The EU’s much-anticipated Sustainable Food Systems Law has the potential to revolutionise the food value chain as we know it.
Beyond thinking about the energy sources fuelling our lifestyles and livelihoods, it’s just as important to consider how we are fuelling our own bodies.
The world’s food systems are responsible for 34% of global CO2 emissions. Further, the Food and Land Use Coalition has estimated that the health-related costs of current global food systems amount to US$6.6 trillion, citing issues such as obesity, pesticides, and anti-microbial resistance.
The EU’s current food system is “wasteful, inefficient, lacks resilience, and fails to provide affordable healthy food to all the EU’s citizens, in addition to its heavy negative climate and nature impacts”, according to Peter Elwin, Head of Food and Land Use at NGO Planet Tracker.
“The only way to tackle such a complex set of interlinked problems is by devising and implementing a strategy – a piecemeal approach will fail,” he tells ESG Investor.
Considered a much-needed cornerstone of the EU’s Farm to Fork Strategy (F2F), the EU Sustainable Food Systems Law (SFSL) will set out a legislative framework to spur the sustainable transition of the EU’s whole food system.
There is a lot of work to be done, however.
In 2021, the World Benchmarking Alliance (WBA) ranked 350 of the world’s most influential food and agriculture companies on their contributions to transitioning to a sustainable global food system, noting that 80% of the companies are failing to provide evidence of improving the accessibility and affordability of nutritious foods. Only 26 companies had set Paris-aligned greenhouse gas (GHG) emission reduction targets and 189 had yet to set targets to end deforestation in their supply chains.
Helena Wright, Policy Director at the FAIRR Initiative, points out that the transition to a more sustainable food system is not just an environmental or health-related imperative, but, following Russia’s invasion of Ukraine, is “a crucial step towards securing long-term food security”.
“Effective legislation would provide much-needed clarity to investors over what the transition to a sustainable food system would look like in practice – helping them invest with more confidence, in turn driving the transition,” Wright adds.
This explainer provides an introduction to a piece of legislation with far-reaching consequences across firms in the food value chain and their investors.
What is the Farm to Fork Strategy and what is its connection to the Sustainable Food Systems Law?
Published in 2020, the overarching F2F Strategy is a ten-year plan developed by the Commission to drive sustainable food production, security, and consumption across the food value chain.
F2F establishes some overarching flagship targets, including a 50% reduction in the use of chemical and more harmful pesticides by 2030, at least a 50% reduction in nutrient losses caused by deterioration in soil fertility – thus reducing the use of fertilisers by at least 20% by 2030 – and 25% of agricultural land being organically farmed by the end of the decade.
It also proposes new policies to cement the overall F2F Strategy into law, including the highly anticipated legislative framework for sustainable food systems.
The Commission plans to publish its proposal for the SFSL by September this year, which will serve as a comprehensive sustainability framework tying together the Common Agricultural Policy (CAP), the Common Fisheries Policy (CFP), and other legislation on food information for consumers.
The SFSL is expected to lay down rules on the sustainability labelling of food products, minimum criteria for the sustainable procurement of food, and guide rails on sustainable governance and monitoring.
Giulia Riedo, Agriculture and Sustainable Food Policy Officer at the WWF European Policy Office, says that a strong SFSL could “promote a similar degree of transformation to the EU’s food sector that we are seeing in the energy sector”, provided it sets mandatory quantitative targets binding companies to the climate transition.
The SFSL “should involve all relevant stakeholders and address power imbalances within the value chain”, adds Adam Kybird, Fund Manager of Triodos Investment Management’s Food Transition Europe Fund.
“Medium- and long-term targets must also be established for different partners in the value chain. This should encompass input providers, distributors and the food retail sector, as well as the financial sector,” he says.
Why is there need for the Sustainable Food Systems Law?
The Commission ran a consultation on the SFSL from April to July last year, with 92% of respondents strongly or somewhat agreeing that the existing EU food system is not sustainable in the long term, and 94% noting that the current system is not ready to meet future environmental and climate change challenges.
Additionally, nine out of ten respondents flagged the lack of transparency on whether products are sustainable as a barrier to more sustainable choices to some or a high extent, 70% said that imbalanced market powers in the food system prevent sustainable choices to a high extent. Further, 43% said food system actors do not have sufficient knowledge and skills to achieve the transition to sustainable food systems.
“Food system companies that fail to adapt to the regulatory changes that the framework is likely to support will suffer losses and could even find their business models are no longer economically viable, whereas businesses that get ahead of the curve and adopt sustainable business practices are likely to gain market share and see their revenues increase,” says Elwin from Planet Tracker.
“Investors can avoid these losses and exploit these investment opportunities to benefit their clients.”
Wright points out that investors are already engaged and acting to drive the transition to a more sustainable global food system.
FAIRR’s Sustainable Protein engagement initiative is backed by 84 investors representing US$23 trillion in AuM, and is asking 23 leading food retailers to set science-based targets on climate change.
So far, 16 of these companies have publicly disclosed net zero targets, and eight are setting targets for diversifying into alternative and plant-based protein in their portfolios, Wright says.
What should the Sustainable Food Systems Law include?
Investors, NGOs and companies have been pushing for an ambitious SFSL.
“The SFSL should look to introduce long-term and interim emissions reduction targets for the whole food supply chain, rather than just focusing on the agriculture sector,” says WWF’s Riedo.
The law needs to regulate food retailers and processors alongside production if it’s to be truly effective, she adds, such as decreasing the number of animal-based products sold and incentivising plant-based alternatives.
Last year, WWF published a paper identifying key elements the SFSL can implement to address shortcomings in European food systems, including adopting policy measures to make healthy and sustainable diets the cheapest option for consumers.
Kybird from Triodos Investment Management notes that the growth of the organic food sector has been “hindered” by the ongoing cost-of-living crises, but asserts that it’s a market with “clear opportunities” for investors.
“The SFSL should adopt an inclusive approach that empowers consumers to choose organic, plant-based, and other sustainable options,” he says, adding that this can be achieved through “true pricing incentives, reflecting environmental and social costs, alongside minimum sustainability standards for food products”.
Investors also have a role to play, Kybird adds.
“The last two years have been challenging for many in the sustainable food market, and businesses and investors are nervous about risk-taking. Investors need to really think through the opportunities that exist and help companies take reasonable risks to drive this transition.”
Over 50 companies, including Unilever and Danone, published a public statement calling on the Commission to deliver an ambitious SFSL which will set mandatory GHG and environmental footprint reduction requirements and promote increased transparency across corporate value chains.
“The framework should also ensure the removal of subsidies that are harmful to health, climate and biodiversity, while ensuring a just transition for farmers,” the letter said.
Will the EU Sustainable Food Systems Law come to pass?
To borrow from Shakespeare: the course of sustainability-related regulation never did run smooth.
This is certainly true when it comes to the EU’s SFSL and wider F2F Strategy, which Riedo from WWF notes have been subject to “political frictions” in recent months as the current five-year term of the Commission approaches its end.
“There seems to be less political support for the Green Deal,” she says. “But it’s so important we continue to push for legislation that promotes sustainability.”
Following rumours in February that the Commission was concerned opposition to the SFSL could derail the expected September deadline, 286 organisations published an open letter urging Commission President Ursula von der Leyen to deliver a robust framework proposal by Q3 2023 as planned.
Last month, Euractiv reported that a draft proposal for the SFSL failed to win approval from the Commission’s quality control board during an impact assessment, with the board raising concerns around how the framework would interact with existing sectoral and national legislation. The draft report therefore must be reviewed and re-submitted this month, with a second opinion expected by the end of June.
This is happening against a background of heated debate between member states on existing food health labels, and even questions around the fairness of how the EU’s green policy agenda is currently being rolled out across the east versus west of the bloc.
“The most important thing is to get this law published – even if it is less ambitious initially – before the end of the Commission’s mandate,” Riedo tells ESG Investor. “Otherwise, we risk completely stalling, perhaps waiting another five years before seeing the SFSL again.”
The next elections to the European Parliament will take place between 6-9 June next year, and the new President of the Commission – put forward by the European Council – will be elected for a five-year term by the next Parliament. Typically, the candidate is selected from the largest political group in Parliament.
Depending on the majority party, unfinished sustainability-focused policies like the SFSL will either be carried forward or put on the back burner. To be on the safe side, it’s vital the SFSL is finalised prior to elections taking place, Riedo explains.
“The current global food crisis has demonstrated the interplay between climate, nature and nutrition – and it’s important that any legislation from the EU that will guide changes to the food system considers these issues holistically,” concludes Wright from FAIRR.