ESG for the Food Industry (1/4)
This is the first article in a 4-part series.
ESG seems to be on the tip of everyone’s tongue, from big supply chain customers to regulators. But what does ESG really mean, and how does it impact the Food industry, for instance: agricultural products and food retailers?
What is ESG?
ESG stands for non-financial reporting in three key areas of a business: environmental, social, and governance. Because the acronym came from the investor community, it has been historically rooted in the realm of publicly listed and traded companies. As those companies get more mature in ESG management, expectations ripple through their supply chains for privately held businesses. ESG has started entering conversations about overall competitiveness and peer benchmarking.
Those are three broad categories: environmental, social, and governance. How is an industry or an organization supposed to know what kind of performance data to disclose?
Well, there are only a few reputable sources to reference for reliable data on which issues are “material” to a particular industry. Collectively, they can combine in various forms to constitute what is known as a “materiality assessment” for any organization.
1.???ESG rating agencies
2.???ESG standards
3.???ESG peer benchmarking
4.???ESG stakeholder engagement
And we still recommend balancing that information with the realities of your own business ownership, structure, and model.
Today, we’re going to tackle one easy example from the first category: ESG rating agencies.
ESG Rating Agencies
There are five major ESG rating agencies that are taken seriously in the marketplace today, although smaller and niche competitors exist.
MSCI provides the easiest example. A business in the Food industry looking to get started with ESG and understand what their most “material” issues (priorities) can use MSCI’s free online tool called the ESG Industry Materiality Map.
?Clicking in the “Search for a sub-industry” box, typing “Agri,” and choosing “Agricultural Products” from the drop-down list gives any user the MSCI’s top issues per ESG category… along with a weighting to compare issues within and across categories. Each issue includes a pop-up info box available to the right of its listing with a short description.
This is just one source but looking at their methodology can give any agricultural operation a helpful starting point. A ranked list of “material” issues by weighting would be:
1.???Governance (33.0%)
2.???Water Stress (13.0%)
3.???Biodiversity & Land Use (12.7%)
4.???Supply Chain Labor Standards (11.8%)
5.???Community Relations (11.8%)—CS: Company-Specific, only applies to some
6.???Carbon Emissions (10.5%)
7.???Health & Safety (5.8%)
8.???Product Safety & Quality (0.5%)—Company-Specific, only applies to some
9.???Toxic Emissions & Waste (0.2%)—Company-Specific
10.?Human Capital Development (0.3%)—Company-Specific
11.?Packaging Material & Waste (0.2%)—Company-Specific
12.?Opportunities in Nutrition & Health (0.1%)—Company-Specific
However, that’s only one specific portion of the entire Food: Agricultural Products.
If you distribute or sell food to consumers, you can get more specific guidance by clicking in the “Search for a sub-industry” box, typing “Food,” and choosing “Food Retail” from the drop-down list gives a different list of priorities and weightings.
The same list becomes more focused and relevant which can save you time and energy on learning about likely priorities. The new and shorter list becomes:
1.???Governance (33.0%)
2.???Privacy & Data Security (14.7%)
3.???Product Safety & Quality (14.7%)
4.???Labor Management (14.5%)
5.???Product Carbon Footprint (7.9%)
6.???Raw Material Sourcing (6.9%)
7.???Opportunities in Nutrition & Health (6.9%)
8.???Supply Chain Labor Standards (0.8%)—Company-Specific
9.???Human Capital Development (0.2%)—Company-Specific
10.?Toxic Emissions & Waste (0.2%)—Company-Specific
After Governance, which consistently sits atop most industry concerns, the next 2 issues for each list are completely absent from the other list. Product Safety & Quality, while insignificant and only Company-Specific (CS) for Agricultural Products, makes the universal top 3 for Food Retailers. Community Relations is top 5 for Agricultural Products, but Company-Specific (CS), likely in sensitive areas where agricultural land use practices directly impact neighboring properties and waterways. This is why it’s important to never copy and adopt off-the-shelf solutions that don’t match your specific industry and business.
If you have not received an ESG score from MSCI ESG, this is still a useful starting point for consideration. If you have received an ESG score from MSCI, you can log into their platform and download reports that give a relatively detailed performance assessment of how publicly disclosed information by your organization has been evaluated against these “material” issue categories.
Pulling It All Together
Ultimately, you should never create a business strategy based on a single source of information. Ideally, an organization’s leadership would review and compare feedback from ESG rating agencies, ESG standards, ESG peer benchmarking, and ESG stakeholder engagement to reach a full and compelling view of the ESG landscape in which they are operating.
Our next article (2 of 4) is coming soon about ESG standards.
SGS is the world’s leading inspection, verification, testing and certification company. We are recognized as the global benchmark for quality and integrity. Our ESG team in SGS North America—Knowledge provides a wealth of related services to help Food Industry companies in these areas.
We can assess your ESG strategy and programs, whether you are a large multinational corporation that is publicly traded or a privately held small or medium-sized enterprise working in the USA or Canada.
We also provide assurance of ESG and sustainability reports, and verification of greenhouse gas (GHG) inventories (“carbon footprints”).
Get ESG Training:
Contact:
Adam Hammes, ESG Director
SGS North America-Knowledge
Vice President at Transportation Energy Institute
1 年Seeing some big steps taken with standardizing sustainable agriculture and looking forward to incorporating those practices into ESG carbon emission reductions as well as improving water and soil quality!