Food company executives will have to take steps to address environmental, social and governance issues, even though the political discourse around the ESG issue may feel like it’s a fad, said Bernie Baskin, director for ESG strategy and engagement for Walmart, the nation’s largest grocer.
“If you're a leader and you're waiting to see which way the wind blows, I think you’re probably wasting valuable time,” Baskin said during the International Dairy Foods Association’s annual Dairy Forum.
“There's a pretty broad consensus amongst most major companies and the financial industry that it's here to stay and that it's important,” he said.
Executives in many industries say shareholders and consumers are increasingly demanding corporations address issues such as climate change, and pressure is starting to come from the government as well as financial institutions.
Michael Rinaldi, vice president of sustainable business development at Rabobank, told the dairy industry leaders that the ag banker has started considering companies’ ESG actions in deciding how to structure financial products.
“It’s not to say that these ESG components were never considered when doing financing beforehand, but it’s very intentional and understanding of what are the different goals and what is going to be reported,” he said.
Rinaldi said Rabobank joined the Net-Zero Banking Alliance in 2021 which commits that by 2050, all its finance emissions will be net zero. “We recognize this isn’t something that a bank can do in and of itself; it’s in collaboration with our clients. When our clients are successful in meeting their sustainability targets, we’re going to be successful in doing this as well,” he said.
Kate Toews, associate partner at McKinsey & Co., said the investment community historically has been very focused on energy and transportation. Now, investors’ attention has turned to agriculture as an area of opportunity. However, she said they’re seeing investors dig into the physical risks such as the climate, drought and floods, as well as policy risk as it relates to conservation, land and regenerative policies.
“One of the points of differentiation can be those sources of transparency and the commitment broadly to sustainability with a clear glide path, because that is one of several indicators to investors that there's long-term viability and sustainability there too,” she said of those companies who have devoted time to developing and executing ESG strategies.
The Securities and Exchange Commission proposed a rule last March that would require publicly traded corporations to start tracking and disclosing the greenhouse gas emissions in their supply chains. Toews said the SEC indicated in January that it intended to finalize the rule in May.
While the SEC rule is likely to be challenged in the courts, IDFA President and CEO Michael Dykes said it will be difficult for the industry to avoid the impact of the regulations. “No matter where you are in the system, you’re probably selling or interfacing with a publicly traded company,” Dykes said.
Paul Snyder, executive vice president of stewardship for Tillamook County Creamery Association, said when companies don’t manage ESG issues, they risk the kind of backlash that affected companies such as Nike, WorldCom and Enron or even the wave of criticism that hit BP after the 2010 oil spill in the Gulf of Mexico.
“ESG is about preventing the destruction of value. But at the same time, the flip side of that is there's tremendous opportunity for value creation for a company through ESG,” said Snyder.
Snyder said Tillamook's farmer suppliers have been taking action to advance environmental, social and governance goals since the Oregon-based co-op started 100 years ago.
An ESG framework is embedded into Tillamook's corporate strategy, and Snyder believes it helps manage risk and set the company up for future success. In 2017, the company voted to formalize a stewardship charter directing management to consider six different stakeholders when making management decisions: healthy cows, thriving farms, enduring ecosystems, inspired consumers, fulfilled employees and enriched communities.
The stewardship focus at Tillamook provides an “empowerment vehicle to help everybody across the company activate ESG in the ways that are critical to the business and their own individual goals,” Snyder said.
Dykes said 72% of member companies report that their board of directors is providing oversight on ESG strategies, and 25% are considered “best in class,” because they have systems in place to track and report their actions.
Only 20% of dairy companies plan to make marketing claims based on the actions they’re taking to address climate change.
Tillamook already has its first project off the ground in working with retailers to understand the associated carbon footprint with the purchase of the company's cheese and ice cream. Snyder said retailers are offered a decision of whether to invest in Tillamook's farms to reduce their greenhouse gas emissions or buy offsets elsewhere.
“We're finding a lot of interest in that,” Snyder said. Marrying grant funds from the Inflation Reduction Act's $20 billion conservation money with investment dollars offers a “cheap and efficient” way of financing climate actions.
Walmart's Baskin said while most ESG reporting is now voluntary, there's a growing consensus that there needs to be alignment on standards. Transparency, he argues, is critical to avoid the greenwashing argument and create trust.
“I think you're probably likely to see certain types of disclosures become mandatory, at least for public companies. That's going to change a lot of the ways that we do business and the ways we put material out in the world,” Baskin said, noting that addressing ESG issues is a matter of managing a company’s risk.
Walmart has both an ESG team and a sustainability team. Baskin said the sustainability team develops the initiatives and goals as well as the metrics to meet them. The ESG team will drive some of the strategies around meeting the goals, but also focuses on reporting progress and bringing in external stakeholder input into those conversations.
Baskin said the dairy industry and its suppliers, especially smaller ones, sometimes don’t know how to get started in their ESG journey, and the same holds true for other food and agriculture segments. Baskin said Walmart and other companies offer resources for those wanting to begin.
“ESG is not a start and finish; it is a journey,” Baskin said.
Rabobank's Rinaldi encourages businesses to be proactive, be part of the conversation and work with different industry coalitions in moving forward with ESG and sustainability goals. By having discussions, company leaders can hopefully direct end results to be valuable, rather than onerous.
“Don’t simply say that this isn’t for me, to disagree, sit on the sidelines and let it happen to you, and then be upset at the results at the end,” Rinaldi said.
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