ESG and the F&B Sector

What is ESG?

Environmental, Social and Governance (ESG) are the standards businesses use to operate in a sustainable and socially responsible way and has become increasingly important and increasingly a topic in the news.

The UK has committed to becoming ‘net zero’ by 2050 – by then greenhouse gas emissions should theoretically be in perfect balance with greenhouse gases removed from the atmosphere. This target will impact on businesses in all sectors. Large and listed companies have to publish data on their carbon emissions within their financial statements and this will inevitability filter down to SMEs in due course. The theory is that measuring and reporting will focus minds on actions to reduce the emission of carbon, as well as allowing this to be scrutinised by third parties.

Why do this and what are the benefits?

The main areas of benefit include:

• developing and maintaining a strong, trusted brand and reputation; both in absolute terms and relative to peers
• increasing revenues from an increasingly environmentally conscious customer base
• improved profitability in the longer term through energy reduction
• reduced tax bills – there are often many tax incentives available (further information on this can be found here) 
• attracting and motivating talent; increasingly, current and potential employees are expecting their employers to have a strong ESG-related purpose and strategy that fits with their values
• greater productivity, reduced costs, improved resilience and lower regulatory intervention
• opportunities for growth and innovation; for example, through new or tailored products and improved competitive position
• optimised investments, and better access to capital. We are now seeing increased challenge for business around their approach to ESG, including by mainstream banks providing finance.

How is the sector doing with its ESG policies?

As a sector the food and beverage sector accounts for a significant % of global water withdrawal and greenhouse gas emissions so it will increasingly become the focus of environment focused consumers and regulators with a knock on impact on obtaining investment.

Some in the sector such as Nestlé have committed to a net zero pathway, use of 100% recyclable packaging or 100% sustainable products. Others are working on  plant-based products which typically have a much lower greenhouse gas emissions compared with the meat equivalent. Other businesses are focusing on recycling and recyclable materials or waste, energy and water reduction, as well as certified sourcing schemes for key agricultural commodities.

What are the challenges for the sector?

One of the greatest challenges for the sector are the complex supply chains and the ability to only produce certain products in certain geographical areas where the climate is right for a particular crop. The sector has complicated supply chains making it difficult for them to have strong ESG policies, for example the end producer may have low pollution levels or use mainly sustainable products but earlier in the supply chain energy requirements and the use of water and other resources may be high and hard to avoid. Obtaining data which covers the supply chain and processes is very difficult for the sector.

The sector has a particular challenging with packaging and making this sustainable and environmentally friendly. The government is attempting to force the sector to improve, but this comes at a cost both financially and also in terms of food waste as often the environmentally friendly packaging is not as good at preserving food s what is gained on one hand is lost in the other to food waste. Despite this the sector is particularly innovative in working on solutions through R&D. Crowe can help here both on advising on the new plastic packaging tax and also on R&D and patent box claims to offset the cost of developing new products and solutions.

What Food & Beverage should be considering

The sector could start by considering the following in order to develop there ESG policies

• What type of energy do they currently use in their processes and can this be easily substituted for something more environmentally friendly?
• Can the business work with new technologies and use more environmentally friendly buildings?
• What waste is generated, can this be reduced and can it be used elsewhere to generate energy or by recycled?
• Can the materials used in the manufacturing process and ultimate packaging be switched for more environmentally friendly alternatives?
• How do the company’s activities impact on natural resources such as water, can alternatives be sourced and used?
• How can pollution from its activities be reduced or feed into other processes such as energy production?

Conclusions

The sector has a lot of challenges to overcome in order to continue develop its ESG credentials, however the sector is also one of the most innovative and adaptive sectors which is aware of the challenges and is making good progress in tackling them. Some companies are becoming ESG leaders in the sectors and there are now clear commercial reasons for taking this seriously and investing in an appropriate ESG policy.