ESG - what is it & what does it mean for farmers?
What does ESG mean for farmers?
Key messages:
- environmental, social, and governance (ESG) is a framework that covers business practices and data capture
- national and international market access requirements are changing, driven largely by consumers and shareholders demanding transparency around environmental and ethical farming practices
- farmers will increasingly have to collect and present data to prove their ESG credentials to maintain market access and potentially access finance in future
- more work is needed to understand the types of ESG data that are important across the value chain
- awareness of coming changes will help farmers proactively manage their future business needs
Background
Agricultural markets are shaped by consumers and their food purchasing decisions. Consumers are more educated, but also more removed from food production, than ever before. High on their list of concerns are climate change, waste, animal welfare, the protection of wildlife and the health and wellbeing of people and communities.
This has increased the pressure on businesses, including farmers and agribusinesses, to demonstrate their environmental, social and governance (ESG) credentials to prove their sustainability and gain or maintain access to certain markets.
So what is ESG all about and what does it mean for farmers now and in the future?
ESG basics
ESG is a framework the global business community uses to determine whether an enterprise is operating sustainably and ethically. It does this by assessing a business’ impact across three key areas; the environment, people and communities and its business and governance standards.
Global ESG policy is an area that is changing rapidly, led and influenced by wealthy nations. Because Australia is largely an exporting nation, Australian farmers are highly vulnerable to shifts in policies. One of the biggest risks for farmers is that investor pressure will impact ease of access to finance, insurance products and commodity markets.
So why should I be thinking about this now?
Australian farmers are known for their efficient farm production practices, however global policy shifts may significantly impact farm businesses over the next five years. For this reason, it’s crucial farmers are aware of shifts in post farm gate demands to ensure they meet market access requirements in the future. This will also ensure farmers can maintain access to financial products, even as Australian banks respond to shareholder ESG demands.
ESG requirements aim to enhance sustainability, business prosperity and community over the long term. However, its implementation has the potential to create short-term challenges for farmers as consumer and shareholder pressure leads to policy, market and legislative changes. For example, ESG market requirements and non-tariff trade barriers may require farmers to fundamentally change their farming practices, such as how they use chemicals, or adopt new farming practices.
Large companies are currently investing heavily in ESG programs. As a result, farmers will be increasingly required to provide data to prove the product they are producing, whether it be grain, meat or fibre, meets consumer expectations.
Regulators and policy makers globally will continue developing ESG and sustainability frameworks and this may fundamentally change how we use some farming practices. For this reason, it’s important that farmers and advisors can manage the risk by forecasting market demands and understand how this might influence market access.
Understanding what’s coming in terms of future ESG requirements enables farmers to make informed decisions about whether to transition over time to different farming practices, or whether to proactively seek out other markets and business options.
How can I prove that I’m farming sustainably?
The good news is that many Australian farmers are already familiar with sustainability and best management practices across the three key ESG areas. This is largely thanks to our laws which aim to protect the environment, protect the labour force and enforce legal business structures and operating requirements.
Australian farmers are much better placed compared to other countries where corruption, human rights abuses and wide-scale environmental damage regularly occur, but at a relative disadvantage compared to EU countries where there is a greater existing focus on environmental issues.
In Australia, we have long had to declare information around our production systems. Livestock vendor declarations, ICSS-EU canola sustainability declarations, my BMP cotton certification, commodity stewardship programs and niche programs are all examples of how we are already incorporating declarations and certifications about sustainability into our farming businesses. Companies such as Woolworths, Coles, Nestle, McDonalds and others also already have supplier programs which incorporate ESG-type declarations.
In many cases, meeting ESG requirements will often be as simple as being able to collect data on your farm business. While there is still a lack of clarity around exactly what sort of data will be required, it is likely that inputs such as fuel, chemical and fertiliser, would be used to calculate greenhouse gas emissions, while stubble retention and soil sampling could help farmers demonstrate carbon storage in soils.
Further effort is required to enhance on farm data capture methods and to determine the roles of public, industry and private enterprise in facilitating these transitions.
Where to get more information
Understanding the rate and scale of ESG change globally is vital for farm-based decision making. It’s also paramount we know what is happening globally to ensure Australian farmers make informed decisions about what is right for their land, businesses and families.
We will be exploring this topic in more depth at the 2023 Riverine Plains Innovation Expo Putting farmers first – driving decisions using data, from Thursday 24 – Friday 25 August 2023.
The Expo will focus on helping farmers future-proof and proactively manage their businesses in a rapidly changing global market. Expert speakers, panel sessions and a farm tour will help the sharing of experiences in collating and using data to make better farming decisions.
The Expo also includes the Riverine Plains New Edge Microbials Gala Fundraising Dinner and the Riverine Plains Alvan Blanch Australia Farm Tour. For more details, head to our Innovation Expo page.
Leave us a comment if you'd like to know more about this topic.
Further reading
Australian Government Climate Change commitments, policies and programs
