The environmental impact of the food processing sector raises questions on their ESG disclosures

As climate change continues to pose a prominent threat to our planet, it's become increasingly important for industries to take a closer look at their environmental impact. This is especially true for the agriculture and food industry, which is closely tied to the health of surrounding ecosystems. The agri food industry’s close relationship to the natural environment means it must value the health of surrounding ecosystems and consider its impact on the natural processes upon which it relies. 

Analyzing Canadian Food Processing Companies' Environmental Disclosures. 

Companies like Maple Leaf Foods Inc., Clearwater Seafoods Inc., Saputo Inc., are responsible for processing your food in a way that meets health standards, but they also have a responsibility to lower their impact on the environment. The food processing industry in Canada is the second largest manufacturing industry in Canada - in terms of value of production - with sales of goods manufactured worth $117.8 billion in 2019. The industry also contributes 2% of the national Gross Domestic Product (GDP), and supplies approximately 70% of all processed food and beverage products available in Canada. As well, food processing as an industry encompasses a wide range of activities, including the processing and packaging of raw agricultural products, the production of prepared foods and beverages, and the manufacture of food-related products such as ingredients and additives. Considering this close relationship, food processing companies should value environmental disclosures since their future profitability depends on their current emissions management practices.    

Sonia Vinogradova, a Masters of Environmental Sustainability student, at the University of Ottawa, is currently investigating how food processing companies have increased consideration of their environmental impacts from 2006 to 2023 by analyzing annual reports. Using the sustainable development goals (SDGs) as a framework, she is tracking Clearwater Seafoods Inc., Saputo Inc., and Maple Leaf Foods Inc. over 27 years, to question the credibility of the companies’ sustainability claims.      

The environmental impact of food processing   

One study found that 14.2% of emissions in the food production supply chain occurred during processing. In the United States, the food manufacturing sector was found to be the worst performer¹ and responsible for the highest environmental impacts including 20% of national greenhouse gas emissions and 12% of water withdrawals. Further, these authors² write that food and beverage processing ranks third in industrial water consumption. Furthermore, when food waste is sent to landfill it decomposes and releases methane and carbon dioxide. Food waste ends up contributing 10% of the world's greenhouse gasses (World Wildlife Fund, 2018). Measures to avoid food waste by food processors would reduce this significant emissions contribution. Other areas for improvement such as in energy efficiency, energy sourcing, and water management practices by food processors would have significant impacts towards reaching the SDGs in the industry.    

The Sustainable Development Goals and double materiality   

Academic literature shows that identifying financially material issues to a company is not complete without also identifying the company’s impacts on sustainable development issues. This is the concept of double materiality, where a company considers not only how climate change will affect its operations, but how the company will affect climate change. Thus, as companies increasingly understand their important role in addressing social issues such as climate change, transparent corporate social responsibility (CSR) disclosure becomes integrated into investor expectations. The SDG framework serves to provide an analysis that touches many different aspects of sustainable development, beyond just carbon emissions or waste data. Since the SDGs were created through an international consultation and agreement process, they provide a strong foundation for understanding corporate social responsibility.   

ESG reporting trends and sustainability performance   

One of the key benefits of environmental disclosure is that it encourages companies to be more environmentally responsible. When companies are required to disclose their environmental impact, they are more likely to take steps to reduce it. This can include implementing more sustainable business practices, investing in renewable energy, and reducing waste. Although studies disagree on whether or not environmental, social and governance-focused (ESG) reporting financially benefits a company, the percentage of companies publishing ESG reports is rising globally. According to studies such as this one, the issues of transparency and sustainability in global agriculture supply chains are poorly investigated. There is a need to develop ways in which business reporting transparency can improve sustainability governance. Sonia’s study is investigating the relationship between business reporting practices and improved sustainability governance. She is doing this by investigating food processors, which represent a section of the agriculture supply chain, using the SDG framework. However, there are challenges to implementing environmental disclosure requirements. One of the main challenges is ensuring that the information disclosed is accurate and complete. Companies may be reluctant to disclose negative information, and there is a risk of greenwashing - where companies provide misleading information to make their environmental impact seem better than it actually is.  

Despite these challenges, Sonia Vinogradova believes that environmental disclosure is a critical tool in promoting environmental sustainability. Through her research, she hopes to raise awareness of the importance of environmental disclosure and encourage companies to be more transparent about their environmental impact. She hopes to engage the companies in constructive dialogue over their strategic plans and their considerations of the SDGs. Companies have many competing priorities, but rational action to consider the risks of climate change, as well as other social goals, must be included in strategic plans.    

As we continue to face the challenges of climate change, it's becoming increasingly important for industries to take responsibility for their environmental impact. The agriculture and food industry, in particular, has a unique relationship with the natural world and a responsibility to maintain its health and wellbeing. Through analyzing the annual reports of Maple Leaf Foods Inc., Clearwater Seafoods Inc., Saputo Inc., Sonia aims to contribute to the existing literature on the improvement of environmental disclosure in the food processing industry in Canada, and to provide insights into the potential for progress towards meeting the SDGs in this sector.

References:

1. Park, Y.S., Egilmez, G., Kucukvar, M., 2015. A novel life cycle-based principal component analysis framework for eco-efficiency analysis: case of the United States manufacturing and transportation nexus. J. Clean. Prod. 92, 327–342. doi:10.1016/j.jclepro.2014.12.057.

2. Valta K, Moustakas K, Sotiropoulos A, Malamis D, Haralambous KJ (2016) Adaptation measures for the food and beverage industry to the impact of climate change on water availability. Desalin Water Treat 57(5):2336–2343. doi:10.1080/19443994.2015.1049407