Many of the world’s largest food and beverage companies are struggling to keep up with their net zero pledges due to one key area, according to analysis from Just Food.
The study evaluated the performance of the world’s largest food and beverage companies, including Danone, General Mills, JBS, Kellogg, Kraft Heinz, Mars, Mondelez International, Nestlé and PepsiCo, against their net zero carbon reduction targets.
Despite acknowledging challenges with reconciling multiple data points and methodologies, the study claims that the scale of the challenge faced by the industry is clear.
Starting positively
All but three companies reduced their direct emissions (scopes 1 and 2) over the last 12 months, according to the study. These are emissions which organisations have direct control over, including company buildings, vehicles, and the purchase of energy.
Reductions in these areas can be achieved by implementing building efficiency measures, replacing the company fleet with electric vehicles, or installing renewable energy production methods.
Onto the bad news
While most companies have reduced their scope 1 and 2 emissions, only Danone and Nestlé managed a reduction in scope 3 emissions: Danone cut theirs by 5%, and Nestlé by 0.2%. All other companies saw an increase in this area.
Scope 3 emissions come from “indirect” sources, areas that a business doesn’t have direct control over. Scope 3 is divided into two categories, upstream and downstream emissions: examples of upstream emissions include those generated from purchased or acquired goods and services, whereas downstream covers emissions from logistics and goods and services produced by the business, but emitted after they leave the companies ownership or control.
Emissions from growth
With Scope 3 emissions increasing at General Mills (4%), JBS (6%), Kellogg (4%), Mondelez (4%) and PepsiCo (7%), some companies within the survey claimed their carbon was climbing on the back of growth.
Amazon took a similar stance in their latest sustainability report earlier this year, arguing that carbon intensity should be the metric used as it better represents a reduction in absolute emissions in line with growth.
The problem with Scope 3
In most cases, Scope 3 accounts for the majority of an organisation’s total emissions, sometimes even upwards of 90%, but they are also the most challenging area of reduction due to lack of direct control. In order to succeed, solutions need more investment, buy-in, and relationship building than Scope 1 and 2.
For example, PepsiCo was able to cut Scope 1 and 2 emissions by 25% compared to 2015, while Scope 3 emissions were up by around 5%. But, even with scope 1 and 2 reductions significantly higher, they only account for 7% of the companies total emissions. The relatively small rise in the other 93% means that the companies overall footprint in 2021 was actually bigger than the baseline in 2015.
Putting a price on it
Many countries are expected to enter recession in the next few years due to the global financial and energy crisis. Rising prices affect both consumers and companies, and as one commentator noted in The Financial Times this month, net zero pathways are “hostage to pricing, competition and regulators”.
With costs increasing across the board, companies are forced to cut budgets, or risk passing price increases directly onto customers, who are also struggling.
Compounding this, the study shares a comment from Danone, the French multinational, which states that the transition to lower-carbon foods is likely to create additional costs for the food value chain in the short- to medium-term, putting even greater pressures on profit margins.
Over the long term, the benefits of decarbonising a business are clear: energy cost reductions, brand reputation (both in terms of consumers and employees), supply chain risk mitigation, and de-risking from an investor standpoint.
It’s all in the data
The study also references Honor Cowen, associate director and retail lead at consultancy Anthesis, in saying “everyone starts out with secondary data for almost everything because that is the only option”. But primary data is increasingly being used and fed into company carbon calculations as brands build a better picture of their true supply chain emissions and where they can tackle emissions.
For businesses looking to create realistic and achievable decarbonisation strategies, it is essential to understand the scale of the problem across their value chain. Only then can they identify the levers that generate the largest impact.
“Data is absolutely integral to making any informed business decisions about your business and supply chain, and helps you take an evidence-driven approach,” says Jessica McGoverne, director of policy and corporate affairs at Sedex, a membership-based support platform for companies to manage and improve working conditions in global supply chains.
Consistency is key
As the survey highlights, there is a disconnect between the data points and methodologies companies use to set and report on net zero ambitions. This makes for “apples and pears” comparisons, which aren’t clear-cut to consumers, governments, or investors. Even companies working with existing frameworks such as the Science-Based Targets initiative (SBTi) are able to exclude certain categories from their Scope 3 emissions, which is not always made clear.
In an effort to address the issue of net zero goal setting and reporting, the International Organisation for Standardisation (ISO) launched a set of guidelines and guiding principles during the COP27 conference in Sharm El-Shiek that can “be used as a core reference text on net zero to bring global actors into alignment, ratchet up ambition and address greenwashing”.
A focus on regeneration
Most of the major food companies assessed, are pinning their hopes on regenerative agriculture to reduce Scope 3 emissions. Nestlé, for example, is looking to regeneration to “replenish, renew, and protect nature” in order to allow them to continue and thrive as a business.
French group Danone achieved a 5% reduction in Scope 3 emissions in the past 12 months by shifting 350,000 tonnes through adopting regenerative agriculture techniques, improving the resilience of the business in the face of “further heat and water stress on milk yields and the economic volatility of farm inputs such as fertilisers and energy”
However, the study calls out the extent of the carbon savings from this approach, which is still hotly debated and the costs of this approach are also unclear.
Conclusion
Based on the report, it appears that many of the world’s largest food companies have stalled in their efforts towards achieving net zero, with scope 3 issues dominating the justifications why.
In contrast, a recent report from the IPCC suggests there is significant reduction necessary (43% by 2030) in order to limit global temperature increases to 1.5 °C by 2050 to avoid the more significant impacts of climate change.
The good news is that the opportunity for scope 3 decarbonisation exists, and a sustainable procurement industry has emerged to support companies in overcoming this challenge. With greater investment in this area and consumer buy in, companies may yet still reach their targets.
You can read the full study here.
