ESG: These three letters will become more important in the agriculture industry as we move toward 2030. Environmental, social, and governance (ESG) principles are strategic talking points in boardrooms and during management planning sessions in the food, fiber, and energy industries. According to the Financial Times, ESG is a general term used by the capital markets and investors to evaluate corporate behavior and identify non-financial risks and growth opportunities.
ESG is another metric of success for corporations, nonprofits, and, more broadly, for individual countries. Globally, trillions of dollars are being funneled into this area to ensure continuation of ESG principles. To prosper and be sustainable over time, every company must demonstrate both financial performance and positive contributions to society.
These broad ESG components will influence decision making at all levels of the agriculture industry from the corporate level to the individual producer. More activist investors have successfully campaigned and won board seats at companies such as Exxon. Consumers are also holding companies accountable for transparent production and distribution throughout the whole system. For example, food companies want transparency in how food is produced, processed, and delivered to the store and the consumer. This movement will only accelerate as the information age, big data, and artificial intelligence rapidly move to another level in the next five years.
Both a challenge and opportunity
While all of this may sound slightly radical, some producers are creating opportunities by aligning with ESG principles. Extreme weather, such as flash floods and extended droughts, are being observed throughout the globe. Improved soil and water health are key components of the environmental and social aspects of ESG that can help to mitigate some weather risks.
Recently, a young farmer and rancher and his family transformed their production techniques over a five-year period. Instead of harvesting 10,000 bales of hay and corn silage to feed their herd, they now use the livestock to harvest the feed most of the time. The benefits of grazing are less overhead and equipment, simplification of the business model, and more production per cow unit. Their new business model has improved soil health, resulting in more drought tolerance.
The beef herd has also been better able to handle major blizzards due to improved pasture conditions. From a social and consumer standpoint, they are marketing their beef through stores with a strong focus on a reduced carbon footprint to align with their consumers’ preferences. For this operation, a focus on ESG principles has produced very desirable outcomes.
Dig deeper into the ESG story this fall and winter. After working with the Swedish dairy industry, I have discovered that U.S. agriculture is nearly a decade behind in this component.
Source: Dr. David Kohl, which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.