As the world approaches the exceedance of planetary boundaries, the agribusiness sector also needs to do its fair share of adaptation to ensure the sustainability of global food systems.

This presents an opportunity for those that can pivot to adopting more sustainable practices.

Industry body Agri SA on June 9 hosted a webinar unpacking what environmental, social and governance (ESG) means for the agribusiness sector and what regulatory trends can be expected.

Law firm ENSafrica natural resources and environment senior associate James Brand discussed the opportunities and risks that presented themselves for those businesses putting ESG at their core. 

ESG, a concept which was borne from the United Nations Environment Programme (Unep) as a sustainable investment movement in 2005, was both a risk and an impact item, he explained.

Over $120-trillion of investment is expected to be invested in an ESG-focused manner, considering the rapid growing rate of signatories to the Principles for Responsible Investment.

South African institutions are signatories to various ESG-related frameworks, including the Equator Principles, to which Absa, First Rand, Nedbank and Standard Bank adhere to; the United Nations Global Compact, which Investec subscribes to; the Dow Jones Sustainability Index and the Unep Finance Initiative.

“Looking at ESG from an impact point of view, it implies that companies spend money without expecting a profit in return, but rather a positive impact. We are seeing a shift away from a financial model that is solely focused on monetary shareholder value,” Brand notes.

“Life on earth can only exist within the safe operating space of nine boundaries – freshwater change, stratospheric zone depletion, atmospheric aerosol loading, ocean acidification, biogeochemical flows, novel entities, system change, biosphere integrity and climate change,” Brand highlights, pointing out that South Africa is already experiencing changes in humidity and rainfall patterns.

A few key regulatory building blocks inform South Africa’s ESG policy stance so far, including Treasury’s Draft Technical paper that was updated in October 2021, the draft JSE Sustainability Disclosure Guidance of 2021 and the Green Taxonomy published in April his year.

There was work in progress to harmonise global sustainability frameworks, which would start making ESG metrics and disclosures easier, Brand confirmed.

In terms of supply chain due diligence, which South Africa currently has no policy stance on, the companies most affected by the directive in due course will be those that generate either a net turnover of more than €150-million in the European Union (EU), or a net turnover of more than €40-million in the EU and at least 50% of its net worldwide turnover in the sectors involving manufacturing of textiles, leather and footwear, agriculture, forestry, fisheries, manufacturing of food process and wholesale of agricultural raw materials, and the extraction of mineral resources and manufacturing of basic metal products.

More technical benchmarks specifically related to crop and livestock production will be developed in future. These are not yet regulated directly in the carbon tax regulations either, but it is pegged for future regulation and gradual introduction.

On this note, ENSafrica broad-based black economic empowerment, tax and private equity executive Mansoor Parker discussed carbon tax and carbon offsets.

The agriculture, forestry and other land use sector is not yet liable for carbon tax, at least until 2026 when Phase 1 of South Africa’s Carbon Tax ends. However, South African farmers practicing regenerative agriculture can earn extra income through carbon credits.

Domestic sales of carbon offsets may qualify as carbon offsets under the Carbon Tax Act. He suggested that farmers compare the costs and administration of carbon certification to determine potential advantages.

Typically, Parker explained, the farmer provided a carbon consultant with background and data reports on sustainable agricultural practices, following which the consultant could calculate the carbon credit potential.

Smaller farmers may use an aggregator model to obtain economies of scale, Parker pointed out.

“As the carbon rate increases, so will the price for carbon offsets. Carbon offsets usually trade at about 80% to 90% of the carbon tax rate,” Parker mentioned, referring to government’s plan of increasing the carbon tax rate possibly from 2026 and gradually onwards, as Phase 1 of the carbon tax ends.

STARTING POINT

Responding to how agribusinesses could get started with the adoption of ESG, Brand noted that the first step for larger organisations was to identify potential risks, set these out in a strategy and get buy-in from the board.  

Larger organisations can then follow this process with the adoption of some kind of policy to set out a pathway for integrating ESG into operations.

Brand explained that smaller organisations could focus on reducing food waste, which was a “massive inefficiency” in the food system – on average, a third of food in the system globally goes to waste.

He added that food loss happened throughout the value chain and, therefore, stakeholders had to be more efficient in how they produced and consumed food.

Moreover, he believed that water efficiency could be improved through, firstly, the capturing of data, especially because agriculture is a big water consumer and there was much room for water use optimisation. 

Small organisations can also bring renewable energy on board as far as possible, and adopt regenerative agriculture practices.

Brand also deemed it prudent for small organisations to be compliant with biodiversity laws, as these would experience an increasingly greater shift in focus.

RETAILER VIEW

Food retailer Woolworths food security technical manager Kobus Pienaar presented on the company’s approach to ESG.  

He explained that, in an increasingly uncertain world, focusing on system value would become ever more critical to business success, adding that interconnectedness between environment, society and business was key to progress.

The Woolworths commercial farmer typically experiences the pressure of rising input costs and dependence of external factors that the farmer cannot control, such as the oil price and exchange rate, this while food inflation was reducing demand.

There is also a decline in the health and functioning of supporting and underpinning natural systems, as well as a lack of subsidies and extension support for both established commercial farmers and for emerging farmers.

“There is very little market predictability and increasing competition from cheap, subsidized imports. Then there is also the high murder rate and increasing tenure insecurity, not to mention the predicted negative long-term changes in climate.”

For customers, sustainability means not only supporting the environment, but also society and the economy. About 23% of Woolworths’ customers consider sustainability important, and 56% see it as “critically important”, referring to their main concerns as being food safety, nutritional value, value for money, people in the supply chain, animals in the supply chain and environmental impact.

Woolworths has three ambitions – better food choices, which speaks to healthy foods and antibiotic resistance; building thriving communities, which speaks to ethical and economic transformation, as well as food security; and being planet positive, which involves a reduced climate impact through reduced food waste and improved packaging.

Woolworths sources more than 85% of its raw materials from South African farmers.

The retailer recognises that agriculture is responsible for much environmental degradation and therefore considers farmers as the most important custodians of future sustainability.

To this end, Woolworths offers a Farming for the Future programme to aid farmers in their ESG efforts.

“We need to address ESG as a system and not as compartments. It may require fewer profits in the short term, to survive in the longer term. All stakeholders in the value chain must take ownership. 

“Sound ESG is critical for the survival of Woolworths and our planet,” Pienaar concluded.