Make the invisible visible: how to unlock the value of your sustainability data

By Daan van der Zanden, Senior Manager at Deloitte

The changing landscape of animal protein

The food system is a pivotal sector, providing 12% of global gross domestic product (GDP) and 40% of global jobs. Within this system, animal protein is a key element which is present in the diets of 95% of the global population. It represents a considerable proportion of food consumption (about 30% in Europe by caloric intake) and provides essential amino acids and nutrients required for a healthy body.

But the landscape of animal protein is changing. According to Eurostat, livestock numbers in the EU have decreased in the past decade and are predicted to continue this trend as both consumers and policymakers increasingly focus on sustainability. Increasingly restrictive regulations, consumer pressure, sustainability commitments and greater pressure to improve animal welfare standards are compelling players across the value chain to change. "Business as usual” is not an option anymore for animal feed producers, farmers, processors, consumer packaged goods (CPG) companies or retailers. In broad lines, they are under pressure from four main sustainability drivers (see Figure 1):

Figure 1. Sustainability related drivers in food and agriculture
  • Regulators and government factorsincluding new policies based on international commitments beyond greenhouse gases such as the corporate sustainability reporting directive (CSRD) and EU product environmental footprint (PEF)
  • Conscious consumers are putting pressure on brands and retailers to be more sustainable
  • The value chain is pushing for commitments to standards such as the science-based targets initiative (SBTi), the carbon disclosure project (CDP), and international financial reporting standards (IFRS) S1/S2
  • Investors and financial institutions are including sustainability on their balance sheets, mitigating climate-related risks with in-setting and off-setting, and using ‘green finance’

In this changing landscape, data plays an increasingly important role, as in 2022 about 0.5 million data points were collected on the average farm and by 2036 that number is predicted to increase by 700% to over 4 million. Data is becoming a key business driver in terms of sustainability, including reporting (especially of Scope 3), compliance, and certification, among others. However, with high reliance on data, accuracy, credibility, privacy, and security are key. This poses the question: Is Scope 3 reporting a hassle or an opportunity?

How to unlock the value of sustainability data

For reporting purposes, sustainability can be broadly categorized in three buckets: Scope 1, Scope 2, and Scope 3 (see Figure 2). While scopes 1 and 2 may not be simple, they are relatively straightforward. However, solving the Scope 3 imperative (i.e., calculating and reporting on emissions across your end-to-end supply chain) can be highly complex and requires successful collaboration. Therefore, if an organization (e.g., retailer) aims to reduce its emissions, it will not only be concerned with its own data but also with that of its partners (e.g., CPG suppliers). This, in turn, makes data sharing essential.

Figure 2. Illustration of emissions across the value chain (not to scale)

While data sharing can be arranged from a technological perspective, many concerns exist beyond a merely technical lens. Companies may be worried about giving away their competitive advantage, sharing sensitive data, or breaching data security and privacy regulations. The right data processing systems and governance are also required. Indeed, data sharing may seem like a mine field to the C-suite. While all these perspectives and concerns are valid, the inherent nature of data - or more specifically insights based on data - may hold the key to solving such puzzles.

Data alone has limited value. It can be compared to crude oil in that refining is needed before it becomes useful. Value is truly generated when data is transformed into insights. And even more value can be gained when insights are combined. Additionally, (combined) insights can reduce business sensitivity (see Figure 3). For example, in a feed mill setting, data might include feed recipes. Therefore, a feed mill would not want to share raw data, as that is their ‘secret sauce’ and business sensitivity is very high. But sharing feed footprint is different. A feed mill will be much more inclined to share footprint information as this guards sensitive feed-recipe intellectual property. And, unless value chain partners aim to expand their operations into feed production, the footprint information is much more valuable anyway. Going a step further, combining feed and farm insights (e.g., footprint per kilogram of liveweight) is even more valuable for downstream partners such as processors, CPG companies or retailers than feed or farm footprint alone. This straightforward concept can be very helpful to overcome the reluctance of sharing data. In practice, it significantly increases the willingness to collaborate and address the Scope 3 imperative.

Figure 3. Benefits of data vs insights

Successfully solving the Scope 3 imperative and unlocking the value of sustainability data may consolidate companies’ positions as sustainability frontrunners. Consequently, these sustainability champions stand to capture significant benefits which broadly fall into two categories:

1. Enhancement of current offering:

  • Price premiums: Companies can command higher prices for sustainable products, especially if these are certified by eco-labels
  • Brand differentiation: Emphasizing sustainability can set a brand apart from competitors, especially for sustainability-minded customers
  • Brand loyalty: Sustainable practices can foster stronger relationships with customers who prioritize environmentally friendly options
  • Access to new customer segments: Companies can attract customers who are specifically looking for sustainable products
  • Operational efficiency: Sustainability initiatives often lead to more efficient operations, reducing costs and improving margins

Price premiums for sustainability can trickle upwards in the value chain, starting from consumers, which are increasingly willing to spend more on sustainable products. And organizations across the value chain are taking note of this. For example, Arla rewards its suppliers with up to 3 eurocents per kilogram of sustainable milk, plus an additional 1 eurocent per kilogram of milk for taking part in an annual climate review. Similarly, Danone uses supply chain sustainability as a core brand differentiator and operational improvement lever. It supports its partners to increase transparency (e.g., via the Sustainable Dairy Partnership) and access funds to improve their sustainability (e.g., via the Ecosystem fund).

2. Access to new value spaces:

  • Carbon monetization: Companies can generate revenue through carbon credits and other emissions-related financial instruments
  • Green financing: Access to loans and investment products linked to sustainability performance
  • Data monetization: The rich data collected from sustainability efforts can itself become a valuable asset
  • Improved credibility and partnerships: Demonstrating sustainability can enhance reputation and attract strategic partnerships.

Government revenue from carbon pricing mechanisms, such as taxation and emission trading systems, is projected to more than triple over the next decade, which indicates that carbon monetization opportunities for companies will also significantly accelerate. Companies like Tyson Foods are already tapping into these opportunities. As the first U.S. company with an emissions reduction target approved by the Science Based Targets initiative (SBTi), Tyson began monetizing their carbon credits to capture value from sustainability improvements that benefit downstream companies.

Similarly, Canada’s Maple Leaf Foods benefited from their internal sustainability improvements to access a $ 2.4bn sustainability-linked credit facility. They also recognize that their efforts create additional value down the supply chain, which they are actively seeking to capture.

Ultimately, leveraging sustainability data can be a positive-sum game across current offerings and new value spaces. It can be a journey that transforms companies from sustainability laggards to leaders. And despite being a journey that may require a significant effort, a structured and collaborative approach can help achieve a successful outcome. This approach should prioritize three key areas:

  1. Build a collaborative ecosystem: Engage with all stakeholders to share insights and data, driving collective action and amplifying impact
  2. Ensure data accuracy: Invest in technologies and systems to collect accurate, verifiable data, strengthening sustainability claims and improving decision-making
  3. Develop credible processes: Leverage credible and compliant tools and processes for data collection and reporting to ensure transparency and build stakeholder trust

In conclusion, while Scope 3 reporting can be a hassle, it can also be an immense opportunity. Unlocking the value of sustainability data requires a strategic approach focused on ecosystem collaboration, data accuracy, and credible processes. By doing so, companies in the animal protein sector can meet their sustainability objectives, gain a competitive advantage, enhance brand loyalty, and access new revenue streams. The time to act is now, and those who lead will set the standard for a more sustainable and profitable future.

Published on

07 October 2024

Tags

  • Sustainability