The business of food and drink is under pressure. As well as facing the challenges of climate-change-induced crop failure, soaring energy prices, geopolitical unrest and the cost-of-living crisis, the food industry is contending with the need to decarbonise.
Climate change as a risk to global food supply
In the most recent Intergovernmental Panel on Climate Change (IPCC) report, scientists highlight that climate change could have a catastrophic effect on food supply worldwide. According to the Science Based Targets (SBT) initiative, Forest, Land and Agriculture (FLAG), the sector is one of the industries at highest risk of climate change and a significant source of emissions. As the largest emitting sector after energy, food, agriculture and forest represents nearly a quarter of global greenhouse gas (GHG) emissions (Ref. 1). It also has the potential to absorb a meaningful amount of emissions from the atmosphere.
While many organisations in the food sector have committed to net-zero targets and are familiar with disclosure reporting, companies need to convert commitment to credible and effective action – and, ultimately, results.
Counting the cost of emissions
Emissions from the forest, land and agriculture sector have not historically been reported at corporate level and, until the introduction of FLAG, there was no framework to enable target setting for these emissions. With the urgency of climate change in mind, and major milestones looming in the next decade, the SBT FLAG initiative, which launched in September 2022, has introduced a set of guidelines and principles that organisations should adhere to when disclosing their decarbonisation plan. Importantly, these broader set of principles aim to keep the 1.5°C goal within reach.
In addition, the Greenhouse Gas Protocol Land Sector and Removals Guidance explains how companies should account for and report GHG emissions and removals from land management, land-use change, biogenic products, carbon-dioxide-removal technologies and related activities in GHG inventories (Ref. 2). The Task Force on Nature-related Financial Disclosures (TNFD), that will enable companies to integrate nature into decision making, and the Corporate Sustainability Reporting Directive (CSRD), a European reporting framework that takes a broad approach to cover issues such as environmental, social and human rights, are on the horizon. Pressure for businesses to demonstrate a net-zero strategy is building.
Companies that fail to make the business transformation required to transition to the low-carbon economy risk being left behind more sustainability-smart competitors, losing customers and business value. Climate litigation cases are on the rise globally, adding this potentially costly outcome to the business-risk landscape.
A menu of complex challenges
Getting to grips with the principles and target-setting processes of various disclosure frameworks is not the only time-critical task facing the sector. Many large companies with complex supply chains experience challenges arising from the interplay between emissions, nature and society. An example shared recently at a roundtable discussion highlighted a situation for one business responsible for harvesting a large area of sugar cane. A local labour force relied on the income from manually harvesting the crop but to safeguard the people against venomous snakes and insects in the field, the stumps of the cane were burned which produced emissions. The crop could be mechanically harvested but that would negate the need for people who would lose much-needed income, presenting the business leaders with a very complicated set of decisions.
The cost of doing the right thing is also a significant factor for business leaders feeling the pinch. There is a fine balance to be struck between providing customers with affordable food products, maintaining business growth, transitioning operations to align with net-zero plans and meeting business objectives. Timings are critical to success.
Realising cost-benefit justifications for net-zero plans
Taking a science-led and data-driven approach to disclosure reporting can secure valuable insights to inform key decision-making. Companies pledging to reach net-zero targets in the absence of detailed analysis of what that commitment really means for their business-risk failure. The business-related risks that follow social, economic and political trends, related to a low-carbon future, are transformative for a company and will present significant challenges for businesses in the coming years.
There are also benefits to be gained from the process of business transformation. Data analytics and scenario analysis can make clear the relationship between the quantification of risk, the potential financial loss that a company might suffer, and the amount spent on offsetting that loss and the associated mitigation. These lines of sight can be revelatory for a business.
Pursuing a net-zero strategy does require investment but there are upsides to operating a lower-emissions company, including accessing green capital as the market matures, avoiding carbon tax and eluding the reputational damage that can arise from not taking appropriate action to lower emissions. The companies that implement effective and achievable transition strategies will be best positioned to futureproof business strategy and meet opportunities in the low-carbon economy.
- Thomas Harvey is part of the panel event The roadmap to net zero: how to shift from commitments to action on climate with representatives from Nestlé, Arla Foods and Regrow at 9.50am (CEST) on 3rd May at the Innovation Forum Future of Food conference, 3rd and 4th May, in Amsterdam.