A recent ranking of the world’s 100 most sustainably managed public companies was published last week with iconic names such as Sony, Philips, Merck, and Cisco Systems topping the list. But one industry was largely a no-show: food processing.
Companies are under great pressure to make positive contributions to pressing environmental, social, and economic issues. This pressure comes from the combined expectations and scrutiny of asset managers and other stakeholders such as NGO’s, lobbyists and current and prospective employees and consumers.
Food and agribusiness engagement at odds with 2021 ESG trends
The Wall Street Journal survey evaluated 5,500 publicly-traded companies on environmental, social and governance (ESG) metrics, with Nestle the only food company scoring in the Top 100. This is troublesome for an industry that has such a large impact on the environment and wishes to enhance its connection to, and credibility with, consumers.
As the world struggles to meet the rising global demand for food to feed the global population, the impact agriculture has had on the environment has been pronounced. Agriculture and its related supply chains account for over one-quarter of annual greenhouse gas (GHG) emissions, 70% of freshwater usage and is a major contributor to global deforestation and biodiversity loss. Farming cannot increase productivity using today’s agricultural methods without continuing to negatively impact the worlds fragile ecosystem.
As a result of this conflict, new technologies along with environmentally beneficial agricultural and supply chain practices need to be adopted in order to mitigate the negative impacts agriculture has had on our environment. As a result, consumer and industry focus has changed in recent years to how where and who is producing food. Yet, despite this increased focus, a third of agribusinesses recently analysed in a major survey on the subject carry out no sustainability reporting. By contrast, in the mining industry, 100% of large mining companies surveyed produce some form of the sustainability report.
What are the consequences of ignoring sustainability?
Failing to account for sustainability can impact the economics of a business in many ways. This includes impacts on profitability, long-term growth and investment, reputational damage as well as the ability to recruit people. Four months into the year, 2021 ESG trends continue to reinforce that message.
Impact on the bottom line
Integrating sustainability often means making better use of resources and is not simply good for the environment and society, but also the company itself. Sustainability provides a valuable approach to increase operating efficiency, improve earnings quality, reduce costs and enhance an asset’s value while also contributing non-financial improvements, namely the environmental and social performance of each business for the customers and the communities in which the business operates.
More and more investors are coming to believe that focusing on ESG principles can help deliver what everyone wants: superior, risk-adjusted performance over the long term.
Measuring and Reporting ESG
If you’re not measuring you can’t manage, so there is a need for holistic management to effectively contribute from a sustainability perspective. Identify, measure, manage, monitor, report. Transparency is increasingly important.
Millennials stand to inherit $59 trillion by 2060, and they care about what their money supports and encourages as much as returns. It is widely reported that millennials want to invest in the way they live – that is with due regard to sustainability and ethical values. They aim not to waste energy, water, and resources at home, they want to invest in companies that find creative ways to conserve resources; if they boycott the products of known polluters at the supermarket, they do not want to buy their shares.
Transparency is needed in the context of social and environmental impacts. Being transparent about our environmental and social performance is key to building trust with our stakeholders, correcting misinformation and guiding the industry. 2021 ESG trends continue to indicate that ignoring sustainability risks the reputation of the company, whatever sector it operates in. In an age of increased transparency, social media, consumers and activists can easily highlight environmental stories and negative impacts in a short time. Once consumer trust in a company or product is gone it is exceedingly difficult to regain.
Self-regulation versus intervention?
Many governments across the world have signed up for sustainable development goals and goals on climate action. As a baseline, society has agreed to reduce CO2 emissions by 50 percent by 2030 and become carbon neutral by 2050. Measurable sustainability metrics and targets have been established, enabling us to report on target achievement. The integration of the SDGs into our investment and reporting process and our sustainability efforts helps us to better report the impact of our actions and to address the information needs of relevant stakeholders.
Meanwhile promoting sustainability often requires government support to incentivise producers to adopt cutting edge practices.
Recruitment and Retention of Millennials?
Failing to account for sustainability concerns can also lead to problems recruiting and retaining talent. The largest workforce segment – millennials – want their employers to be more socially active and purpose-driven. A high percentage (83%) want businesses to be more involved in societal issues. More than half always look for healthy foods and want companies to supply them. And they are five times more likely to stay at a company where they feel a strong sense of purpose.
Transparency and Disclosures
Agriculture and its related supply chains have an opportunity to actively contribute to social and climate positive solutions through the adoption of holistic and inclusive sustainability strategies. By implementing sustainability strategies, businesses can create long-term value for the stakeholders through its natural and human capital benefits and provide resilience in the face of economic shocks.
The food and agribusiness industry must do a better job accounting for the value it creates through improved transparency and stakeholder engagement. Currently, in the context of 2021 ESG trends, it does not do enough to show it is delivering positive change. Failing to integrate sustainability into an investment can have real consequences, not just for project viability, but also reputation. As consumers and investors place an ever-higher value on sustainability companies need to measure and report their performance on a range of sustainability issues.