Amid the evolving landscape of environmental, social, and governance (ESG) priorities, the Food & Beverage industry finds itself at the intersection of sustainability, responsibility, and the ever-growing demand for ethical practices.
In this blog post we explore these Environmental, Social and Governance (ESG) considerations in the Food & Beverage industry through:
The Future of ESG Reporting in the Food & Beverage Industry
The Food & Beverage industry wields a substantial influence on the environment, specifically concerning greenhouse gas (GHG) emissions, resource consumption, and detrimental labour conditions. Research highlights that in 2019, deforestation was identified as one of the leading sources of GHG emissions, followed closely by emissions from livestock manure, food waste, domestic consumption, and the use of fossil fuels within farming and food retail sectors. This alarming statistic underscores the urgency of addressing the issue. The practice of deforestation is predominantly fueled by the cultivation of agricultural commodities such as palm oil, coffee, soy, cocoa, and the expansion of pasture areas for cattle and other livestock. This not only results in considerable carbon dioxide emissions but also disrupts fragile ecosystems, erodes biodiversity, and exacerbates the global climate crisis.
Additionally, within the Food & Beverage industry, there is a prevalent concern regarding subpar wages and inadequate working conditions for labourers. These unfavourable work environments often compel farmers to engage in further deforestation in their pursuit of enhanced yields and increased revenue, creating a destructive cycle that underscores the imperative need for government intervention. Inadequate labour standards not only harm workers' well-being but also perpetuate unsustainable agricultural practices. This trifecta of GHG emissions, resource depletion, and labour exploitation underscores the pressing need for comprehensive reforms within the Food & Beveragesector to foster ESG sustainability, and a more equitable future.
KnowTheChain Food & Beverage Benchmark
KnowTheChain is an initiative and resource dedicated to addressing and combating forced labour and labour exploitation within global supply chains. It was founded in 2013 and is primarily focused on assessing and benchmarking the efforts of companies to address these issues within their supply chain operations.
Throughout the globe there are 27.6 million people enduring forced labour situations, with 13% of adult forced labour exploitation taking place in agriculture. The 2023 Food & Beverage benchmark by KnowTheChain underscores a concerning disparity between industry profit margins and the labour conditions of those responsible for production. Among the top 60 companies in the Food & Beverage sector, the average score is a mere 16/100, signifying an urgent need for the entire industry to enhance its efforts in identifying and addressing forced labour risks within its supply chains.
KnowTheChain offers several benefits to Food & Beverage companies that choose to participate and engage with its benchmark:
Identification of Weaknesses: KnowTheChain's assessment helps companies identify weaknesses and gaps in their efforts to address forced labour and labour exploitation within their supply chains. This information is crucial for companies looking to improve their practices.
Benchmarking and Best Practices: Companies receive benchmark scores that allow them to compare their performance with industry peers. This benchmarking helps companies understand where they stand relative to best practices and areas needing improvement.
Investor Attraction: As ESG (Environmental, Social, and Governance) factors gain prominence in investment decisions, Food & Beverage companies that score well on KnowTheChain assessment may be more attractive to socially responsible investors who prioritise ethical and sustainable business practices.
Risk Mitigation: Addressing forced labour risks proactively can help companies mitigate legal, reputational, and operational risks. Identifying and addressing these risks early can prevent costly disruptions and legal challenges down the line.
Stakeholder Engagement: Engagement with KnowTheChain demonstrates a company's willingness to engage with stakeholders and address critical labour rights issues. This engagement can foster positive relationships with NGOs, labour unions, and advocacy groups.
Continuous Improvement: KnowTheChain's assessment is not just a one-time exercise. They encourage companies to continuously improve their supply chain practices and stay updated on emerging best practices and industry standards.
Consumer Trust: As consumers become more conscious of ethical and sustainable practices, companies that engage with KnowTheChain may earn the trust and loyalty of consumers who prioritise products from responsible and ethical sources.
In summary, KnowTheChain offers companies an opportunity to enhance their supply chain transparency, identify areas for improvement, attract responsible investors, mitigate risks, and demonstrate their commitment to ethical and sustainable business practices. It aligns with the growing emphasis on ESG factors and ESG reporting for responsible corporate behaviour in today's business landscape.
Apart from the Food & Beverage sector's societal responsibilities, it exerts significant environmental influence. ESG frameworks like CDP enable Food & Beverage firms to transparently share their environmental information. To delve deeper into CDP, you can explore our ESG Spotlight on the Textile’s Industry, providing valuable insights. Likewise, the Sustainability Accounting Standards Board (SASB), which we extensively discuss in our ESG spotlight on Aviation, formulates industry-specific ESG standards that enhance benchmarking accuracy within the Food & Beverage sector.
Key ESG Reporting Metrics
Product Carbon Footprint (E)
In 2021, the beverage industry accounted for 1.5 billion tons of CO2e, making up 3.8% of the global emissions; in addition, while not an exact representation for the F&B industry alone, the vast scale of emissions associated with this sector can be gauged by the global food-system emissions which stood at 15.8 GtCO2e, making up 30% of the world's greenhouse gas emissions. Given the severe implications of product carbon footprint, the Food & Beverage industry can maintain ESG best practices through various strategies including energy-efficient manufacturing, biotechnology, and promoting recycling.
Raw Material Sourcing (E)
Raw material sourcing encompasses fair labour practices and sustainable procurement to ensure environmental conservation and ethical supply chains. Traceability in sourcing is vital, ensuring transparency and promoting resilience in the supply chain.
Product Safety and Quality (S)
Ensuring product safety and quality stands as a pivotal ESG metric in the Food & Beverage industry. This involves adhering to high standards of hygiene and safety during production, such as ISO 22000 and FSSC 22000. Moreover, transparent labelling that accurately reflects nutritional content and identifies potential allergens is essential in fostering consumer trust and ensuring safety.
ESG Development - Food Biotechnology
As detailed at the World Economic Forum Annual Meeting, the food industry is at a crossroads, grappling with the pressing demands of a booming global population and the pressure to mitigate climate change impacts. One area that can play a substantial role in transforming the industry to achieve a greener future is biotechnology.
Food biotechnology is the application of modern scientific techniques to the creation and optimisation of food products, often through the manipulation of microorganisms, cellular tissues, or DNA, with the aim of enhancing food safety, nutrition, and sustainability.
Advancements in food biotechnology, such as biofertilizers, biopesticides, and probiotic feed additives, stand to offer significant environmental and social benefits, such as helping reduce 8% of global GHG emissions towards 2030. Moreover, biotechnology fosters the creation of alternative proteins derived from plants, a shift that stands to dramatically reduce global warming, water use, and land exploitation. The transition to plant-based proteins not only alleviates environmental strains but also meets the demand for nutritious and sustainable food products that are affordable to the mass population.
Despite hurdles, such as stringent market approval processes in several regions, the commitment to harnessing biotechnology can advance ESG objectives in both the Food & Beverage industry. Whether it’s safer products, or higher consistency of bio-processed products, companies can mitigate their environmental impact, foster societal well-being, and govern more responsibility, aligning with broader sustainable development goals.
The Future of ESG Reporting in the Food & Beverage Industry
Beyond KnowTheChain, we expect that major frameworks such as the CDP will continue to have a significant impact on the industry’s future ESG direction.
In addition, the International Sustainability Standards Board’s (ISSB) IFRS S1 and S2 standards, the new baseline for sustainability disclosure, will play a key role in shaping the industry's future.
While the IFRS S1, focuses on sustainability-related risks and opportunities, IFRS S2 is focused on climate-related disclosure requirements. Both standards build upon the Task Force on Climate-Related Disclosures (TCFD), the gold standard for sustainability disclosure, and the ISSB will work with jurisdictions and companies to support effective implementation and adoption.
In summary, the Food & Beverage industry has a substantial impact on the environment and faces pressing challenges in addressing greenhouse gas emissions, resource consumption, and labour conditions. Deforestation, driven by agricultural commodity production, is a major contributor to GHG emissions. Additionally, inadequate labour conditions often lead to further deforestation. KnowTheChain's benchmarking initiative offers a crucial tool to assess and improve labour practices in the industry.
To mitigate these challenges, the industry can pursue strategies such as energy-efficient manufacturing and food biotechnology. ESG reporting frameworks like CDP and the International Sustainability Standards Board's standards are key drivers of sustainability in the sector. By embracing these initiatives and taking proactive steps, the Food & Beverage industry can work towards a more sustainable and equitable future.