Food and agriculture supply chains are exposed to high levels of social risks across the supply chain

Food and Agriculture Supply Chains are Highly Vulnerable to Sustainability Risk

• Over 90% of food sector emissions occur in the value chain (scope 3).

• Agriculture and land use change account for two thirds of these emissions.

• Food waste causes emissions equivalent to those of China or the USA.

The food sector causes a third of global GHG emissions

• The production of food is the primary cause of biodiversity loss.

• Agriculture is responsible for 70% of deforestation that destroys 10 million hectares of natural habitat globally each year.

• The food sector consumes 70% of the world’s freshwater creating strain on water resources, and agricultural pollution is the leading cause of water degradation

• Pollinator loss and land degradation are reducing productivity and placing billions of dollars of crops at risk

• Droughts, floods, wildfires and changing weather patterns caused by climate change are disrupting agricultural production and impacting cost profiles and security of supply

• 70% of packaging is produced by the food sector, creating widespread plastic pollution of lands and waterways

Food and agriculture supply chains are totally dependent on nature and biodiversity

• Agriculture is one of the highest risk sectors for health and safety

• Nearly half of sourcing countries are now considered ‘high risk’ for supply chain ESG risks such as poor labor practices and human rights violations

• Over two-thirds of child labor occurs in Agriculture

• Local communities and indigenous peoples are impacted by agricultural practices including land use, water use, pesticide and agro-chemical use.

• Social inequality is increasing risk to supplier networks, staff recruitment and retention, reputation management and brand value.

New laws and regulations focus on supply chain sustainability

• The European Union is introducing new regulations to strengthen sustainability due diligence (CSDDD), combat deforestation (EUDR) and regulate product claims (EU Green Claims Directive) to address greenwashing.

• Individual countries are introducing their own legislation governing supply chain due diligence including the German Supply Chain Act. The French Loi de Vigilance and the Canadian Forced labor and child labor in supply chains legislation.

• Companies with global supply chains now have to navigate a complex range of laws and regulations in force in the countries where they source from.

• ESG and climate-related litigation is rising as NGOs and civil society challenge companies that fail to comply with local laws and regulations, increasing legal and reputational risk for companies.

More countries requiring mandatory sustainability reporting

• The European Union has adopted the Corporate Sustainability Reporting Directive (CSRD) mandating reporting against the European Sustainability Reporting Standards (ESRS). The ESRS includes over 1000 data points for material sustainability risks, with reporting starting in 2024.

• More than 20+ countries have formally adopted the ISSB Standards for Sustainability-Related Financial Disclosures and Climate- Related Disclosures which builds on the TCFD framework already adopted in some countries for climate reporting.

• Companies need to navigate multiple reporting frameworks for different stakeholders and countries.

• Some progress has been made in improving interoperability between ESRS, ISSB and existing reporting frameworks such as GRI and CDP but there is not full alignment

Increasing scrutiny and reporting on sustainability from Investors and financial institutions

• Investors and Banks and Insurance Providers are requiring reporting on company's sustainability plans and performance to assess business risk.

• Most investors are planning to increase their ESG-related investment and will pay a premium or cancel a deal based on sustainability factors.

• Investors are increasingly requesting information on nature-related risks and social risks beyond climate risks.

Increasing expectations from society and consumers

• Consumers are increasingly looking for sustainable products and expect brands to take a stand on sustainability and to show they are taking action

• Media and social media mentions of ESG data, ratings or scores, and sustainability issues have risen 300% in the last 4 years..

Pressure on the Food and Agriculture Sector to Transform

Companies are struggling to implement their sustainability commitments

Companies are extending sustainability commitments across the supply chain

• Two thirds of global food sector companies have set long and medium-term GHG reduction targets but less than one in five have set targets for scope 3 emissions

• The percentage of food companies with biodiversity targets nearly doubled in the last year.

• Food sector companies have more deforestation policies covering their suppliers than their own direct operations.

• Two thirds of companies have a strategy to mitigate ESG and climate risks and a quarter are developing a strategy

And investing in supply chain data collection and Sustainability Reporting....

• The majority of companies are increasing investments in data analysis, emissions accounting and climate target management

• 58% of companies identify supply chain sustainability as their most important sustainability theme

• Sustainability has become a top priority for procurement executives around the world.

• 70% of companies are increasing their investment in third party risk management to address the increasing scope of due diligence requirements and manage the threat to reputation.

But many companies are still failing to deliver on their sustainability commitments

• Less than 5% will meet their net-zero goals

• Less than 40% of companies will meet their goals on water use, waste reduction or preservation of biodiversity.

• Less than half have taken action to offer sustainable products and services

• Just over 40% have taken action to improve Supply chain sustainability

• 75% of business leaders believe they have not effectively embedded sustainability into their business.

• 94% of Investors say corporate sustainability reporting contains unsupported claims

Over two thirds of companies businesses say they don't have the necessary visibility over their supply chains to uncover risk in their organizational networks to avoid reputational harm

Less than one fifth of companies collaborate with NGOs or other stakeholder to design solutions or support suppliers

Less than a quarter of companies support suppliers through supplier training or environmental remediation technologies

Less than two thirds of companies collaborate with suppliers to improve sustainability

Most companies have difficulty defining a meaningful scope for ESG due diligence across different stakeholders

Only a third say that procurement defines or measures their own set of relevant ESG factors.

Only half of companies conduct supplier audits and a third require supplier standards or certifications

Just over a third of companies capture Scope 3 data,

Two thirds of companies are not ready for ESG Assurance and three quarters lack a clear audit trail for non-financial ESG information.

Just a third of companies are increasing investment in climate risk management action in the coming year

Key barriers to strategy implementation for companies