Focusing on the Environmental in ESG in food and drink industry
We explain what your business needs to consider regarding its environmental impact.
The second in our series examining the importance of ESG for businesses within the food & drink sector looks at the ‘E’ element, which relates to the Environment. David Plowman explains what your business needs to consider regarding its environmental impact.
To recap, ESG stands for Environmental, Social and Governance, which provides an overarching framework to measure the true sustainability of your business - how it impacts the environment and society, its transparency and accountability. (Look out for parts 3 and 4, which will examine the ‘S’ – Social, and ‘G; – Governance).
‘E’ factors
When assessing how your business impacts the environment, there are several ‘E’ factors you need to consider. They include:
- Your production processes
- Your supply chain
- Transport and distribution of your products
- Packaging and use of your products
The food and drink sector has been particularly focused on the last point, with many businesses reviewing the use of single use plastics in packaging. But true attention to environmental factors needs to go much further.
Net Zero
Most businesses are aware of ‘Net Zero’ and the aspirations of large corporates and governments to achieve it. In simple terms, Net Zero means that the total greenhouse gas emissions produced are equal to the emissions that are removed from the atmosphere.
However, do you understand the implications of Net Zero for your business? And do you have a plan and a target date to achieve and implement it? If the answer is ‘no’, it’s time to consider it, because the UK government is committed to achieving Net Zero by 2050.
Where to start…
As with most aspects of risk management, the process begins with understanding your current position. When calculating the environmental impact of your business, there are three defined scopes:
- Scope 1 emissions: the direct emissions produced as a result of your business activities. For example, your vehicle fleet or use of refrigerant gases.
- Scope 2 emissions: the indirect emissions produced as a result of the energy you purchase. For example, energy purchased from non-renewable sources.
- Scope 3 emissions: the emissions produced not by assets you own or control, but those up and down the value chain, for which you are indirectly responsible. For example, the packaging products you purchase from a supplier.
Most businesses on the ESG journey are focused on Scope 1, with some limited attention to Scope 2. Various tools are available for calculating Scope 1 emissions, but it is more complicated to calculate Scope 2 and 3 emissions, as they are dependent on gathering data from suppliers and others within the value chain.
Setting targets
Once you understand the scope of the emissions, the next stage is to set targets. At the present time, it’s unlikely that many businesses can achieve a Net Zero target in the short term. But, there will be measures you can consider and interim targets you can put in place that demonstrate your commitment to improving the environmental performance, and therefore sustainability, of your business. For example, your target may be to reduce emissions by 50% within the next five years.
Implementing measures
Having assessed your current levels and set targets to reduce emissions, you now need to consider measures you can implement to meet these targets.
There are many ways to tackle your environmental performance in relation to Scope 1, 2 and 3 emissions. Some simple measures include:
- Changing your fleet to electrified vehicles, setting maximum CO2 emissions for fleet vehicles, or utilising hybrid vehicles (or a combination of those available, based on current technologies and the operational needs of your business).
- Purchasing energy from verified renewable sources.
- Reducing energy usage in your manufacturing processes through more energy efficient machinery, reviewing production periods etc.
- Replacing infrastructure items with more energy efficient solutions, such as changing to LED lighting.
- Generating your own power through renewable sources such as solar panels (SG is not currently a legal requirement although certain businesses are required to report their energy performance as part of standard business reporting.)
- Reviewing waste production with a view to reducing waste overall and implementing or increasing recycling activities.
- Reviewing suppliers, including logistics suppliers, with a view to including an element of their environmental credentials as part of the selection process.
- Reviewing packaging elements to reduce the product’s impact on the environment.
More long-term measures may include moving to alternatives for refrigerant gases and increasing the environmental performance of chilled/cold storage and buildings. To remove emissions from the environment, you may need to consider such measures as tree planting and landscaping.
Against a backdrop of increased energy costs, many measures can assist with the overall profitability of your business, providing a good payback on investment in a more energy-efficient infrastructure and self-generation.
Continuous improvement and review
We live in a fast-changing world, particularly in relation to technologies that impact the environment. To meet Net Zero targets, you will need to continually review and improve the environmental performance of your business.
Carbon offsetting and carbon credits
An option employed by many businesses is carbon offsetting. In relation to carbon offsetting this is a horizontal financial arrangement whereby a business which is removing emissions can then sell this unit to a producing company. Carbon credits which is in essence purchasing permission to create emissions, usually from the government.
Whilst carbon offsetting and carbon credits are considered within an overall Net Zero target these should be only a small part of the overall strategy when other measures have been considered.
How PIB can help
We have a range of tools and products which can assist with your ESG journey, as well as having a strong ESG performance ourselves, making us a suitable supplier for your insurance broking and other risk needs.
Our risk advisory approach to your business goes beyond your basic insurance needs, working in partnership with you to navigate the broader risk landscape.
In addition to insurance broking, we offer a broad range of products, including employee benefits and risk consultancy from our own internal teams.