„ESG reporting will continue in its current amorphous form for the time being and consolidation will be gradual.”
Concrete progress is finally being made in setting global standards for sustainability reporting that will impact food manufacturers who have been leaders in sustainability and those who have torn their feet. Ben Cooper reports.
As more attention is paid to the climate emergency and companies face increasing investor scrutiny over climate-related risks and other key environmental, social and governance (ESG) criteria, this is a breakthrough in corporate reporting on carbon in general -Emissions and sustainability metrics are more than current.
Concrete progress in establishing globally uniform and comparable standards for sustainability reporting has been a long time coming, to say the least.
In the past year, however, there have been developments, most recently the plans of the International Financial Reporting Standards Foundation (IFRS) to set up a board for sustainability reporting standards that will work alongside the existing International Accounting Standards Board.
A varied landscape
„There is a need for greater standardization,” says Aarti Ramachandran, research director at FAIRR, a UK-based investor network that advises on ESG risks and opportunities related to intensive animal husbandry.
During the 15 years she has worked, ESG reporting has grown steadily, continues Ramachandran. „But I certainly think that over the past year or two it has become a generalized urgency and that will drive the standardization that is needed.”
The importance of IFRS for the long-term challenge of creating globally applicable standards for sustainability reporting is difficult to exaggerate.
As an independent, not-for-profit organization, IFRS is the effective administrator of the financial reporting rules for publicly traded companies around the world. The IFRS standards are binding in around 140 countries and permitted in many other countries.
However, the IFRS process is not quick. The IFRS expects to make a final decision on the formation of a sustainability standards committee before the COP26 conference in November.
There are also some notable policy drivers influencing ESG reporting. The EU’s non-financial reporting directive is set to come into force in mid-2022, while President Biden hopes to tighten ESG reporting rules in the US as part of his environmental agenda.
While significant changes are now emerging, ESG reporting will continue in its current amorphous form for the time being and consolidation will be gradual. In addition, the IFRS has made it clear that the framework it has created will initially focus on climate-related reporting while working towards meeting investor needs with regard to other ESG criteria.
The patchwork of certification systems, standardization bodies and other institutions that populate the ESG has been disparagingly referred to as „alphabet soup”. On the other hand, there may be some overlap between different concepts, but the diffusion also reflects the successful development of numerous solutions to a wide variety of challenges.
Dr. Maarten Biermans, head of sustainable capital markets at the Netherlands-based financial services group Rabobank, bizarre suggests that this should not be denigrated. „Alphabet soup is my favorite soup,” he jokes, „and I can’t understand why everyone is always so negative about it.”
Existing methods and concepts also provide the foundations on which universal reporting standards are likely to be based.
The IFRS stated that their initial work on climate-related reporting standards would „build on existing frameworks”, alluding to the work of the Financial Stability Board’s task force on climate-related financial disclosures and the alliance of five standards organizations: CDP (formerly the Carbon Disclosure Project) , the Climate Disclosure Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council, and the Sustainability Accounting Standards Board (SASB).
Industry-specific key figures
Like its alliance partners and many other organizations specializing in sustainability reporting and analysis, SASB contributed to the IFRS consultation and was one of the organizations advocating the creation of industry-specific standards to accommodate significant sector-to-sector variations .
„We definitely support the IFRS SSB [Sustainability Standards Board] take an industry-specific approach because we see that the industry problems that have financial implications vary widely from industry to industry, „says a SASB spokesman.
If the IFRS process were to incorporate industry-specific standards in due course, the food industry would likely benefit from the highly specific or unique challenges the sector is facing, particularly in its agricultural supply chains and health and nutrition.
„It may be that for certain metrics it only makes sense that certain sectors report against them,” says Alison Bewick, head of group risk management at Nestlé.
„We have a huge greenhouse gas footprint, but we also have a tremendous opportunity to improve the environment’s ability to absorb carbon as well. I think it’s about tracking the challenges and risks, and then it’s about tracking this to be able to. ” pursue, with clear and fair rules regarding carbon storage, carbon removal and absorption. „
While methodologies and reporting standards related to greenhouse gas emissions have received a lot of attention and are among the most advanced ESG metrics, measuring carbon sequestration or sequestration is still in its infancy by comparison.
However, given its importance to food businesses, there is a particular interest in accelerating advances in measuring and reporting carbon to ensure that it becomes part of a global standard framework at the earliest possible point in time. This can be easier to achieve if it is a standard specifically designed for the food industry.
Eric Soubeiran, Vice President for Natural and Water Cycles at France-based food giant Danone, also identifies carbon structure as a key criterion for food companies. The ability of agriculture to sequester carbon is an „incredible opportunity for the world”.
Soubeiran also sees the traceability of the supply chain, the optimization of land use and the protection of biodiversity as „critical performance indicators” for the food sector with regard to sustainability reporting.
„The ability to protect biodiversity … is also very complex, as it is by definition multifactorial,” explains Soubeiran.
Measuring supply chain impact will be a complex task for food companies in general, according to Devon Bonney, SASB’s food and beverage industry leader. „In general, the food and beverage industry has a very complex supply chain, so supply chain metrics are the most difficult to quantify because each company’s supply chain varies significantly.”
Level playing field
If the IFRS moves ahead this will be a significant milestone, but Nestlés Bewick underlines the importance of common reporting standards, which is especially important for food companies that invest heavily in sustainability.
„We are very supportive of convergence and harmonization when it comes to that [sustainability] Information and key figures, „she says.” It is urgently needed. We are looking for a framework that will help level the playing field as we are still in a situation where this is voluntary in most countries. „
IFRS seem to be limited to climate-related disclosures from the start, but Rabobank’s Biermans believes the priority is to get started. „We don’t have time to sit around and do it perfectly,” he says. „We have to start, and you will see a system evolve that can be expanded, refined, and refined.”
So it can take some time before the alphabet soup is reduced from the chunky minestrone served today to something more digestible. However, it seems unlikely that a crystal clear mixture will result. The sustainability arena is and will remain a magnet for initials and acronyms, but what is crucial is that significant progress can be made in eradicating the BS.
This article was originally published in The 2021 edition of just-food’s digital magazine.