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Sector insight: Food and Drink
Each quarter, the edie Sustainable Business Tracker Report will dive deeper into a specific sector. This time, the focus is on food and drink. To accompany the survey results, we asked a panel of sustainability professionals from across the food and drink sector – ranging from small SME agriculture firms up to large food retailers - to join a special roundtable discussion to share their current challenges, pain points, successes and ambitions for advancing sustainability in their organisations and across the industry.
Delivery and disclosure
The food and drink sector continues to feel the impact of the cost-of-living crisis, which is seeing firms having to consider price options and deal with supply chain pressures as a result. Companies across the sector are still grappling with high energy costs, fluctuating commodity costs, and supply chain disruption, bespoke guidance and frameworks that require a lot of reporting resources, and – much like all sectors- this must all be dealt with against a backdrop of political instability.
During the roundtable conversation, the panel of food and drink sustainability professionals, each with their own ambitious ESG and climate targets, outlined numerous barriers that the sector is trying to overcome. One participant noted that the “zeitgeist has moved on from a desperate dash to set net-zero targets to delivering them” and that many businesses were allocating a lot of resources (both human and financial) to set up the delivery frameworks.
One unique aspect facing the sector is how companies are tasked with going about setting their climate targets up for delivery. Food and drink is heavily reliant on agriculture. With nearly 25% of global emissions accounted for by agriculture, forestry and land use, the sector has a key role to play in reducing emissions across the value chain.
As part of submissions to the SBTi, businesses in this sector may well need to apply to reduce forests, land and agriculture (FLAG) GHG emissions. FLAG Guidance enables companies to set science-based targets that include land-based emissions and removals. This includes emissions associated with biomass and soil losses, deforestation and degradation, peatland burning and emissions from land management including fertiliser use and emissions from relevant machinery and manufacturing.
The FLAG guidance will be required for companies that are linked to land-intensive activities across their value chain. This includes forest and paper products, food and drink production and tobacco.
The SBTi also recommends, but won’t enforce, that companies that have more than 20% of revenues coming from FLAG activities or companies with FLAG-related emissions that account for more than 20% of their overall value chain emissions should set new goals.
However, the guidance is fresh, having launched in September 2022, and many businesses are still figuring out exactly how such targets should be set, which is adding to the already mounting pile of reporting, disclosure, and data collection.
Accounting for nature
One benefit that this focus on climate targets has delivered is that many firms are now revisiting their relationship with and approach to nature as part of decarbonisation efforts.
Often viewed as two separate entities of the 'E' pillar of ESG, many businesses are now realising how investing in nature restoration and protection can spur decarbonisation efforts and unlock low-carbon innovation.
Roundtable participants noted, for example, that they were now exploring how to price the natural capital they rely on in order to build a better business case internally for sustainability.
According to the Office for National Statistics (ONS), the total asset value of ecosystem services in the UK stands at £1.5trn, with nature contributing more than £45bn to the economy each year. Businesses within the sector are uniquely positioned to contribute to the strength and resiliency of these assets, but an understanding of the topic remains low amongst most businesses.
While not directly applicable to the sector, the developments surrounding the UK’s Biodiversity Net-Gain (BNG) mandate for developers have increased the focus on nature amongst businesses, and roundtable participants noted that this was another avenue to create more understanding of sustainability and nature internally.
Speaking of internal teams, many of the participants noted a shift in senior-level engagement with sustainability issues. Internal restructuring, staff upskilling and the deeper integration of sustainability teams are all starting to have an impact.
Policy pains
While Biodiversity Net-Gain metrics could be positive on the policy front, the sector is still reeling from Brexit and the impact that has had on agricultural sectors.
Participants noted that the labor market has shifted substantially as a result of Brexit and that “poor labor practices still need to be ironed out” across the supply chain. Brexit has also created divergence between UK and EU policies on key areas such as deforestation and businesses were having to comply with two different forms of legislation on some environmental approaches. One roundtable member argued that the UK’s standalone approach to policies compared with the rest of the Bloc makes the nation “a hard place to justify investment” for any larger firms with supply chains or sites in the EU.
Reporting and social considerations
Most agreed that enhanced reporting and disclosure demands were eating into internal resources. The fact that different frameworks require different information, using different timelines, is not helping matters. A convergence of different frameworks in the future will be helpful. In the meantime, there is a real focus on upskilling members of other functions on sustainability so they can help with the reporting demands.
Some smaller firms in the sector are being inundated with questionnaires on environmental data disclosure, with one participant stating outright that this was their biggest challenge. Biodiversity and animal welfare are also high on the agenda for reporting and disclosure requirements.
While the resource allocation for reporting is a challenge, many noted that it does create the chance to strengthen approaches to ESG internally. One participant noted that now was an ideal time to build the social element of ESG, given the current “fatigue” around environmental reporting.
Indeed, the conversation wasn’t all doom and gloom, with most participants excited about their latest projects, investments and moves to ramp up action internally. Ambitious goals are helping to foster innovation, not just within sustainability functions, but across food and drink businesses. One company was looking at carbon labelling for their food items, for example, while some are investing in biogas that utilises the by-products of their agricultural arm to create low-carbon alternatives.
Packaging was also a common discussion point on the roundtable, with many businesses noting that they are facing consumer and customer pressure to invest in and rollout recyclable and/or reusable packaging that lessens reliance on plastics.
Looking ahead
The green shoots of innovation are slowly emerging and many food and drink firms noted that they were yet to pick the low-hanging fruit when it came to low-carbon solutions. This, participants argued, meant that the sector was primed to really step up decarbonisation and nature-based efforts over the coming months and years.
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