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Why ESG is increasingly critical for the food industry

Over the coming months and years, we predict growing pressure for greater ESG performance and transparency in the food and drink industry.

7 February 2022

The oil industry

The oil industry has long been associated with having a damaging impact on our planet. In response, companies in this sector are mobilising to address Environmental, Social and Governance (ESG) imperatives to meet growing public activism and government regulation.

Sustainability reporting is fast becoming the norm. In 2020, a KPMG Survey of Sustainability Reporting recorded a sustainability reporting rate of 96% for the world’s largest 250 companies. Within the oil & gas sector, the rate was 100%.

There’s no doubt that food manufacturers will soon be faced with the same pressures.

The need to assume responsibility for sustainability

As an industry that accounts for 70% of global freshwater withdrawal and a quarter of all global greenhouse gas emissions, food production will almost certainly come under the same levels of scrutiny as the oil industry – with companies experiencing ever-increasing pressure to improve their sustainability.

This pressure will come from the growing cohort of contentious consumers, as well as from the investment community and from legislators. The Financial Times has reported that investors are currently finding it hard to incorporate food in their portfolios. The far-reaching impacts of food businesses have been difficult to measure, making it unclear whether they meet ESG criteria.

McKinsey cites more than 2,000 academic studies that conclude that better ESG scores translate to approximately 10% lower cost of capital. ESG is therefore becoming a strategic imperative.

MSCI Inc, a provider of financial analysis tools, confirmed these benefits through a four-year study. Its research found that companies with high ESG scores experienced lower costs of capital, lower equity costs and lower debt costs compared with companies with poor ESG scores.

Poor performance to date

The food industry is currently behind the curve. According to Canopy Holdings, a New York-based food and agriculture holding company, there’s a lack of ESG data in the sector, particularly in social and governance areas. A Wall Street Journal survey on ESG metrics identified that of 5,500 publicly traded companies, only one food business scored in the top 100.

A recent survey carried out by the World Benchmarking Alliance mirrored these findings. It found that, when ranking 350 of the world’s largest food and agriculture companies on their contributions to transforming the global food system, there were significant gaps in the industry’s preparedness for climate change, progress on human rights and contribution to nutritious diets.

Some food companies have taken a clear lead. Nestlé and General Mills have committed to a net zero pathway, while Danone is working with B Corp to demonstrate that its sites work to environmental and social standards. Beyond Meat commissioned a lifecycle assessment with the University of Michigan, which found that its plant-based burger was responsible for 90% lower GHG emissions compared with its beef equivalent.

Taking a proactive stance

BRCGS has partnered with Ecodesk, a company that’s been supporting some of the most forward-thinking and influential brands to reduce their ESG impact. We want to bridge the current ESG gap in the food and drink sector – by providing a tool that can be quickly and easily deployed to enable the measurement of ESG impact across the entire supply chain.

ESG LEAD provides critical insight, enabling users to influence change and optimise their supply chains to mitigate their ESG impact.

Over the coming months and years, we predict growing pressure for greater ESG performance and transparency in the food and drink industry. Companies’ reported results will need to be based on trustworthy, verified data that reflects the end-to-end supply chain.

Those businesses that respond proactively to the ESG challenge will not only maintain their ‘social licence to operate’ and be well-placed to adapt to the evolving legal landscape, but will also be able to profit from the commercial dividend that comes from doing the right thing.

Get your business ready for the future

ESG LEAD can help you monitor, track and implement changes to ensure you achieve your ESG goals. Sign up for free today.

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