By Elizabeth Reaves & Hal Hamilton
Within a food and beverage company, climate risk affects each function in different ways – and each of these functions can help farmers mitigate and adapt to that risk.
This blog draws from a report and a publicly available slide deck on climate risk developed as part of Scale Lab, a Walton Family Foundation-funded partnership between the Sustainable Food Lab and Midwest Row Crop Collaborative that drew upon insights from practitioners and experts from ten leading companies and The Nature Conservancy.
Physical risks such as increased temperatures, droughts, and flooding are particularly germane to procurement. Brand risks, including reputational effects, competitor advantage, and customer perceptions are important for marketing strategy. Financial risks face all senior executives as investors become more and more concerned about the increasingly severe market impacts of climate change, and as the possibility of carbon taxes looms.
Although droughts and storms “of the century” seem to arise somewhere around the globe rather frequently now, procurement officers generally assume that most commodities will always be available from somewhere, at least in the short to medium term.
However, the United Nations Food and Agriculture Organization (FAO) expects global-commodity shortfalls to worsen substantially by 2030. The Intergovernmental Panel on Climate Change (IPCC) calculates that when global warming hits two degrees centigrade, 10-year extreme temperature events will likely occur 5.6 times more frequently, and 50-year extreme temperature events will occur 13.9 times more frequently.
Bad weather costs money. In 2019, six states in the Midwest suffered a very wet spring in which 19 million acres of cropland were not planted. This generated crop-insurance claims worth over $4 billion.
These risks are current, and not just notional or long-term. As a result, the supply of most commodities is increasingly volatile. To manage availability and simultaneously meet corporate climate goals, companies will need to deepen their relationships with growers and merchandisers, and use publicly available contract language to add sustainability clauses to contracts. The whole supply chain will need to equitably share costs of transition and continual costs of producing with future resilience as a goal.
Climate change presents agriculture-sector companies with a range of potential brand risks. Depending upon their decisions, actions, and public communications, companies may come to be regarded as sustainability laggards by increasingly climate-conscious consumers in important global markets.
Yet the climate challenge presents branding opportunities as well as risks. Genuine sustainability initiatives can strengthen connections with consumers – particularly younger consumers who have begun to see climate as a defining generational issue.
New York University’s Stern Center for Sustainable Business research, based on IRI purchasing data found that the value of sustainably marketed products is growing 5.6 times more than conventional products. While only 13 percent of consumers actively seek and select sustainable brands, over 60 percent of consumers are willing to do so if those goods are either popular or sufficiently affordable.
Large investors are pushing companies to address climate-related risks with measurable greenhouse-gas mitigation strategies. They increasingly insist that financial filings to include evidence of commitment to policies and practices that reflect – and seek to mitigate – those risks, including in such areas as governance, strategy, metrics, and targets.
Synergy Among Functions is Necessary
Climate risks are not transitory. They are not episodic consumer or activist whims. They are real. Temperatures are rising, along with the occurrence of storms, melting ice, sea-level rise, desertification of arable land, and volatile commodity production.
Businesses literally cannot afford to leave the management of these risks solely to their sustainability or corporate-responsibility teams. Any company that seeks to thrive in upcoming years and decades – much less be seen as a leader – will have to engage the attention and energies of its entire senior-executive team, up to and including its CEO and Board of Directors.
The transition to regenerative agriculture can be driven by fear, or it can be driven by inspired purpose. The best and most successful business leaders will be those with a vision of an economy that delivers value sustainably during a period of great challenges – and great opportunities.