Carbon accounting has become table stakes for the food and beverage industry as we face growing legislative demands and evolving consumer preferences toward sustainability. The food industry generates up to 39% of global greenhouse gas (GHG) emissions; in order to measure these impacts and identify the most efficient carbon reduction opportunities, an increased level of granularity is needed for the industry’s impact accounting.
The current state of the industry is such that most companies are relying on highly-generalized data to calculate their carbon emissions. These common emission factor databases find shortcuts in two ways. First, they will group together ingredients that appear somewhat similar to provide an average emission factor for all of them, ignoring the fact that different crops will have drastically different impacts on the land and environment. An example of this is a database using a value for apples as a proxy for apricots, blueberries, cherries, peaches, raspberries, and strawberries. As an apple is a perennial tree-crop, its impact on the land is extraordinarily different than that of a bramble fruit. Another example is databases providing the same emissions data for stevia as they do for cane sugar.
The second shortcut is providing global average emission factors for a given crop or ingredient, rather than accounting for the specific location in which the crop is grown—a factor that heavily impacts the required blue water usage, impact on soil health and biodiversity, and carbon emissions. In fact, emission factors for wheat across the most common global locations have as much as a 62% variance.
While these common emission factor databases can indeed be useful for setting directional strategy, they simply do not provide the level of granularity required to meet current impact accounting demands and allow efficient and meaningful action towards impact reduction.
Understanding the Importance of Granular Emission Factors
At the ingredient and product levels, using granular emission factors allows for more precise calculations of carbon footprints. An emission factor measures the amount of GHGs emitted per unit of activity. Granular emission factors will take into account the specific source crop for a given ingredient, the agricultural practices used in growing that crop, the location where the crop was grown, and even the amount of that crop being used in the ingredient (ingredient concentration). Each of these elements can significantly change the carbon footprint of that ingredient, and therefore are critical to understanding where opportunities for improvement can be made.
In the food and beverage industry, Scope 3 emissions, also known as indirect emissions, comprise 87% of a food company’s total greenhouse gas emissions. Because of the outsize importance of the category, it is crucial to have accurate data for sustainability target-setting, impact reduction strategies, and public disclosures.
Risks and Impacts of Using General Emission Factor Databases
Accurate carbon reporting is not only important for mitigating the effects of climate change and reaching corporate sustainability goals: it also can have a direct impact on a company’s bottom line. There are three ways in which annual profits can be impacted by using overly-generalized emission factors:
Higher Direct Costs
The Net Zero Tracker reports that 911 of the world’s largest 2,000 publicly listed companies by revenue have now set a Net Zero target. Ideally, these companies would achieve this goal entirely from changes to their supply chain and recipe development. However, most rely heavily on purchasing carbon offsets. When a company is using generalized emission factors to calculate its carbon footprint, it can often find it is over-spending on offsets due to inaccurate emission factors that are over-estimating its impact.
Higher Costs of Capital
MSCI has found that companies with higher Environmental Social and Governance (ESG) scores will, on average, enjoy lower costs of capital compared to those with poorer ESG scores. Similarly, the World Economic Forum has reported that creditors are more willing to lend at lower rates to companies that commit to environmental impact reduction. In order for a company to receive a high ESG score, it must demonstrate progress toward sustainability goals. And, in order to demonstrate this progress, for food companies, this means using emission factors that are nuanced enough to show the impact-savings from shifts in ingredients, sourcing locations, and ingredient concentrations. Without granular data, it can be difficult to prove incremental progress.
Missed Sales Opportunities
Driven by an increase in eco-conscious consumers, retailers and CPGs are increasingly being held to account for their scope 3 emissions. As a result, these companies are turning to suppliers that can provide detailed information on their ingredient impacts, which, in turn, can help the companies demonstrate progress toward impact reduction. Similar to the benefits involved with costs of capital, any company that uses data that is nuanced-enough to demonstrate progress will have an advantage in capturing shelf space and expanded contracts with its customers.
Moving Towards Sustainable Supply Chain Management
Companies can significantly benefit from adopting granular emission factors, as it promotes greater climate accountability and facilitates more accurate reporting. Additionally, it reduces costs, increases loyalty among consumers, and unlocks new commercial opportunities. By embracing these practices, companies can align their operations with decarbonization goals, comply with regulators, increase competitiveness, and contribute to a more sustainable future. Successful businesses that employ granular data to aid their decision-making are the ones that take decisive action toward supply-chain decarbonization and pave the way for a greener and more prosperous future.
Christina Lampert is the Director of Growth & Innovation at HowGood, an independent research company with the largest food ingredient sustainability database for food and beverage companies. In 2018, she founded The Sustennial Network, which celebrates the sustainable millennial lifestyle and sustainable business strategies across social platforms. With expertise in data-driven marketing strategies and life cycle assessment, Christina helps brands and retailers harness the power of data to build the business case for sustainability.