Investors are being urged to think about animal welfare and environmental issues before investing in "factory farming" companies.

Ethical investment organisations claim the intensive livestock industry has so far escaped close scrutiny by investors because factory farming is a comparatively recent phenomenon.

They say the time has come for fund managers to consider the reputational risk of investing in intensive farming companies, because of the negative externalities they create, such as antibiotic resistance and damage to the environment. Investors are also being urged to consider animal welfare issues.

Some definitions of factory farming are based upon the US Environmental Protection Agency's term "Confined Animal Feeding Operation (CAFO)." To be considered a CAFO, a farm must confine animals for at least 45 days in a 12-month period, with no grass or vegetation in the confinement area.

Under factory farming conditions, mobility is restricted and animals are usually fed a high-calorie, grain-based diet, often supplemented with antibiotics and hormones to maximise weight gain and avoid infection, says a briefing from the movement for responsible investment, Share Action - which clearly has the US livestock farming model uppermost in its mind.

According to Share Action: "Overuse of antibiotics in livestock is causing resistance to life-saving drugs in animals and humans."

Another organisation called Farm Animal Investment Risk and Return (FAIRR) wants to see farm animal welfare much higher on investors' agendas. It says 70 per cent of the world's farm animals are now intensively farmed, including an estimated 99 per cent of US livestock.

Jeremy Coller, founder and executive chairman of UK private equity secondaries firm Coller Capital announced the FAIRR initiative last February saying he envisioned FAIRR as a network of investors who agree to consider animal welfare as an investment/risk issue and will monitor investee companies on how they deal with it

According to FAIRR, animal welfare issues present an iceberg of risks to investors. It says there is evidence that the 2009 H1N1 strain of swine flu, which killed over 150,000 people and wiped billions off the value of many agricultural investments, originated in a US factory farm. Factory farming also catalysed the spread of H5N2 bird flu in the US last year, estimated to have cost £3bn to the wider economy.

Above the surface, scandals such as swine flu, avian flu and horsemeat have shown how poor animal welfare and industrial production methods can lead to value destruction. But more than this, the organisation believes that under the surface there is a wide range of risks, all linking back to poor animal welfare standards, which could damage long-term performance for investors.

To illustrate the investment risks arising from concerns about animal welfare, Coller cited the documentary film "Blackfish", which portrayed the lot of killer whales captured by Sea World, the US amusement park operator.

"When the film came out last year (2014) and went viral, there was a 30 per cent decline in attendance. Its (Sea World's) share price also declined 30 per cent," said Mr Coller.

He went on to refer to the largest-ever meat recall after egregious, undercover abuse footage was made public in 2008, saying: "Coming to animal factory farming, there is the case of Hallmark- Westland, a California meat-packing company. It had the biggest product recall in US history. 143m pounds of beef were recalled, or the equivalent of 200 jumbo jets.

"The recall cost the company $116m, but what bankrupted them in 2012 was a class-action suit that followed."

Mr Coller said there were "four inconvenient truths" about factory farming. One was the spread of drug resistance due to overuse of antibiotics on farm animals. The second was that it contributed greatly to global warming due to methane release. The third was undernourishment caused by the need to support the practice with crops. And the fourth was ignorance about the issue.

Alan Briefel, executive director of FAIRR said: "Intensive farming practices raise material, health, environmental and operational risks that investment organisations cannot afford to ignore. Given that they also rely heavily on government subsidies the model does not look like a sustainable one for investors and they should take action to manage the risks."

It is important to realise that those pressing the case for increased investor scrutiny of intensive farming operations are not idealists. They are experts in their field who are making their case sufficiently convincingly to attract the support of big fund management companies handling billions of pounds worth of assets.