Industry

Food Sector Transition Plans Must Cover Full Supply Chain – Ceres

Investors should be asking whether firms’ “growth strategy aligns with the 1.5°C world”.

Asset owners should be monitoring climate risks in the US food sector by ensuring firms are disclosing greenhouse gas (GHG) emissions, setting long and short-term science-based targets, and aligning strategies and actions to achieve climate goals, according to a new Ceres report.

The US investor network’s ‘Investor Guide to Climate Transition Plans in the US Food Sector’ says investors should seek full disclosure of current and planned future emissions from food company holdings, including relevant Scope 3 emissions, covering firms’ value chains.

According to Ceres, investors must especially engage companies to ensure they specify whether their Scope 3 accounting methodologies include emissions from land use change and agriculture.

Disclosures must provide a breakdown of emissions sources, the report emphasised, and highlight how companies intend to address each source via a transition plan.

Businesses must also publish evidence of efforts toward reducing Scope 1, 2 and 3 emissions, from a baseline year, and indicate they are on track to achieve target reductions over long and short-term periods.

In March, the US Securities and Exchange Commission outlined proposals for climate-related disclosures from all listed firms, reporting on the material impacts of climate-related risks on their business operations in their registration statements and periodic reports.

Red flags

Scope 3 emissions account for the majority of food retailers’ emissions, according to Ceres, with those from land use and agriculture being the largest source for the sector.

Businesses that disclose information covering Scope 1 and 2 emissions only, are therefore incomplete, the report noted.

“Investors should be looking at whether companies identify their largest emissions areas and whether they have an action plan to outline those components,” Julie Nash, Senior Program Director for Food and Forests at Ceres, and one of the report’s authors, told ESG Investor.

“They should also be asking whether a food company’s growth strategy aligns with the 1.5°C world. They can address this through their core innovations, innovations into new areas, or through strategic acquisitions and investments.”

According to the report – which covers sector sub-industries such as packaged foods and meats, food distribution, food retail and hypermarkets and restaurants – investors must assess the credibility of disclosures, and pay particular attention to companies failing to disclose Scope 3 emissions or those disclosing emissions for just one part of its business.

Other ‘red flags’ include disclosures which reveal little evidence of reductions, are accompanied by a lack of remediation, or disclose Scope 3 emissions from areas such as employee travel and waste disposal, but not from purchased goods and services.

Companies failing to justify or explain omissions from Scope 3 reporting should be held to account, Ceres said, as should companies which report different emissions figures across disclosures.

The food sector lags several others in terms of progress on its climate commitments. According to Ceres, just 21 out of 50 high emitting North American food companies tracked by its Food Emissions 50 initiative have set short-term emissions reductions targets that cover Scope 3.

“Our report focuses on questions investors should be asking food companies in terms of targets and concrete action plans they have in place. Companies need to understand where their products are coming from because so much of the emissions from the food sector are Scope 3 emissions from purchased goods and services,” said Nash.

According to a separate analysis on water-related risks published last month by Ceres, the food products industry is causing excessive nutrient loading into water, a practice known as eutrophication.

The sustainability-focused investor network highlighted a high level of risk across the industry, both in terms of severity and overall impact.

Broader environmental impact

In terms of climate-related targets, Ceres’ latest report emphasised that companies must also “clearly articulate” that carbon credits are solely being used to “neutralise residual emissions” or counterbalance them to support mitigation outside their value chain, it said.

As outlined in a separate report, Ceres recommends that companies use carbon credits to “raise the ambition of their climate commitments”, rather than as an alternative to implementing process change to reduce their emissions levels.

Ceres’ Nash said that information about firms’ climate impact along the supply chain would have wider benefit to themselves and their investors.

“While companies need to develop an understanding of where their raw materials come from and what impacts are taking place on the environment, there are also definite overlaps when you look at biodiversity and nature risk, and climate risk,” said Nash.

“This will be a primary focus of forth coming research. But these are initial steps companies can take on that journey. We definitely see the need to be able to increase focus on biodiversity and nature risk and look at how investors are addressing that their portfolios,” she added.

Ceres also intends to explore the implications of food companies’ transitions plans for the agricultural producers in their supply chains and the considerations that companies should embed in their procurement strategies to contribute to a just and inclusive economy.

“When it comes to just transitions, many of the individuals who are supplying the raw materials that go into the foods we eat, are the most vulnerable, both in terms of the economic impacts we are seeing now and the long-term impacts of climate change,” said Nash.

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