Governments in developed nations have a long history of intervention in agricultural markets through trade regulation and farm support policies such as the EU’s Common Agricultural Policy (CAP) and the US Farm Bill. However, these policies are being reshaped to encourage more sustainable farming systems and to reflect society’s priorities for biodiversity, food safety, and animal welfare.
The CAP is now subject to a greater focus on climate action and biodiversity protection, as it aims to foster vibrant rural communities and focuses on generational renewal.
The UK’s post-Brexit Environmental Land Management Scheme also places ESG services at the heart of its policy, while a push for ESG policy regulation in the US has seen several proposed new bills which will drive climate-related reporting by food producers and suppliers.
Government ESG policy and climate
Tackling the global climate crisis has become one of the primary targets for governments worldwide. In practice, though, it is the private sector – guided by government policies, incentives and regulations – which must implement changes.
To achieve the long-term temperature goals set out in Paris Agreement, countries need to reduce emissions as soon as possible to achieve a climate-neutral world by mid-century. Governments will occupy a pivotal role in fostering investment through incentives, harmonised standards, and the facilitation of transparent markets.
As agriculture accounts for approximately 25% of global GHG emissions, it has become critical to the climate debate as the sector seeks to reduce its existing carbon footprint.
Given agriculture’s potential capacity to mitigate climate change through the sequestration of carbon in the soil, ESG investors are increasingly interested in the sector as a means to counteract climate change.
Barriers to ESG services in agriculture
According to many sustainable agriculture experts, significant barriers remain despite an increase in ESG investment in the agriculture sector.
ESG regulations differ depending on location, meaning that companies lack a universal mandate to report ESG information. This lack of a standardized reporting methodology often means that data is incomplete and not directly comparable across companies, sectors, and countries.
The rush to secure a foothold in the rapidly expanding ESG investment sector has spurred an abundance of voluntary, non-governmental standards, stepping in where official regulation is lacking. As a result, ESG data and analytics providers as well as ESG consulting services have emerged to address the investment communities’ needs.
What ESG policies exist today?
Within the EU, ESG policy and regulations ultimately all stem from the European Council’s Sustainable Finance Policy, which sets out the EU’s high-level policy ambitions.
This ESG policy is complemented by a suite of corresponding European Commission Green Finance Initiatives, the most immediate of which is the Sustainable Finance Action Plan, which has four key elements:
- The Taxonomy Regulation
- The Sustainability Disclosure Regulation
- The Climate Benchmarks Regulation
- The EU Green Bond Standard
Regulators need reassurances that investors are genuinely engaging with ESG requirements and meeting the required standards of prudence and care, and not merely engaging in ‘greenwashing.’
The process of ‘greenwashing’ has been described by Marcus Björksten of Fondita Sustainable Europe as “a real problem”, with companies increasingly spending more resources on marketing themselves as environmentally friendly than on actually minimizing their environmental impact.
So how can government ESG policy help?
Ultimately, ESG policies will help to provide clearer and stronger regulations on reporting and disclosure metrics. further policies will drive us toward more sustainable systems and help to meet society’s environmental and climate goals.
Future ESG policies may also include public lending, insurance and guarantees schemes, financial trading schemes, a bolder approach to ESG investment of public funds and steps to expand green and sustainable bond markets.
How our sustainable agriculture experts can help
At Farrelly Mitchell, we believe that by working together, governments, agribusinesses, and ESG services can steer the agricultural sector towards our shared environmental and climate objectives.
As governments around the world increasingly emphasize the importance of ESG policies, our role as an agribusiness consultancy service is to assist policymakers and development finance institutions (DFIs) in implementing ESG policy that nurtures sustainable agriculture and enhances food security.
Simultaneously, our highly experienced sustainability consultants are on hand to provide ESG consulting services. These services enable organizations to understand and adhere to environmental sustainability and social governance practices. This support extends through our services in sustainable agriculture consulting, food security consulting, and food policy legislation.
If you would like to know more about our ESG policy services, talk to our team today.
