At CHAP’s recent Advisory Group, led by Ms Senior, key players from both inside and outside of agriculture were invited to discuss ESG and share experiences. In an interview with Strategic Marketing Manager Janine Heath, Ms Senior shares insights from the meeting.

Can you give an overview of what ESG is?

The finance world runs on potential risk and return from investment opportunities. But in tandem with this, investors are alert to wider global issues, for example, climate change and human rights concerns. Where capital is invested, it can change how things are done.

So, considering ESG characteristics when making investment decisions helps to create a positive difference, such as greater environmental gains or fairer labour practices.
Broadly, the term is used when talking about wanting to make positive non-financial impact through investment choices, beyond just ‘money in, money out’. An example here might be investing in companies that develop renewable energy projects.

What is the status within agriculture?

For investors and many corporate brands and retailers the objectives are clear. Consumers are increasingly aware of a company’s ‘green’ credentials and can boycott if values don’t align. For instance many consumers are concerned about the use of unsustainably produced palm oil in food and beauty products or the use of unsustainably produced soy in animal feed. In both cases these crops are linked to serious problems with tropical deforestation and many people want to ensure their choice of chocolate bar or lipstick doesn’t exacerbate this.

The challenge doesn’t stop here, however. If big retailers and brand owners want to satisfy these consumer and investor demands for sustainability, it affects what is expected of farmers too. We need to improve understanding of what investors’ pursuit of ESG criteria means for the stakeholders, right across the value chain.
At the moment, the consequences for individual growers and farmers are not so distinct. In UK agriculture, many changes are occurring at once such as Brexit and ELMs. Times are already turbulent and the ESG agenda adds more pressure on top.

One concern is that farming in a more environmentally friendly way – and proving it – will add cost to agricultural and horticultural production. How the cost of this will be shared is an important question. Some companies will want to keep their prices down, which might mean pushing the extra costs onto farmers to absorb. Alternatively, in an attempt to maintain prices, some companies may offshore their supply chains to lower cost geographies.

Finally, some companies might be tempted to ‘greenwash’, and cut corners because they’re fundamentally driving the environmental agenda for non-environmental reasons, i.e, a marketing and PR exercise. This is also a major concern. Misleading claims and lack of transparency risk losing consumer trust in the whole idea of using purchasing power to make a difference.

So, you can already see that the area is fraught with complexity, and it is important to get this right to try to minimise negative unintended consequences.

Where do you think we can start as an industry, to ensure our voice is heard in the ESG conversation?

Like financial accounting standards, there is a lot of work going on to develop environmental accounting. This is really important so that we can compare companies on a like-for-like basis. Admittedly it’s complicated: how do you effectively measure variables in an industry as fragmented as ours? But in order to reward and reflect good practice, we definitely need a universal approach, and this means agricultural expertise needs to contribute to how those standards are set up.

If we could offer a coordinated system that builds trust both with investors who are engaging with the ESG focus, and wider society, I think it would be a great place to start. We talked at length in the Advisory Group meeting about the idea that key to this is making environmental data available for public good so that the transparency is there.

What are the priorities we should focus on?

We need to allow people to discuss questions about how we measure and improve environmental impact in agriculture without fear of judgement or finger pointing. We all have learning to do; criticising one another doesn’t help. It’s also important to remember that almost every action has the potential of negative impact. The goal is to reduce and mitigate this. Improving communication would allow peer learning to take place and opportunities to be harnessed proactively.

I also believe that there is more to be done to help those at an individual farm level. We need to think about what ‘good ESG credentials’ mean on a practical, tangible level, and how this information can be used to aid decision making. For instance, how does a farm business know what impact their particular practices have on the environment, what to do differently, and how to change?

As a sector, we also need to consider how to reduce the financial barriers to taking action. Can we reduce risks associated with change and enable action by improving affordability? Without the financial capacity to invest in change many individual businesses probably can’t make the transition to a more positive impact.

What do you believe drives change in this area?

The environmental impact of our food system and climate change won’t simply go away. It needs courage, but lots of factors are driving us towards change, and momentum is growing.

Public perception plays a big role. Consumers are far more interested in how their food is produced so businesses, especially brands, need to do the right thing to survive.

The way big food companies and retailers respond to consumer and also investor pressure will affect what demands they place on their suppliers; this may mean that farmers and growers simply have to change the way they produce in order to have access to their usual markets.

Company culture and the influence of strong leadership can also accelerate change, as it enables aligned colleagues to take action. If a leader is invested in the sustainable agenda, it’s likely that will be embedded across the whole business.

Lastly, showcasing relevant success stories as a means of inspiration will help to instil confidence.

Hannah Senior NSch is a champion of AgriTech entrepreneurship. She runs PBS International Ltd, a CHAP member, working with plant breeders and seed producers to design and manufacture solutions for pollination control.

Please note, the opinions expressed in this article are the author’s own and do not necessarily reflect the views or opinions of CHAP.

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