Published on Jun 21, 2024, 3:00 PM WSJ PRO Deloitte Consulting LLP
Nearly all surveyed food and agricultural executives report that investing in sustainability helped their organizations increase revenue and reduce costs
In the food and agricultural sector, sustainability investments aimed at decarbonization, protecting nature, and contributing to risk mitigation strategies often generate positive ROI. That’s the main takeaway of a new survey-based report by Deloitte and the New York University (NYU) Stern Center for Sustainable Business (CSB), which asked 350 senior executives from food and agriculture companies in the United States, United Kingdom, Germany, and the Netherlands about the value provided by their investments in sustainability initiatives.
Supplemented by interviews of food and agriculture company executives, related NYU research, and case studies, “Unleashing Sustainable Value in Food & Agriculture,” also identifies sustainability strategies with the greatest potential to help organizations become more resilient and unlock financial value, and it reveals that value chain collaboration on sustainability correlates to higher revenue growth.
“Practically all of the respondents from across five value chain segments—processors, manufacturers, food services companies, restaurants, and retailers—report that they derived financial value from their sustainability investments,” observes Ben Ninio, a leader in Deloitte’s Sustainability Strategy & Transformation practice.
Our survey shows that a large majority of the companies we polled now recognize that their investments in sustainability are producing significant financial benefits.
“Food and agriculture companies are on the front lines of climate change,” says Tensie Whelan, distinguished professor of Practice of Business and Society and founding director of the Center for Sustainable Business at NYU Stern (CSB). Noting that the food and agriculture sector is responsible for about one-third of global greenhouse gas (GHG) emissions and uses 70% of the world’s available fresh water, she observes that in recent years, many food and agriculture companies have ramped up their investments in sustainability initiatives. “They recognize that agrifood systems demand enormous amounts of fresh water and produce a large proportion of GHG emissions.” At the same time, “companies in the sector are aware that many consumers are looking for healthier, sustainably produced foods and beverages. This confluence of factors has driven the industry to invest in a wide range of more sustainable practices,” Whelan observes.
Still, NYU CSB research shows that food and agriculture companies—and most companies across industries— often focus solely on the costs of their sustainability investments without giving sufficient consideration to their financial benefits. “Even though many of the surveyed food and agriculture executives say their company originally focused sustainability strategies on risk mitigation, a large majority of these companies now recognize that their investments in sustainability are producing significant financial benefits,” says Ninio.
As an example, the report highlights a large food processor that decided to source sustainable palm oil as part of a commitment to avoid deforestation and prevent labor exploitation in its supply chain. The organization was able to expand its margins by selling to customers looking for sustainable inputs, strengthen employee relations, and improve both productivity and operating efficiency. Using a framework developed by CSB to quantify whether food and agriculture companies realize positive ROI when embedding sustainability into their strategy, the company calculated that this investment in sustainability yielded a 10-year net present value (NPV) of $72 million.1
Sustainability Strategy Impacts Depend on Value Chain Positions
Leveraging the CSB framework, which encompasses much of the food and agriculture value chain, NYU Stern researchers identified 12 sustainability strategies that are likely to have the greatest impact, such as mitigating and adapting to climate change, conserving ecosystems and protecting biodiversity, reducing food waste, and making packaging more sustainable.
“The most effective sustainability strategy seems to depend on an organization’s position in the food and agriculture value chain,” notes Whelan. “For instance, processors report that improving food loss and waste management led to the largest revenue increases. By contrast, at a different node in the value chain, retailers say that sustainable packaging solutions helped the most in terms of boosting revenue.”
The same diversity appears in responses to questions on which sustainability strategy contributes the most to bringing down costs. Many food service providers said that investments in energy efficiency were most helpful at lowering costs, but producers felt that they derived the greatest cost savings from raising, treating, and sourcing animals more responsibly.
The Cost of Inaction
While most survey participants report that their organizations have benefited financially from investing in sustainability, many of them also report that a lack of action—whether through delay or underinvestment in sustainability initiatives—has had harmful financial impacts. A majority (57%) of executives say that these delays and lack of investment led to revenue loss, while more than two-thirds (68%) of respondents believe they had suffered higher costs.
“Consumer preferences are changing rapidly. Food and agriculture companies that move too slowly to introduce sustainable offerings could lose market share to more decisive competitors,” says Ninio. “Similarly, firms that underinvest in sustainability may encounter higher regulatory costs or have trouble accessing capital at a competitive rate from lenders who are trying to meet their own sustainability targets and would rather provide financing to organizations that treat sustainability as a higher priority.”
Acting Now to Obtain Future Benefits from Sustainability Investments
The survey still found pockets of doubt around the future value of sustainability strategies.
Source: “Unleashing Sustainable Value in Food & Agriculture,” Deloitte and NYU Stern Center for Sustainable Business
Whelan believes that some executives who express doubts about the future financial benefits may need to expand their time frame. “Companies still tend to evaluate sustainability investments over a time horizon of three to five years— and don’t look at the costs associated with pursuing business as usual,” she says. “Some benefits of sustainability investments may accrue over a longer duration. In addition, the cost of inaction may be higher than the cost of action. By looking at impacts over a longer timeline, companies can better measure the full benefits of these investments.”
CSB research indicates that companies may undervalue the benefits of sustainability strategies if they don’t have the right data. Firms can improve their ability to calculate the ROI on sustainability investments by identifying key performance indicators (KPIs) aligned to sustainability goals, and then capturing and analyzing the granular, real-time data needed to measure progress toward environmental, social, and economic impact targets.
How to Capture Benefits from Sustainability Investments
The report suggests ways that food and agriculture companies can gain more value from investing in sustainability initiatives:
Harvest low-hanging fruit today. “While they build up their KPI measurement capabilities, companies can still drive sustainability and reduce emissions by choosing projects that are relatively easy to implement and require lower investments of time and resources to drive operational improvements,” explains Ninio. “This could involve swapping out old machinery and upgrading to more energy efficient equipment or utilizing existing technologies such as inventory management platforms to improve demand forecasting and reduce food waste and associated emissions of the potent greenhouse gas methane.”2
Leverage upcoming regulations. By putting in place systems and tools that capture detailed data on resource consumption, environmental performance, and other sustainability metrics in real time, companies can both improve their ability to track their sustainability investments’ ROI and be positioned to use future sustainability regulations as a catalyst for broader transformation in their organizations. This wealth of data could also allow companies to accurately track their progress on sustainability goals using clearly defined KPIs.
Embed sustainability more deeply in business operations. Ninety-eight percent of surveyed food and agriculture companies already tie executive compensation to performance against corporate sustainability goals. “Extending these sustainability financial incentives to a broader range of employees could be a powerful tool for creating an enterprisewide environment that encourages efforts to integrate sustainability into the business,” says Ninio. “These incentives can be expanded outside the corporate walls to tackle Scope 3 emissions and nudge suppliers to adopt more sustainable practices.”
Collaborate and co-invest. “Companies should remember that they don’t have to go it alone on sustainability,” remarks Whelan. According to survey findings, most food and agriculture firms (84%) are already co-investing in sustainability initiatives with organizations throughout the food value chain—and the data shows a correlation between more advanced forms of collaboration on sustainability and higher revenue growth. Whelan points out that companies can team up with competitors on shared issues of concern, such as setting standards on data and knowledge sharing. “This type of pre-competitive collaboration can add value for an entire industry,” she says. (Click here for the original article from WSJ)
—by Aaron Dalton, freelance writer, Executive Perspectives in the Wall Street Journal
1. “Unleashing Sustainable Value in Food & Agriculture,” Deloitte & NYU Stern Center for Sustainable Business, March 2024.
2.“Quantifying Methane Emissions from Landfilled Food Waste,” U.S. Environmental Protection Agency, October 2023.
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