The challenges faced by the Agriculture and Food industry are already exacerbated by climate change. Climate-related risks need to be integrated in the development of strategic responses by companies in the industry today to ensure short- and long-term resilience.
Food and Agriculture in the face of climate change: a complex balancing act
The Food and Agriculture industry is confronted by a dual challenge in the face of climate change:
- It needs to build its resilience to a changing climate. As an industry that is so dependent on the natural environment, it is highly exposed to the physical impacts of climate change, putting already fragile global food systems at risk of shocks with potentially devastating implications.
- It holds responsibility for exacerbating climate change. The global food system accounts for 21-37 percent of the world’s greenhouse gas (GHG) emissions (IPCC 2019), more than road transport, aviation and shipping combined.
Despite this, no direct reference was made to the Food and Agriculture industry in the COP26 final communiqué, highlighting the missed opportunity to bolster multilateral action on climate change in such a critical sector. The lack of action was criticised by the panellists of WEF’s Opening Plenary for the ‘Bold Actions for Food’ event held on March 15th 2022.
How was the Food & Agriculture sector addressed at COP26?
The Koronivia Joint Work on Agriculture (KJWA) was a decision made at COP23 in 2017 on the role of agriculture in tackling climate change. It addresses six topics including the food security, adaptation and soils. No final decision on the KJWA was adopted at COP26. There were disagreements on the inclusion of “agroecology” and mitigation in the text.
As detailed in the IPCC’s Sixth Assessment Report, climate change has raised temperatures globally, shifted rainfall patterns and increased the frequency and intensity of extreme weather events. Subsequently, climate change is already reducing food security for millions of people in Africa, Asia, Central and South America, Small Islands and the Arctic. The worsening acute and chronic physical impacts of climate change will increasingly put pressure on food production and access, further undermining food security and nutrition.
The war in Ukraine has highlighted the interdependencies of the global food system. Disruptions to food access and agricultural production in one region can cause a rise in global food prices and have devastating implications on food security in other countries that are highly dependent on food imports. In view of this, substantive action to mitigate and adapt to climate change needs to be taken now. Short-term efforts to scale up resilience and sustainability across Food and Agriculture system value chains will bring about far greater long-term benefits by minimising losses due to climate-induced shocks and stresses.
As alluded to above, climate change cuts across a wide range of areas related to food systems, such as nutrition, biodiversity, food security, food waste and food loss. Therefore, issues facing the Food and Agriculture industry should not be addressed in isolation.
For example, approximately 121 kilograms of consumer level food is wasted each year on a global per capita level while up to 811 million people around the world face hunger (UNEP 2021). Measures that address food waste can also help to address environmental sustainability and food security issues. Reducing food waste across food system value chains helps to minimise the needless use of land, water, fertiliser and fossil fuels as well as the accumulation of food waste in landfill sites which contribute to environmental degradation and/ or GHG emissions.
To facilitate the transition of Food and Agriculture systems effectively and sustainably to a net zero, nature-positive state, it is crucial that companies in the sector tackle these highly inter-connected issues – including climate change, food security, food waste, and nutrition – by implementing policies and initiatives that address them holistically.
Climate-related risk considerations for companies in the Food and Agriculture sector
Assessing climate-related risks and opportunities is crucial for companies in the Food and Agriculture sector not only to inform the development of a climate resilient strategy but also to comply with rapidly evolving regulatory requirements. For example, by 2025, all UK companies will be required to report against the Taskforce on Climate-Related Financial Disclosures’ (TCFD) recommendations.
Broadly speaking, the climate-related risks for companies in the Agriculture and Food sector largely relate to the physical impacts of climate change as well as GHG emissions, water and waste. Focusing on GHG emissions in the food system, these risks arise due to agriculture and land use, storage, transport, packaging, processing, retail, and consumption.
For food processors, the reduction of Scope 1 and 2 GHG emissions is a relatively easy task; the challenge lies in reducing Scope 3 emissions and achieving net zero across their value chain, including indirect GHG emissions from upstream food producers. These generate significant non-point GHG emissions through land-use practices and land-use changes (e.g., deforestation, grazing, tillage).
What can companies do to address the climate challenge? Five value-adding opportunities for companies in the Food and Agriculture sector
- Promoting the adoption of regenerative supply side practices, for example, biological sequestration by use of no-till farming practises or enhanced crop rotations.
- Recycling and creating new uses for residual waste including animal by-products.
- Ensuring diversity in sourcing, suppliers and logistics to ensure backups are available in the eventuality of a climate shock.
- Developing products with lower GHG emissions, water and/ or waste intensity.
- Collaboration across food system supply chains for increased transparency across supply chains to facilitate, for example, product carbon footprinting and the assessment of potential physical climate change impacts on a company’s own business operations.
How we can help?
To mitigate their climate-related risks and leverage opportunities, KPMG’s Climate Risk and Strategy (CR&S) team have supported companies, including from the Food and Agriculture sector, by offering three main workstreams:
- Climate scenario analysis. CR&S has used KPMG’s proprietary scenario analysis tool, Climate IQ, to quantify the potential impacts of climate-related risks under different warming pathways and inform strategic decision-making of companies.
- Climate transition plans. KPMG CR&S has helped companies to develop or refine their climate transition plans by identifying transition levers and developing an implementation roadmap. Where possible, this was built upon gap analyses of companies’ climate transition plans and benchmarking against those of peers.
- TCFD support. KPMG has made strategic recommendations on the approach of companies to climate change by evaluating the status of companies against the four core pillars of the TCFD (governance, strategy, risk management, and metrics and targets).