Climate change poses real and immediate challenges for food and drink companies, putting them under pressure to understand the implications for their business and its operations, as well as investor, customer and supply chain partner expectations.
At WTW, the large food and drink companies we work with are all doing something towards their climate action response. This might include getting to grips with regulatory obligations, exploring how to reduce waste and water use, or harnessing new technologies to reduce emissions. Many, however, are not yet where they want to be on addressing the changing climate.
For some, this is down to a lack of specialist knowledge on how they should be taking things forward, with non-specialists on climate, climate risk and sustainability finding themselves leading the climate charge. Companies, for example, may be well-placed to consider the impact on the business of Taskforce on Climate-related Financial Disclosures (TCFD) requirements, but do they know how to mobilise these compliance obligations as a growth opportunity? Do they know how to robustly quantify the impact of severe weather events on operations, or use your organisation’s climate story to beat contemporaries in recruiting top talent?
In this insight, we explore five current climate drivers and priorities for food and drink companies, providing pointers on how to clarify today’s focus areas when planning how to thrive tomorrow.
01
From April of this year, more than 1,300 of the largest U.K.-registered companies and financial institutions are legally required to disclose climate-related financial information in line with recommendations from the TCFD. This includes, of course, many of the UK's biggest traded food and drink companies, as well as private companies with more than 500 employees and £500 million in turnover.
Many food and drink companies have been producing corporate social responsibility or sustainability reports for years, but TCFD goes way beyond this sort of reporting and makes climate risks and resilience integral to financial reporting and projections. In short, TCFD recognises climate as a financial risk that should be assessed, quantified and managed.
The priority now for food and drink businesses is to ensure TCFD and managing climate risk isn’t viewed as either a one-off or tick-box exercise. The risks, and the strategic opportunities at stake, need to be monitored and quantified on an ongoing and increasingly nuanced basis to ensure the business is on solid ground for a future that cannot be derailed by climate change.
02
Quantifying climate more effectively means ensuring you are harnessing the latest climate, natural catastrophe and chronic risk models and combining this with customer, social and economic data, plus asset-level data to model hazards and vulnerabilities within different climate scenarios.
The priority then is to translate this into a story capable of informing strategy, optimising your approach to managing climate risks and opportunities, thereby making the data work for the board, as well as for your stakeholders.
03
Over the coming years, we anticipate fewer interested parties will want to do business with food and drink operations that don’t have fully developed plans on transitioning to a lower-carbon economy.
Without robust transition plans, food and drink organisations will not only struggle to find partners, comply with regulation, secure investment or continued supplier relationships, they may also compromise their appeal to potential insurance partners.
Moving now by engaging with initiatives such as Climate Transition Pathways (CTP) – which has been incubated by WTW – can help food and drink businesses secure insurability over the longer term.
CTP’s independent accreditation model is designed to enable insurers to consistently identify, engage with, and offer solutions to organisations committed to measurable and verifiable change. This means food and drink organisations engaging in CTP might expect to boost their long-term ability to secure insurance.
04
At WTW, we’ve seen big retailers become very conscious of food and drink companies’ climate response as part of their qualification to be a supplier. This in partly down to consumer pressures, but increasingly in light of TCFD recommendations.
TCFD requires companies to report on the three sources of greenhouse gas (GHG) emissions, known as scopes 1, 2 and (if appropriate) 31.
Scope 1 emissions are direct emissions from the company’s activities or those under its control; scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company; and scope 3 emissions include all other indirect emissions occurring in a company’s value chain.
While there is a lack of global consensus on the best methodology to quantify scope 3 emissions currently, food and drink companies would still be well-advised to get on the front foot in this space. This is both to maintain supply chain relationships and considering the growing expectations around increasing intensity of carbon pricing in a number of territories.
Many food and drink companies have already made moves to lower emissions by, such as transitioning away from fossil fuels as an energy source by, for example, ensuring ovens are powered by electricity which may be generated from renewables.
05
Food and drink companies are likely familiar with investment decisions being increasingly based on environmental, social and governance (ESG) credentials, including an organisation’s climate profile. They may also have a growing awareness of job candidates prioritising companies with stronger environmental and climate stories.
Getting ahead of peers on climate action is one way of equipping your organisation in the fight for the brightest members of Generation Z – those born between the mid to late 1990s and the 2010s – as younger talent interrogates companies’ track records on climate change and sustainability.
Do you need support quantifying your climate risks and opportunities? Get in touch.
