- July 5, 2017
Written by Mary Ann DiMascio - Ceres, Senior Manager, Company Network
Large food and beverage companies are operating in a time when consumer expectations, the economic landscape and the planet itself are all experiencing rapid and significant changes.
The business models of these companies are profoundly entwined with some of the most pressing global challenges we face today — poverty, food insecurity, water scarcity and resource depletion — many of which are complicated by rapid population growth, climate change and shifting lifestyles.
Perhaps nowhere are these factors playing out more strongly than in the agricultural supply chains where these companies source their ingredients.
Globally, agriculture employs over 1 billion people, many of whom are food insecure; consumes 70 percent of our freshwater; and is estimated to contribute nearly a fifth of total global carbon emissions. More than ever, investors and consumers are looking for companies to demonstrate that they are sourcing their ingredients in a way that respects people and the planet.
Long-term investors increasingly expect companies to manage and disclose environmental, social and governance (ESG) impacts as evidence of effective corporate governance, and investors are showing particular interest in how the food and beverage sector is responding to agricultural supply chain challenges.
Investors seek to examine the agricultural supply chain risks and corporate responses more deeply.
That’s because drought, extreme weather, poor working conditions and land disputes are already driving financially material business risks for food and beverage companies, such as price volatility, inconsistent quality and supply of ingredients, damage to brand equity from advocacy campaigns, legal sanctions and seizure of goods.
These business risks that affect company bottom lines also can show up as decreased revenue or stranded assets in investor portfolios.
As sustainable sourcing strategies and supply chain transparency become essential practices for the food and beverage industry, investors seek to examine the agricultural supply chain risks and corporate responses more deeply in order to make informed investment decisions. But beginning to understand and assess how companies are managing these factors can be a challenge when each commodity — and each company — is faced with a different constellation of risks and impacts.
That’s why Ceres just released "Engage the Chain: An Investor Guide to Agricultural Supply Chain Risk" to help investors understand the challenges businesses face, how those translate into financial risks and how those risks can affect investor portfolios. The interactive guide provides investors with information about the social and environmental impacts driving material business risks for eight key commodities: beef; corn; dairy; fiber-based packaging; palm oil; soybeans; sugar cane; and wheat. These commodities are among the most prominent drivers of deforestation, greenhouse gas emissions, and water depletion and pollution.
Some major U.S.-headquartered food and beverage companies already are taking action. Two examples:
- To address the long-term risks of climate change, General Mills has made a science-based commitment to reduce absolute greenhouse gas (GHG) emissions by 28 percent across its full value chain by 2025. Because nearly two-thirds of its total GHG emissions occur in agriculture, a key focus of the company’s climate strategy is advancing sustainable agriculture practices through collaboration. By working hand in hand with suppliers, farmers, NGOs and industry peers, the company hopes to catalyze action and scale climate solutions within its business and across the food industry as a whole.
- Unilever is likewise helping hundreds of thousands of smallholder farmers improve agricultural practices, enabling them to double or even triple their yields. This increased productivity improves both farmer livelihoods and the quality and security of key commodity supplies, which in turn reduces volatility and uncertainty for Unilever and supports the company’s long-term growth plans.
Whether we are investors, companies or consumers, we all have a stake in the future of our food. It is becoming clear that the most effective way to address risks and innovate solutions at scale is to work together. By actively participating in multi-stakeholder collaborations, transparently sharing information and challenging each other to take bold action, we can meet the ever-growing demand for food and ensure a truly sustainable and resilient global agriculture system.