Nestlé | Risilience

Risilience has supported Nestlé’s approach to climate risk. Watch the video case study to learn more.

“Conducting scenario analyses has provided us with a much deeper understanding of the potential exposures we may face, enhancing our strategic discussions and financial planning process.”
— Alison Bewick, Head of Group Risk Management, Nestlé

Watch the Nestlé Video Case Study

VIDEO TRANSCRIPT

“As science shows, tackling climate change cannot wait. At Nestlé, it is imperative to the long-term success of our business. We have a unique opportunity to address climate change as we operate in nearly every country in the world and have the size, scale, and reach to make a difference. Our Net Zero roadmap builds on more than a decade of action on emissions, and I will share with you the approach we adopted, the milestones, and our learnings

This is a journey, and we want to be part of helping to push new frontiers for both climate-friendly solutions and climate transparency. Climate change presents an unprecedented challenge. We have physical risks that we see in the news and experience ourselves today—extreme weather variability, droughts, floods, wildfires, heat waves, and then longer term, rising sea levels. We then have transition risk.

Tackling climate change will require transformational shifts in policy and capital allocation. These impacts are going to vary across different sectors and geographies. Organizations need to consider the transition risks that increasingly ambitious climate policies are likely to trigger. So we have a high level of complexity, and there’s still a lot we do not know, particularly on the timing of when these different risks might happen.

The questions we were asking ourselves, and still ask—and the questions stakeholders ask—are:

How will climate change impact your organization?
How will it impact your business model, your long-term strategy, and how resilient is your organization to this disruption?
What can you do to mitigate and adapt?

In helping to try and answer those questions and build our action plans, we did this.”

Adopting Core Frameworks: TCFD and SBTi

“To start with assessing our exposures to climate change, we began to implement the Task Force on Climate-Related Financial Disclosures (TCFD). It is a framework to help companies assess the risks and opportunities presented by climate change, helping them better demonstrate responsibility and foresight in their climate issues. A fundamental building block of the framework is climate scenario analysis. This gets companies to think about “what if”—how would the company fare under different climate scenarios?

In developing our action plan, we followed the Science Based Targets initiative (SBTi) criteria. The SBTi drives ambitious climate action in the private sector. It defines and promotes best practices in emissions reductions and net-zero targets in line with climate science, helping to provide a clearly defined pathway for coupling future-proofed growth with reductions in our greenhouse gas emissions.”

The Journey Begins: Early Questions and Collaboration

“The journey begins. Let’s look at what we did. First of all, personally, I had a number of different questions.

Physical Risks: Physically speaking, how, where, and when will physical risks start to increase and manifest themselves? We all know carbon dioxide remains in the air for decades, so how long is the time lag between taking action on climate change and actually reducing the greenhouse gases in the atmosphere?
Transition Risks: What level of consensus is out there when it comes to, for example, what a 1.5°C transition pathway might look like for the world?
Data Needs: What information would we need to make a current assessment of exposures, and what would we need to forecast out 5, 10, or 30 years? Did we have the data? If not, how would we get hold of it?

We spent a lot of time building awareness, knowledge, and perspectives around how other people were tackling this. We experimentally collaborated with different organizations—our investors, banks, insurance companies, as well as academics—to build a picture of the potential approaches, capability requirements, data sources, and what technology could offer.

We did the same thing internally. Given our scale, we have a network of technical experts, and we spoke with them to help build an overview of what we should be thinking about, particularly when it comes to Nestlé’s value chain and climate change.

It was tremendously useful to take this time to build our knowledge, awareness, and socialize these topics across the organization. First and foremost, we had a strong tone at the top with a CEO fully committed to taking action. We also took some time to identify competencies and capabilities that we thought we were going to need in terms of functional expertise, and whether we could source this internally or seek this resource externally.

Scoping was also key, particularly for modeling the work around defining the greenhouse gas baseline and the scenario analysis. Data remains challenging because of the complexity and the uncertainty. We definitely see this as an area which is going to mature as technology delivers solutions to help measure and track current and future performance.”

Year 1: Laying the Foundation

“This brings us to what we achieved in the first year of trying to tackle climate action:

Building knowledge and awareness inside the company.
Setting up governance, workstreams, and reporting lines.
Scoping out the work for Year 2.
Disclosing our progress and ambitions in our Annual Report“

Year 2: Setting a Bolder Ambition & Pilot Studies

“Year 2 for us was about setting a bolder ambition, building on the decade-long work we had done to reduce greenhouse gas emissions in our own operations. Nestlé is determined to play a leading role in tackling climate change, and so in 2019, we announced our commitment to net-zero emissions by 2050 across our entire value chain.

To achieve this will require transformation. It will lead to a major shift in the way our ingredients are sourced and produced, and we will need our suppliers and other partners to embark on this journey with us. We recognized the task was huge, and we announced the next step was to create a time-bound plan, including interim targets consistent with the 1.5°C pathway.

At the same time, to better understand the potential risks and opportunities of climate change, we conducted a high-level qualitative assessment of both physical and transitional risks. We collaborated with the University of Lancaster’s Pentland Centre for Sustainability. This pilot study focused on some of our most important raw materials: coffee, dairy, and cereals.

We kept it simple with two climate scenarios:

A Paris Agreement pathway (1.5°C)
A business-as-usual scenario

We looked out to 2030 and beyond. This work helped us improve our understanding of the directional time horizons on physical risks and the importance of assessing localized impacts. It also highlighted that there is a lack of consensus on what assumptions to use for transition pathways, which makes it challenging for companies to all use the same predictions of the future. The study confirmed the importance of continuing to better understand our critical dependencies and externalities of climate change.

By the end of Year 2, we had our net-zero ambition for 2050, we had carried out a pilot scenario analysis, and we continued to socialize our learnings throughout the company.”

Year 3: Scaling Up with Digital Modeling

“On to Year 3. For our exposure assessment, we embarked on qualitative and quantitative climate modeling across our value chain to assess our portfolio’s resilience under different external conditions. We partnered with the University of Cambridge’s Centre for Risk Studies to define the methodology and build a climate modeling approach.

The key outputs of this initiative were:

Digital Tool Integration: Developing a methodology and a digital tool that incorporated both internal and external data, capturing our value chain in one digital space to map our physical and commercial footprint.
Pragmatic Variables: Using publicly available sources, we applied a set of pragmatic, manageable physical and transition variables to simulate different scenarios.

Carrying out this analysis enhanced our thinking and discussions around the timing and severity of the risks we may face. The direction of financial exposures helped to start framing the potential order of impacts and our resiliency to either mitigate or adapt to these risks. It is as much about numbers as it is about helping to better anticipate potential disruptions.

The process of climate scenario analysis is rapidly evolving. We expect the approaches, tools, and data to mature over time, helping us better understand our climate risks and opportunities as we continue to accelerate the transformation of our value chain. These assessments will be integrated into our strategic planning, risk management, and resource allocation to strengthen our resilience.”

Reviewing the Value Chain

“To achieve net-zero greenhouse gas emissions by 2050, we need to act throughout our entire value chain. We take a whole-lifecycle approach to determining the carbon footprint of our products.

We calculated the size of our carbon footprint in partnership with South Pole, an external consultant. The vast majority of our greenhouse gas emissions—95%—come from activities in our supply chain. As a result, that is where we focus most of our efforts. This means working with farmers, suppliers, and communities to find ways to protect ecosystems, reduce emissions, and enhance livelihoods.

With this mindset, we developed our Net Zero roadmap with clear milestone targets:

By 2025: A 20% reduction of our emissions by accelerating our work in manufacturing, packaging, carbon-neutral brands, and scaling up new technologies.
By 2030: A 50% reduction of emissions.
Beyond 2030: Technology will play a crucial role. Advanced agricultural techniques and the transition to a regenerative food system at scale will form the foundation of sustainable food production and help us achieve our goals.

I am proud of what we achieved by Year 3. A time-bound, Net Zero roadmap was published with full transparency around the size of the challenge, alongside targets to measure our progress. We completed an outside-in analysis of how our value chain may be impacted under different scenarios to help guide our strategic response.

Data has always been our starting point. We continue to enhance our ability to track external triggers, identify and measure emissions, and explore new ways to use analytics, automation, and artificial intelligence to enhance our decision-making and transparency.”