companies to commit to three key actions:

Texas Roadhouse, a restaurant chain held in smaller-cap Boston Trust Walden client portfolios and a company listed on the Food Emissions 50, has yet to take any of the above actions to address material climate risks to its business – making it an outlier amongst its peers. We initiated direct dialogue in 2022 to learn more about the ambitions of its climate risk management program and encouraged the company to increase the scale, pace, and rigor of its work. Unfortunately, dialogue alone was not enough to move the company to make a sufficient commitment. We then escalated the engagement by filing a shareholder resolution in advance of the company’s 2023 Annual General Meeting.

The ask within our resolution was simple: disclose to investors if, and how, the company intends to measure and reduce GHG emissions to align its business with the goals of the Paris Agreement.

In response to our filing of the shareholder resolution, Texas Roadhouse agreed to take some basic steps, formally committing to disclose its GHG emissions profile and study opportunities to reduce operational emissions. Unfortunately, these initial efforts fell short of the actions needed to both assess and address climate risks across its value chain. We were concerned the company’s commitments might end there, so we moved ahead with the resolution. The resolution went to a vote at the Texas Roadhouse Annual General Meeting in May of 2023. We were hopeful other investors would also recognize the need for the company to increase the scale, pace, and rigor of its climate risk management program.

We were not disappointed.

On May 11^th, more than 40% of Texas Roadhouse shareholders supported our proposal. Of the 65 climate-related shareholder proposals voted at US companies during the 2023 proxy season, our proposal received the 5^th highest level of support.³ This dramatic show of support sent a strong message to the company, and we look forward to seeing how it responds in the coming weeks. Meanwhile, we will continue our engagement with Texas Roadhouse, building the business case for strengthening its climate risk management efforts.