From Farm to Factory: Implementing Double Materiality and Emissions Strategies in Food Processing
by Sergej Lugovic
Introduction:
In the evolving landscape of sustainability regulations, food processing companies face increasing pressure to balance profitability with social and environmental responsibility. The Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS) require businesses to adopt a double materiality approach—assessing both financial and societal impacts. In parallel, companies must manage their greenhouse gas (GHG) emissions across Scope 1, 2, and 3, aligning with global climate goals.
Guiding Questions:
What is double materiality, and why is it critical for food processing companies?
Explore the concept of double materiality and its relevance to both business performance and social/environmental impacts in the food processing sector.
How do key sustainability issues in food processing affect both financial and impact materiality?
What are the primary environmental, social, and governance challenges that food processing companies face, and how do they intersect with financial and impact considerations?
How can a food processing company effectively assess materiality?
What practical steps should be taken to conduct a comprehensive materiality assessment? How can stakeholder input and risk mapping ensure a balanced approach?
What are Scope 1, 2, and 3 emissions, and how do they relate to food processing operations?
What are the different types of GHG emissions, and how should a food processing company address emissions across its direct operations, purchased energy, and value chain?
What strategies can food processing companies implement to reduce their Scope 1, 2, and 3 emissions?
What practical actions can be taken to reduce emissions at each scope level? What are the innovations in energy efficiency, supply chain sustainability, and waste reduction?
How can a food processing company align its double materiality assessment with GHG emissions reduction targets?
How can double materiality insights guide the setting of emissions targets? What are the best strategies for aligning business goals with sustainability efforts?
What are the best practices for CSRD-compliant reporting in the food processing industry?
How can food processing companies ensure transparent and accurate reporting of Scope 1, 2, and 3 emissions under the CSRD? What are the key elements of an effective sustainability report?
How does embracing double materiality and emissions management shape the future of food processing?
What does the future hold for sustainability in food processing, and how can companies position themselves for long-term success in a low-carbon economy?
Understand Double Materiality
Double materiality is at the core of the CSRD reporting. It means assessing both financial and impact materiality:
Financial Materiality: How sustainability matters affect your company's financial performance.
Impact Materiality: How your company's activities impact the environment and society (positively or negatively).
Identify Key Sustainability Matters
Review the sustainability topics relevant to your business (e.g., climate change, social issues, governance practices). Consult both internal and external stakeholders to gauge what issues are significant from both perspectives (financial and impact).
Conduct Materiality Assessment
Use a structured assessment process to evaluate which issues are material. This involves: Data collection: From operations, market trends, and stakeholder feedback. Risk and opportunity mapping: For each sustainability topic, map risks and opportunities that could impact your business. Evaluation criteria: Include factors like the scale, scope, and likelihood of sustainability impacts.
Incorporate both Financial and Impact Considerations
The financial materiality helps evaluate how environmental or social issues will affect your bottom line. The impact materiality focuses on the broader implications of your operations on society and the environment. Both need to be integrated into decision-making and reporting.
Engage with Senior Management
Double materiality requires top-level commitment, including cross-functional input (finance, risk, sustainability, operations) to ensure alignment with corporate strategy and financial goals.
Document the Process
Ensure that the materiality assessment is well-documented, detailing the methodology and data used to reach conclusions. This will also need to be disclosed in the sustainability report, showing transparency in how decisions were made.
Ongoing Monitoring
Materiality is dynamic. Establish a process for regular updates to your materiality assessment, adjusting as necessary to reflect changes in business, regulation, or stakeholder expectations.
By following these steps, organization can ensure that both risks to business and company's broader impacts are accounted for in sustainability reporting under the CSRD.
For a food processing company, setting up double materiality under CSRD involves focusing on sustainability issues relevant to both financial performance and societal impact. Here's a practical case breakdown:
Identify Key Sustainability Matters (Industry-specific)
Environmental:
Greenhouse Gas (GHG) emissions from food production and processing.Water usage in processing plants.
Waste management (food waste, packaging waste).
Sustainable sourcing of ingredients (e.g., deforestation, biodiversity).
Social:
Labor conditions in the supply chain (working conditions of farmers and factory workers).Food safety and product quality.
Nutrition and health impacts of products (e.g., highly processed foods).
Governance:
Ethical supply chain practices.Anti-corruption measures in sourcing and distribution.
Conduct a Double Materiality Assessment
Financial Materiality:
Assess how climate change (e.g., droughts affecting crop yields) might disrupt ingredient supply, increase costs, and impact margins.Food safety regulations might require costly upgrades to processing facilities.
Sustainability certifications (e.g., organic, Fair Trade) can influence consumer purchasing behavior, affecting sales.
Impact Materiality:
Environmental Impact: Evaluate how your company's operations contribute to carbon emissions, water use, and food waste. For instance, high energy consumption in processing plants could significantly contribute to carbon emissions.Social Impact: Assess how working conditions in the supply chain affect workers, particularly in lower-income countries where raw materials (e.g., sugar, cocoa) are sourced.
Health Impact: Analyze how your products affect public health, especially if your portfolio includes highly processed foods with low nutritional value.
Example of Double Materiality for a food processing company that produces processed meats and snacks:
Financial Materiality Example:
Energy Prices: Increased energy costs (due to carbon pricing policies) could raise operational expenses for refrigeration and cooking processes in factories. This affects the bottom line directly.
Supply Chain Risk: Droughts in farming regions might limit the supply of raw materials (such as grains or meats), raising costs or even interrupting production.
Consumer Trends: There is a shift towards healthier, plant-based alternatives. Failure to diversify product offerings to meet this demand might lead to declining sales in certain product categories.
Impact Materiality Example:
Water Use: Your company operates in water-scarce regions, and excessive use for food processing is contributing to water stress. This impacts local communities and ecosystems, as well as the company's long-term water security.
Labor Practices: The company sources raw materials from farms in developing countries where labor conditions are poor. These issues could lead to reputational damage, negatively affecting the brand and consumer trust.
Food Waste: Significant amounts of food are lost or wasted in the production process. Reducing food waste would benefit society by decreasing waste sent to landfills, reducing emissions, and conserving resources.
Incorporate the Materiality Findings
Financial Materiality: In your sustainability strategy, prioritize investments in energy-efficient technology and alternative ingredient sourcing to protect the business from price volatility and supply chain disruptions.
Impact Materiality: Set clear targets for reducing carbon emissions and water use, and implement a sustainable sourcing policy for raw materials, ensuring fair labor practices and environmental protection in your supply chain.
Set Targets and Actions
For environmental issues: Set targets to reduce GHG emissions by upgrading to energy-efficient equipment in plants and sourcing renewable energy. Establish water conservation goals by improving water recycling processes.
For social issues: Establish a supplier code of conduct that addresses labor practices and partner with third-party organizations to audit compliance. Ensure suppliers adhere to sustainable farming practices.
Report and Monitor Progress
Use the CSRD reporting framework to disclose both financial and impact materiality findings. For example, include data on energy and water use reductions and how these improvements mitigate business risks while benefiting local communities.
Track progress on labor improvements in the supply chain, and report how these contribute to the company's social impact and reputational value.
This approach allows a food processing company to align its sustainability initiatives with both financial performance and societal impact, ensuring compliance with CSRD while building long-term business resilience.