ESG Counts – Time to Protect the Planet and Your Food Business
It’s All About Sustainability
In today’s food industry landscape, it’s no longer an option to ignore incorporating sustainability practices into every aspect of your business.
As the devastating impact of global climate change becomes an ever more serious issue, consumers, governments, retailers, investors, and employees are pressuring companies to adopt and report their sustainability initiatives now.
Navigating the latest sustainability legislation can feel overwhelming, with over 2,400 Environmental, Social and Governance (ESG) regulations worldwide (source: Plan A / DitchCarbon).
If they are not already, businesses need to start understanding now – and via trusted data sources – what their and their suppliers’ environmental impact is, to operate more sustainably. It’s a long-term investment in sustainability leadership and resilience, rather than merely a compliance issue.
The food industry is a major contributor to the climate change problem. According to the United Nations, 30% of global greenhouse gas (GHG) emissions come directly from this sector.
With a staggering 80% of companies’ carbon emissions estimated to come from their external supply chains, ingredient procurement and NPD teams need to overlay business’s sustainability targets with their own supplier and nutrition targets, to produce more sustainable products.
As operating sustainably becomes the ‘new norm’, at TraceGains NutriCalc we are supporting clients with key insights into ESG regulations to be aware of if they’re supplying products to the EU or UK, what they mean for their business, and how to comply with them.
Make It Your Business
The global ESG regulations and initiatives are being driven by the EU, whose legislation is increasingly viewed as the benchmark for other world regions to follow.
Whilst some legislation has been in place for years – mainly affecting only publicly listed and very large companies – the next regulation coming into play and having a significant impact is the EUDR from 30th December* this year. A 12-month delay to the deadline has recently been proposed, to help businesses prepare. Furthermore, as a decision may not be made until just before the current deadline, now is the time for action by applicable size businesses.
*UPDATE: Following a vote on 14th November (after this article was published), the EU confirmed that it has delayed the EUDR compliance deadline by 1 year – pushing it back to 30th December 2025 to give applicable large businesses more time to prepare, but they need to act now to ensure they’re ready.
This means that companies selling products within the EU will be affected.
However, even if businesses sell goods just in the UK, they still face pressure from retailers, consumers and other stakeholders mentioned to comply as well.
Nearly two thirds of UK retailers have already put sustainability strategies in place (source: Retail Insight Network). These may affect brands’ ingredients and packaging – impacting both companies supplying retailers directly with finished products, and indirectly if supplying raw materials to other major food brands.
And with the EU still the UK’s largest trading partner despite “Brexit”, the alignment of future UK regulations with the EU remains important.
It’s therefore key for businesses to be proactive now in taking the first steps towards establishing a sustainability performance ‘baseline’ for their suppliers and products, to measure improvements and set realistic targets against.
The Cost of Non-Compliance
Achieving compliance with the latest ESG regulations and deadlines is a complex and time-consuming process.
To do their due diligence when assessing their supply chain and products, companies need to collect a huge range of critical sustainability data which is scattered across dozens, if not hundreds of different sources, each solving a different component of specific ESG regulations.
Failure to comply could result in significant financial penalties and a ban on supplying products to the EU market, as well as causing damage to brands’ reputation and consumer trust.
In addition, businesses who just ignore the sustainability regulations are at risk of falling behind. Other proactive brands in their category can gain a competitive advantage through satisfying their various stakeholders and achieving verified sustainability product marketing claims.
To this end, a lot of UK companies are fast-tracking their sustainability goals to be ready for the EU’s own net zero target.
Showing Initiatives
ESG is part of the EU’s European Green Deal, a range of policy initiatives aiming to set the European Union on the path to a green transition, with the goal of being the world’s first climate-neutral continent by 2050.
To achieve this ambitious target, under the European climate law regulation, the EU are legally obliged to cut net greenhouse gas emissions by 55% by 2030, increasing to 90% by 2040, and net zero by 2050.
The regulations relate to the total GHG emissions derived from the entire lifecycle of a finished product (all along the supply chain and packaging waste left after consumption), as well as the environmental impact caused by suppliers of certain commodities used for a finished product.
EUDR – Removing Deforestation
The European Union Deforestation Regulation 2024 (EUDR) aims to prevent the sale of products in the EU which are linked to land deforested after 31st December 2020, or forest degradation above an acceptable set threshold.
Deforestation is one of the biggest contributors to GHG emissions, so this regulation promotes sustainable supply chains and biodiversity protection.
The EUDR affects businesses who supply as raw ingredients / food manufacturers whose finished goods include, any of the following commodities (or derivatives of them): palm oil, beef, soy, coffee, and cocoa.
The regulation also applies to rubber and wood commodities used in packaging materials such as labels, carton boxes, and paper – so is therefore likely to affect most companies.
As mentioned, the 30th December reporting deadline may still come into effect as planned without a delay, for larger businesses. Whilst smaller companies have until 30th June next year.
The EUDR is probably the most complex ESG regulation for companies to comply with. Their big challenge is mapping the land plots for every single material lot of these 7 commodities if being sourced, to prove that the plots are within the acceptable forest degradation threshold.
To do their due diligence, businesses will need to collect plot-level co-ordinates for their materials and do analysis utilising suitable satellite imagery technology, to check and report on the plot level data for each material lot.
If any land plots fail to comply, companies will need to source alternative, compliant suppliers.
CSRD – Sustained Efforts to Reduce Emissions
The Corporate Sustainability Reporting Directive 2025 (CSRD) has the goal of ensuring that businesses clearly and consistently report their sustainability efforts, to enhance transparency and support the transition to a more sustainable economy.
The CSRD affects all companies selling their products in the EU, as it relates to carbon emissions for their business and all their suppliers as well. As with the EUDR there’s a phased approach, which began in 2023. However, getting critical data is the major challenge, so businesses need to start planning today.
Companies need to report on 10 topics, 5 of which concern the environment. This requires them to have access to Scope 1-3 GHG emissions data, to cover the entire lifecycle of a product.
Whereas businesses can get data on their own Scope 1 direct emissions (for burning fuel at sites and used by company vehicles), and Scope 2 indirect emissions (from their site energy source suppliers), the real challenge is obtaining Scope 3 indirect emissions data (for every separate ingredient and other items in their supply chain).
This is a complex challenge for businesses, who will either need the full co-operation of all their suppliers or have access to the necessary data through some form of technological means.
CSDDD – Supporting Human Rights, Not Wrongs
The Corporate Sustainability Due Diligence Directive 2027 (CSDDD) focuses on issues around modern slavery and child labour concerns.
Also, a phased approach, which began this year, companies need to do a risk assessment of suppliers and report on their employee working conditions, to ensure they have a good audit history and are free of adverse practices.
Whilst the CSDDD currently only affects large businesses, SMEs may be indirectly affected by the reporting practices of their large customers.
UK Regulations – Cover Your Business
We advise companies supplying the UK market to familiarise themselves with the following key pieces of legislation, which may affect their company now or in the future.
Regardless of their relevance, as mentioned, businesses supplying the UK are under pressure now to comply with the main EU ESG regulations too.
Companies Act of 2006: updated in 2022, large businesses must file a yearly report that reveals the strategy, processes, and due diligence regarding matters of sustainability.
Sustainability Disclosure Requirements (SDRs): provide a basis for managing sustainability-related risks, opportunities, and goals. Mandatory disclosure goes live in 2025.
UK Green Taxonomy: classification system defining what can be considered “green” activities.
Streamlined Energy and Carbon Reporting (SECR) framework: requires qualifying businesses to report energy usage and carbon emissions.
Advertising Standards Authority (ASA) Guidelines: guidance for companies on advertising their “green” status. Brands must evaluate their full product lifecycle before making any claims.
TraceGains – Integrated ESG and Supplier Compliance Solution
What’s also clear is the huge challenge businesses face, with many still struggling to obtain the critical ESG data they need now to comply with the regulations and meet internal sustainability targets – ultimately impacting their products, NPD and financial performance.
As mentioned, TraceGains is a leading provider of food supplier compliance and management solutions. They’re experts in helping companies capture and harness complex supplier data.
Moreover, this data capture is facilitated through a global networked ingredients marketplace where businesses can manage their existing suppliers and source new ones.
As ESG is a natural extension of gathering supplier data, TraceGains’ new ESG Sustainability Management solution gives food manufacturers simultaneous access to their suppliers’ standard data and critical ESG data in one place, at the point where they’re making decisions.
It’s the only ESG solution which has ESG data linked to a huge marketplace of over 85,000 suppliers and over 550,000 ingredients & items, enabling clients to compare like-for-like ESG data for current ingredients and suppliers, with potential alternatives.
This helps companies meet their sustainability goals – for example, reducing their overall business or products’ carbon footprint by 10% year on year.
To achieve this, TraceGains have carefully chosen best-in-class partners of critical EUDR, CSRD, CSDDD and other ESG sustainability regulations data points. These include Sustained, Ditch Carbon, Sedex, and HowGood – and the list is growing, with more partners to be confirmed soon.
If combined with TraceGains’ Formula Management NPD solution – which is powered by NutriCalc – companies can even do full product lifecycle assessments, to measure the environmental impact of their product recipes at every stage in the supply chain.
Navigating ESG regulations can be overwhelming, but with TraceGains, companies can confidently meet sustainability targets while maintaining compliance, making it an invaluable partner in addressing today’s environmental challenges.
Free ESG Resources
There’s a wealth of free ESG resources available on the TraceGains website, with new ESG content being added regularly.
Click the links below to access the following materials and newer content:
- Innovating for Sustainability
- Food & Beverage Sustainability Guide
- The 2024 Food Industry ESG Survival Guide
- The State of ESG Compliance for the F&B Industry
Stream (upcoming / on-demand webinars):
- The Strategic Role of Traceability in a Shifting Regulatory Landscape
- Emission Legislation: Preparing Global Food Manufacturers for New Regulations
- The Role of Procurement in Net Zero Product Design
Gather – find ingredient suppliers and check if they’re taking steps to report on & reduce their carbon emissions (Carbon Action Ranking)