Exploring ESG in the Food Sector

Food businesses are increasingly recognising the importance of Environmental, Social, and Governance (‘ESG’) factors in their risk management strategies. ESG refers to a set of metrics used to assess an organisation’s environmental and social impact, as well as its governance practices. For food businesses like yours, understanding and managing ESG risks is crucial for long-term success and sustainability.

What is ESG?

ESG stands for Environmental, Social, and Governance. It’s a framework used to evaluate how well organisations - like your food business - perform in areas beyond financial metrics. This framework has become more prominent over the past few decades, largely driven by increasing awareness of sustainability, social justice, and corporate governance issues. Each of the three ESG pillars are outlined below.

Environmental

The environmental pillar focuses on an organisation’s impact on the planet. It includes things like how the organisation manages its energy use, carbon emissions, waste, and natural resources like water and land. It also includes the efforts an organisation takes to reduce environmental harm, such as through the adoption of sustainable practices like using renewable energy, or reducing pollution. Some examples of how your food business could improve their environmental performance within the ESG framework could be to reduce packaging waste and food waste across operations. This could include switching to compostable or recyclable packaging, and implementing a zero-waste program by repurposing ingredients that don’t meet product specifications.

Social

This pillar looks at how your organisation manages relationships with its employees, customers, suppliers, and communities. This focus can include employee wellbeing, such as fair wages, safe working conditions, diversity, and inclusion. It can also include how the organisation interacts with local communities, such as through charities, social impact programs, or human rights efforts. It can also include customer satisfaction and product safety. Some examples of how your food business could improve its social performance within the ESG framework could be to ensure that employees receive fair wages that meet or exceed industry standards, and to support a healthy and safe working environment by providing training and policies that prioritise safety and wellbeing, and ensuring that your supply chain is free from modern slavery.

Governance

This pillar refers to how an organisation is governed - or ‘run’ - and how it maintains transparency, ethics, and accountability. The focus here is on the structure and behaviour of the board of directors (e.g., diversity, independence, effectiveness), including executive pay and compensation practices. Policies regarding corruption, bribery, shareholder risks, and transparency in financial reporting is also part and parcel of this pillar. An example of how your food business could improve its governance performance within the ESG framework could be to maintain high standards of ethics and transparency in all operations. This could be achieved through the establishment and implementation of a comprehensive code of conduct that sets expectations for ethical behaviour across all employees and partners. It could include policies on anti-corruption, anti-bribery, and conflicts of interest.

What is driving demand for ESG?

Although elements of ESG have been around for quite some time, its formal integration into business practices and strategy has gained significant momentum in the wake of initiatives such as the Global Reporting Initiative, the United Nations Sustainable Development Goals, and the Paris Agreement on Climate Change. Although these initiatives are largely regulatory in nature, consumer demand for sustainably produced goods and services has increased, as people seek out brands that better align with their values. This trend has driven companies - like food businesses - to focus more on their environmental impact and ethical business practices.

Why ESG should matter to your food business

ESG can be an effective tool for your food business to address and mitigate risk. Organisations that focus on ESG factors may be less exposed to environmental, social, or governance risks, like regulatory fines, legal issues, and reputational damage. Also, if your Australian business generates over $50 million in annual consolidated revenue in Australia, you will be required to make mandatory ESG related disclosures in your annual report following the introduction of new legislation. If you generate less consolidated revenue than this each year, the ESG framework can still be an effective tool for you to operate your food business in a way that has a positive impact on the environment, and continues to meet the wants, needs, and desires of your customers, while still performing for your shareholders.

If you need assistance understanding how your food business can benefit from implementing an ESG framework, if you’re looking to review and improve your ESG practices, or if you’d like to have a conversation about your ESG journey, please contact me. I’m more than happy to guide you.

About the author

Peter is the Founder and Director of Holtmann Professional Services, a global provider of executive coaching, business excellence consulting and career path development. Peter has over 30 years experience in executive roles and has been President and CEO of a global non-profit. Peter has written for many journals and blogs, is a keynote speaker and is a champion of prosperity through excellence of leadership.

If you are interested in working with Peter, please reach out to [email protected].