Written by 50,000 companies will now have to comply with new rules – are you one of them?
EU policymakers reached an agreement on the Corporate Sustainability Reporting Directive (CSRD) which came into force in January this year. Sustainability reporting is now, for the first time ever, as important as financial reporting. So, what does this mean for companies in the food and agriculture sector, and what do you need to do to meet the requirements? Essentially, any company under the scope of CSRD must report on how sustainable it is, and how this affects the company’s development, performance, and position. Companies who are already within the scope of NFRD are obliged to apply CSRD regulations from 1 January 2024; all other large companies from 1 January 2025; and listed SMEs (with the possibility of a waiver during the first two years) from 1 January 2026.
What new risks are we facing? A helping-hand for businesses.
As with anything related to sustainability, environmental factors are key. To help businesses the Task Force on Climate-related Financial Disclosures (TCFD) created a methodology in late 2015 to enable companies to assess their climate-related risks. In other words, risks that have a direct impact on a company’s assets, and risks that are a result of the decarbonization of the company’s activity (scope 1, scope 2 and scope 3), as well as the overall decarbonization of the economy on a macrolevel.
To help spell out more specifically what these risks may include the TCFD provided several examples of climate-related risks and segregated them into two groups – transition risks and physical risks. Let’s initially look at some physical risks which may affect your business. Physical climate-related risks are increasing rapidly as we see giant shifts in climate change. Included in the TCFD guidelines are acute risks such as the increased severity of extreme weather events, for example cyclone and floods; to chronic risks such as changes in precipitation patterns, extreme variability in weather patterns, rising mean temperatures, and rising sea levels.
The TCFD’s guidance goes on to pinpoint examples of transition risks which fall into three categories – policy and legal, technology, and reputation. Firstly, let’s consider policy and legal concerns which may be relevant to businesses in the food and agriculture sector. The TCFD highlights: increased pricing of GHG emissions, enhanced emission reporting obligations, mandates on and regulation of existing products and services, and exposure to litigation. Under the technology banner, according to the guidelines, your business may need to substitute existing products and services with those with lower emissions. Whilst other risks could include the unsuccessful investment in new technologies, and the cost of transitioning to lower emissions technology. Lastly, the TCFD provides examples of reputational risks: Businesses need to be aware of shifts in consumer preferences, the stigmatization of the sector, and increased stakeholder concern / negative stakeholder feedback.
Why are the TCFD’s guidelines relevant to my business?
Fast forward to 2023 and many food and agricultural companies may be asking, how is this relevant to my business? These have never been concerns for my company before, so why now? The simple answer is the new Corporate Sustainability Reporting Directive is making these factors relevant to many more businesses in the sector than in previous years. The TCFD’s 2021 implementation guidance stresses that processors, such as food, beverage, and fiber processors (e.g., paper), are likely to be impacted less by direct GHG emissions (Scope 1), but more by indirect GHG emissions (Scope 3) arising from their supply and distribution chains. Processors will now have to pay attention to water and waste risks and opportunities, to a similar degree as producers do.
Take for example a beverage production or paper production company. They depend on access to significant water resources and, in the case of beverage production, high-quality water resources at that. The new
CSRD will mean these companies have to take the risks and opportunities around waste into account when reporting on the business’s sustainability, including residual materials such as paper and wood waste, wastewater, and post-processing animal byproducts.
Maksym Shylov
Group Practice Leader
Food & Agriculture
T +48 22 39 33 211
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