4

Corporate Value Chain Decarbonization

The third session of the workshop focused on the unique challenges of decarbonizing the corporate value chain, through the lens of food manufacturing. For companies that produce consumer goods made from agricultural products and natural resources, the total carbon footprint of a product is often difficult to measure due to the range of businesses and practices involved in bringing the product to market. Speakers highlighted the unique roles that farmers, suppliers, distributors, and retailers play in decarbonizing the value chain, as well as the need for industry-wide commitment to decarbonization and careful estimation of the environmental impacts of international supply chains.

Sara Law (CDP North America, moderator) described CDP (formerly the Carbon Disclosure Project) as a nonprofit that works with big companies and investors to voluntarily disclose information regarding their environmental risk. CDP currently works with over 70 percent of S&P500 companies, and participants find value in the relationship by learning about their vulnerabilities, including the risks of climate change, water availability, and deforestation. Law stated that by virtue of disclosing, companies and cities are better able to minimize their environmental risks. CDP then compiles the information gathered from participants and makes it publicly available, helping policy-makers, investors, citizens, and consumer understand the environmental implications of their investments. Law posed: what drives these companies to decarbonize? On the risk side, companies are concerned with the real impacts of extreme weather, included acute changes like increased hurricane frequency and severity, and chronic changes like long-term changes in rainfall. On the

opportunity side, companies advertise low carbon products to attract consumers that are concerned with environmental outcomes.

Law noted that the human food system is responsible for up to one third of global greenhouse gas emissions. For food sector companies like Cargill, Mars, and Danone, 65-80 percent of their total footprint on average comes from land-based emissions, and thus decarbonization requires not only lowering emissions within their manufacturing process, but also working with suppliers to reach emissions targets. In 2018, 196 U.S. companies in the food processing sector voluntarily disclosed information to CDP, of which 73 of these companies set an emissions reduction target. Despite the importance of scope three emissions in the food sector, 56 percent of food and beverage companies have not set scope three emissions reduction targets. Law stated that companies that rely on agricultural commodity supply chains have amplified exposure to raw material risks. A final observation: R&D activity is low for the food sector while mergers and acquisitions activity is high, driven by food companies acquiring smaller, environmentally conscious brands to create strategic optionality while maintaining their core brand. Law introduced the three speakers: Ashley McKeon (Cargill), Christina Owens (Danone North America), and Ashley Allen (Mars Incorporated) to discuss their position on the food sector value chain.

CARGILL SUSTAINABILITY OVERVIEW

Ashley McKeon, Cargill

Ashley McKeon explained that Cargill is one of the largest agribusiness companies globally. Cargill’s self-stated company purpose is “Nourishing the world in a safe, responsible and sustainable way.” Cargill sells goods in over 170 countries worldwide, operating primarily as a middleman in the agricultural supply chain rather than as a consumer-facing company. Cargill buys agricultural commodities from farmers and ranchers, processes the agricultural and livestock products, and sells them to retail food companies, retailers, and restaurants. When retail food companies look to reduce their emissions, they look up the supply chain to companies like Cargill for support.

McKeon stated that Cargill’s sustainability operations are farmer centric, as farming practices represent the largest opportunity for decarbonization within their supply chain. In the last year, Cargill started a sustainability hub where representatives from their various business partners (including livestock, pet food, feed, corn syrup, corn starch, cocoa, chocolate, and aquaculture companies) can work together on sustainability issues like climate, land use, food waste, and water resources. Cargill

has so far pledged to reduce their scope one and scope two emissions by 10 percent by 2025 relative to a 2017 baseline. Their primary scope one emissions come from production facility activities, such as processing corn syrup and milling soybeans to make soybean oil. To meet these goals, Cargill has focused on switching from coal to natural gas for electricity generation. McKeon added that roughly 90 percent of Cargill’s total emissions are scope three, the two biggest drivers of which are livestock emissions (e.g., enteric, manure, feed production, and litter) and row crop emissions (fertilizer, farm equipment, soil carbon loss).

McKeon described Cargill’s soil health investment model, in which farmers are encouraged to implement agricultural practices that lower emissions by improving soil health and keeping more carbon in the ground. McKeon suggested that investing in sustainable soil health practices takes time to generate a return, often between 3, 5, or even 10 years. In addition to greenhouse gas emission reductions, improved water quality, and more diversity in the biome, these practices will return economic benefits to the grower through increased yields, lower fertilizer and fuel costs, and higher soil fertility. Cargill partners with NGOs, customers, and governments to help producers manage the risk that they take on during the first years of implementing these soil health practices.

RESTORING THE SOIL THROUGH FARMER PARTNERS

Christina Owens, Danone North America

Christina Owens described her company, Danone North America, which produces Dannon yogurt, Activia yogurt, Horizon organic milk, Evian water, and other consumer food products. Danone North America is the world’s largest B-Corp (a company with a triple bottom line—people, planet, and profit factor into their balance sheet). This designation means that the company has a mandate to consider their effects on the environment and on human life. In keeping, the company has designed various corporate goals based on the United Nations’ Sustainability Development Goals, and received an A-list rating from CDP in the climate change category in 2018. Owens noted that while food companies can reduce the energy being used in their factories and reduce their transportation lanes, they will ultimately need to make a deeper change within their supply chain to reach emissions reduction targets.

Owens said that Danone North America has stated publicly its ambition to be carbon neutral by 2050, and to reduce emissions by 50 percent by 2030. The company is looking to soil health to meet these emissions reduction targets, as 57 percent of the company’s emissions are linked to agriculture. They are also piloting a program to address both their dairy

products supply chain and their plant-based business supply chain, as outlined in Figure 4.1. To lower scope three emissions associated with their dairy products, the company needs to influence the local growers of livestock feed that supply their dairy farms. Starting last year, they began tracking their growers’ agricultural practices, taking note of sustainable soil health practices (i.e., tilling, using crop rotation, and planting cover crops or “planting green”). Owens stated that anytime a field does not have plant cover, it is losing more carbon to the atmosphere.

Owens suggested some options for how to help growers finance their conversion to regenerative agricultural practices, including public private partnerships and incentivizing impact investors to help farms raise capital. Owens introduced Danone North America’s innovative model for inducing positive practices among growers while sharing the attendant risks. The company encourages growers to convert to regenerative practices by purchasing a portion of their dairy through a cost-plus model, in which they pay the cost at the dairy plus a premium. This allows growers to implement regenerative practices with less risk, with Danone North America ensuring profitability through the transition period. Owens suggested that this dynamic creates a sense of partnership between the farmers, dairy producers, and Danone North America.

VALUE CHAIN DECARBONIZATION

Ashley Allen, Mars Incorporated

Ashley Allen introduced her company, Mars Incorporated, a consumer-facing food sector company with a large portfolio of products in food, confections, pet food, and pet care. To produce this wide range of goods, Mars needs to source around 144 ingredients from more than 80 countries around the world, resulting in a complicated international supply chain. The total carbon footprint of these products is around 26.2 million tons of carbon dioxide annually, on par with the emissions of the country of Panama. Given such a large carbon footprint, Mars recognizes its responsibility to consider the environmental impact of their company. Allen noted that Mars is committed to decarbonizing their value chain by working with suppliers (e.g., Cargill), partners (e.g., Danone North America), and nonprofits (e.g., CDP) to make supply chains more sustainable and develop best practices to lower value chain emissions.

Allen described Mars’s “Sustainable in a Generation Plan,” which outlines the company’s goals to create a “healthy planet, thriving people, and to nourish wellbeing” by reducing their environmental impacts, improving the quality of life for workers in their value chain, and helping their consumers make healthier decisions. Regarding environmental impact,

the first step of the plan included a clear accounting of the emissions across the Mars value chain and prioritizing where to undertake interventions, for example prioritizing cocoa supply chains. Allen suggested that the food sector is difficult to decarbonize, because while Mars has direct management over their own operations and scope one emissions, nearly 80 percent of their environmental impact comes from agricultural emissions and land use changes, distributed internationally, as shown in Figure 4.2. Without direct control over the bulk of the emissions, companies like Mars must use their economic and social influence to change production practices up their supply chain.

Mars has committed to a science-based target, approved by the Science Based Target Initiative,¹ to reduce their total greenhouse gas emissions across their entire value chain by 27 percent by 2025, and by 67 percent by 2050, consistent with a well-under 2°C global warming pathway. Allen gave a few examples of how Mars plans to decarbonize their value chain, including purchasing low carbon electricity, sourcing rice from farmers that use alternative irrigation methods to flood irrigation, and reducing deforestation and improving yields in their cocoa supply chain through agricultural practices.

DISCUSSION

Law began the discussion by asking the panel: “for your respective companies, what are the top internal and external drivers for decarbonization?” Owens harkened back to Danone North America’s B-Corp status, including their triple-bottom-line approach. She added that consumer awareness regarding the environmental impact of products is on the rise. Owens suggested that for long term viability of the company, Danone North America needs to develop both supply chain stability and consumer trust, so public image is important. Allen added that one strong internal driver is the increasing environmental concern of young employees entering the company, who prefer working for companies that reflect their own values. McKeon stressed that another internal factor is ensuring longevity and stability of their commodity supply chain, which may be disrupted by climate change. She added that consumer pressure takes time to trickle up the supply chain, so consumer facing companies like Danone North America and Mars will likely start the effort to decarbonize earlier than Cargill.

Law asked the panelists what conditions would be required for their companies to accelerate their progress toward decarbonization. Allen

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¹ Science Based Targets, “About the Science Based Targets Initiative,” https://sciencebasedtargets.org/about-the-science-based-targets-initiative.

suggested the need for greater coordination between the corporate world and government. She cited critical importance of coordinating with the governments of Ivory Coast and Ghana during the launch of the multiparty Cocoa Forests Initiative. McKeon highlighted the need to build public acceptance of the potentially higher costs of food products resulting from decarbonization of the value chain. Owens suggested the need for increasing corporate responsibility to reduce emissions across the entire value chain, so that each company is not continuously pushing off the costs to other members. Owens noted also the importance of crop coverage on all agricultural fields through the year.

A participant asked the panel for comment on the social aspects involved with decarbonization efforts, especially toward promoting gender equality. Owens noted that, as represented by the panel, many corporate voices leading the regenerative agricultural movement are female, representing an area of female empowerment within the sector of corporate agriculture. McKeon added that Cargill launched a campaign called “Hatching Hope,” in which Cargill partners with women in developing countries to run a chicken farm and contribute to Cargill’s supply chain. Allen suggested that social and environmental issues are convolved in the sustainability discussion.

The panel was asked to comment on the use of genetically modified organism (GMO) crops and concerns of public acceptance. Allen noted that Mars does not prescribe GMO crop policies or growing methods—rather they set a production or emissions goal that the supplier needs to achieve. Allen added that Mars requires compliance with labeling laws, as well as local government regulations with respect to GMOs.

A participant asked the panel for comment on the transition to plant-based meat substitutes, and how disruptive that may be for the food sector. McKeon noted that Cargill has invested in plant-based meat substitutes, though they doubt these products will ever completely replace meat in the market. She added that very little life cycle analysis has been performed for meat substitutes, so the full environmental effects are yet unknown.