By Aarti Ramachandran
Investors have become serious about net-zero – for example, 35 of the world’s largest asset owners, through the UN-backed Net Zero Asset Owner Alliance, have pledged to become net-zero by 2050. This momentum is echoed by many of their significant holdings: around one fifth (21 percent) of the world’s largest corporates have now set targets to become net-zero by 2050, including Amazon, Walmart, Unilever and Nestlé.
Company net-zero pathways must be credible so that investors can achieve their net-zero aspirations. FAIRR’s analysis has found, however, that – at least in the food sector – this isn’t always the case.
Boundaries, pathways and offsetting The lack of a standardized approach to carbon target-setting has resulted in a broad interpretation by food companies and a landscape of targets that is difficult to navigate. Targets vary in three main ways:
Where the boundary of carbon emissions is set
Whether a clear pathway of action is being demonstrated
The extent of the company's reliance on carbon offsetting.
To begin with, credible net-zero targets must address not just direct emissions from a company’s operations but also those in the supply chain.
Scope 3 emissions represent somewhere between 75 percent and 98 percent of total emissions for leading food retailers and manufacturers. It is no wonder that investors are calling on food and beverage companies to reduce their Scope 3 emissions by 85 percent.
Second, net-zero targets must be accompanied by strong interim science-based targets, and companies need to be transparent on the warming trajectory they equate to and the mitigation actions (linked to specific reductions) they will take to reach these interim targets.
Nestlé’s net-zero roadmap sets a strong example here: the Swiss multinational outlines a range of mitigation plans and expected emissions reductions across its supply chain. The company plans to reduce CO2 emissions from its dairy and livestock supply chain by 21.3 mn tonnes by 2030 (or 20 percent of the company’s Scope 3 emissions), 8.4 mn tonnes of which will come from improving farm productivity.
It has also identified the shift to alternative proteins as a key mitigation opportunity, equating to 1.5 mn tonnes of CO2. The plan is not perfect, but the company’s approach, along with its disclosure of key milestones, allows investors to hold the company to account and call out elements of the strategy that raise questions.
Finally, investors must heed the extent to which a company relies on offsetting to deliver net-zero. Shell was criticised for a net-zero plan that was conditional on ‘planting forests the size of Spain’, or 50 mn hectares, equating to roughly 10 percent of the world’s available land for forest planting. Offsetting must result in permanent carbon sequestration, and there are questions over whether certain methods such as tree planting (or even soil carbon sequestration) can deliver permanent, measurable reductions.
Similarly, UK supermarket chain Morrisons came under scrutiny after committing to being supplied entirely by ‘net-zero’ British farms by 2030, without reducing the amount of meat it sells. Agricultural experts remain dubious about this approach, given that animal agriculture is one of the most difficult sectors to decarbonize. In Morrisons’ case, beef accounts for 45 percent of the company’s emissions, but only 5 percent of products sold.
The food sector will have to use a wide range of levers, including encouraging a shift in diets away from animal protein, to truly reach net-zero. The challenge is a significant one: the teams behind any net-zero commitments must be able to demonstrate a comprehensive pathway of action that doesn’t duck the hard questions and is backed up by an evidence-based approach. We can expect investors to focus on the detail in the years to come.
Aarti Ramachandran is director of research and engagements at FAIRR
