Demands on agribusinesses to become more sustainable are only growing louder. But there is a big challenge in their way. While government and retailers are demanding AFF business (agriculture, forestry and fishing) meet green targets, and investors start making funding contingent on good sustainability ratings, customers are reluctant to pay a premium for sustainable products.
This means agribusiness needs to think ahead and invest for the long game in order to rack up long-term profitability returns. The future will only belong to those who make the green economy work for them.
What is key is to appreciate that becoming more sustainable is important for individual businesses financially, as well as for the whole planet environmentally. Cutting emissions can boost attractiveness to customers, protect supply chains, safeguard the brand, create markets, generate operational cost savings and contribute to greater resilience.
The good news is that UK agribusiness is already quite good at this. The industry only contributed 10% of the UK emissions in 2018. The GHG footprint of UK beef production is also half that of the global average, while the dairy industry’s rate is just 40% of the global average.
Yet more still needs to be done, and the pace of transition to a more sustainable economy will not slow. Businesses need to be agile and plan ahead to make the most of the emerging green economy. Those that don’t could eventually flounder. There are three key ways agricultural businesses can adapt to this shift.
First, they have to realise customers generally won’t pay extra for green products. However, there is a big demand in principle for more sustainable products, evidenced by the growth of veganism. By conducting research, businesses can better understand their customers, supply chains, and investor values surrounding sustainability, providing them with an opportunity to deliver what they want while remaining eco-friendly.
Secondly, embracing climate reporting can bring advantages. Reporting can reveal inefficiencies all the way across a business and its supply chain. Simple actions such as turning off unnecessary lighting, energy-efficient lightbulbs, recycled paper or reducing costs through simplified packaging are all efficient ways to reduce emissions and cut production costs. Climate change reporting, done well, can put these on the radar of a business.
Lastly, investors are going to increasingly demand proof of sustainability. Businesses must go green or face consequences such as reputational damage, falling foul of their compliance obligations and limited access to funding. Getting the green transition right will lead to ‘capital’ cost. Here, climate change reporting brings substantial benefits as a marketing tool and a means to improve stakeholder relationships. Adopting climate reporting demonstrates compliance with regulation and legislation and will become an increasingly important tool for unlocking funding. Using the right credible framework guidance is fundamental. There is much greenwashing and green noise in the space, and it is imperative to cut through this.
A great example of a company taking a lead on this is Sainsbury’s. In 2020, Sainsbury’s announced the company’s commitment to becoming net zero across its operations by 2040. Sainsbury’s may be a giant in the industry, but the principles are the same for businesses of every size. Start with a comprehensive review of the organisation – its operations, its locations, its products, and people – and identify where to cost-effectively introduce sustainable efficiencies. By adopting this approach, winning companies can identify popular sustainable products that will sell, while demonstrating proof of sustainability to investors.
Overall, going green is not a choice, and when margins are already tight businesses need to approach the transition thoughtfully. Financial sustainability underpins environmental sustainability. Industry has woken to this through cultural change, which is accelerating. The difference is that ESG and sustainability are also now driven by profitability and shareholder returns. This is not new: this is business.
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