The Food & Agriculture Sector Through the ESG Lens: 2023 Outlook

With close to 8 billion people, this planet has a lot of mouths to feed. Population projections from the United Nations have that number reaching 9.7 billion people by 2050. The food and agriculture industry, tasked with satisfying our appetites, faces challenges as we demand an increasing output from it.

Analysis from the U.N. Food and Agriculture Organization (FAO) finds that 31 percent of human-caused greenhouse gas (GHG) emissions come from the food and agriculture industry. This industry is a focus for governments and regulators as the world pushes toward net-zero emissions by 2050.

Along with emissions, the demand is increasing for companies in the food and agriculture industry to responsibly manage environmental, social, and governance (ESG) risks and impacts more broadly — and the industry is taking notice. “Food and agriculture is the number one industry where I’m seeing the most [ESG] interest from businesses, hands down,” says Molly Kellogg, senior account executive at FiscalNote.

Impacts of the Food & Agriculture Industry

The FAO cites deforestation, livestock manure, and energy use derived from fossil fuels as the main causes of the food and agriculture industry’s high carbon footprint.

Other harmful effects of the world’s food systems include:

• High water use
• Chemical pollution of land and water sources (fertilizers, pesticides, etc.)
• Degradation of natural habitats
• Loss of biodiversity
• Soil degradation
• Erosion

Each of these issues stands to be exacerbated by a growing population if organizations in this sector don’t take action.

Mitigating Risks and Impacts in the Food & Agriculture Industry in 2023

Sustainable farming practices can be part of a food and agriculture company’s risk mitigation strategy. Implementing regenerative agriculture philosophies such as no-till farming practices, increasing crop diversity, composting, cover cropping, reducing chemical inputs, and managed livestock grazing can greatly reduce the negative environmental impacts these organizations have. In doing so, they will also reduce their exposure to physical and transition climate risks by being prepared for climate or policy changes.

Additionally, technology can play a key role in a company’s push for sustainability. From DNA sequencing of soil biology to emissions tracking software, there is a growing slate of opportunities for organizations to consider. “New technologies can provide reliable data and help farmers make vital agronomic decisions, allowing them to optimize their farm costs and ensure the health of the land for generations to come,” says Adrian Ferrero, CEO and co-founder at Biome Makers.

The 2023 Farm Bill

One of the more influential developments in the food and agriculture sector this year, particularly in the United States, will be the Agriculture Improvement Act of 2018, commonly known as the Farm Bill, which expires on Sept. 30. Enacted in five-year cycles, a new farm bill will need to be passed, or the current one will need to be extended before the deadline. If neither of those conditions is met, farmers risk losing many of the programs and benefits that the bill provides. That scenario, however, is unlikely.

Depending on the content of the new bill, there could be changes to the conservation section, known as Title II. Current programs include compensation for retiring depleted and erodible land for a period of 10 to 15 years, funding to implement different conservation practices on working land, as well as a performance-based stewardship program that rewards farmers for meeting or exceeding certain “stewardship thresholds.”

All of the programs are voluntary under the current bill and are expected to remain voluntary, though those conditions could change. “Some lawmakers will push for mandatory programs,” says Bailey Thumm, federal affairs specialist at the Pennsylvania Farm Bureau. The preference of producers nationwide is to keep the programs voluntary. “Our producers are willing to do these programs, but once you put it on a mandatory basis that isn’t incentive-based, you will get some pushback from producers.”

Thumm praises some of the sustainability initiatives that producers are adopting, including the growing use of methane digesters that convert methane emissions into biofuel. She also applauds the voluntary enrollment in conservation programs by producers that protects 140 million acres of land, about the size of New York and California combined. “We are trying to break that stigma of agriculture producers getting a black mark for polluting the environment,” she says.

ESG Reporting

ESG reporting helps food and agriculture businesses monitor their progress and communicate to their consumers, investors, and business partners that they’re serious about sustainability.

Mandatory reporting for large European companies will be required in 2024 as the EU introduces an updated version of its current reporting requirements. In the U.S., all publicly listed companies will have to make climate-related disclosures with an expected start date of 2024, and reporting requirements have also been announced in a variety of other countries.

If you still haven’t taken that first step on your ESG journey, this must be a priority for 2023. It’s a process that takes time to understand and successfully implement. Entire supply chains need to be analyzed, and depending on the size of your organization, this could mean thousands of supplier conversations.

“In food and agriculture you have a lot of vendors, and the lack of transparency in their supply chains is a huge struggle for businesses,” Kellogg says. Waiting for regulations to mandate ESG reporting can cause a state of emergency in your organization. Start acting on it now so you are well-prepared for the incoming regulations.

Biodiversity Impacts, Risks, & Opportunities

One of the quickest developing movements in the sustainability realm is the introduction of biodiversity reporting to the business world. In December 2022, the Convention on Biological Diversity (CBD) and its 196 member states adopted the Kunming-Montreal Global Biodiversity Framework (GBF). This landmark agreement obliges governments to ensure that large companies regularly disclose their biodiversity impacts, dependencies, and risks.

While nothing is mandatory yet, the wheels are in motion and we can expect to see mandatory biodiversity reporting in the future. The food and agriculture sector in particular needs to be aware of these developments as it is closely tied to nature. A World Economic Forum report concludes that construction, agriculture, and food and beverages are the three global industries with the largest dependence on nature.

Organizations in these spaces can prepare for the reporting developments by becoming acquainted with the Taskforce on Nature-related Financial Disclosures (TNFD) framework for biodiversity reporting. As well, organizations should look to integrate biodiversity considerations into their overall ESG strategy.

Why FiscalNote ESG

The complexities of ESG reporting combined with continual developments from regulators and policymakers make it a very confusing environment for businesses in the food and agriculture sector. Considering the extensive supply chains in the industry, it’s difficult to know where to start, and a challenge to know what questions you should be asking.

Consulting with experts is a vital first step that will bring clarity to the topic and provide organizations with a visual and workable path forward. “When we start asking businesses those specific questions, there’s a sense of relief that they’re not alone — we’re here to help,” Kellogg says.

Learn more about how FiscalNote ESG Solutions can help you stay on top of ESG disclosures, risk management, and regulatory and policy changes across your entire value chain.