As of 1 January this year, more and more food manufacturers are being confronted with it: the Corporate Sustainability Reporting Directive (CSRD). This European sustainability law requires food companies to be more transparent about their sustainability efforts and their impact. But what exactly does this mean for the food industry, and how can manufacturers prepare for it? In this newsletter, you will read about the opportunities and challenges the CSRD brings, and how it will affect the way we innovate within our industry.
What is CSRD?
The CSRD is a European law requiring companies to report more comprehensively and in more detail on their sustainability efforts and the impact of their operations on people, the environment and society. A follow-up to the earlier Non-Financial Reporting Directive (NFRD), the CSRD significantly expands sustainability reporting requirements. It requires manufacturers to report not only on their direct environmental impact, but also on their indirect impact throughout the value chain. The aim of the CSRD is to improve the quality and comparability of sustainability reporting, making the sustainability performance of European companies more transparent and comparable. All this with the ultimate goal of making Europe a lot more sustainable.
Challenges for food manufacturers
Let's start with the challenges the CSRD causes for manufacturers. As you could read above, thanks to the CSRD, companies are no longer solely responsible for their own impact. Besides measuring and reporting their own footprint, they must also do so for all links in their value chain. Specifically, this means that they have to report not only the emissions from their own factories (scope 1) or energy consumption from their own operations (scope 2), but also, for example, the emissions of all suppliers (scope 3). Especially the reporting of indirect emissions across the value chain - also known as scope 3 emissions - is causing a stir in the food sector. Whereas measuring emissions from own operations is often still doable, it becomes very difficult when you have to do the same for, say, a cocoa farmer from the Ivory Coast. If food manufacturers fail to track and report scope 3 emissions, this can lead to fines and other penalties. And because retailers also have to deal with CSRD guidelines, they may prefer not to do business with suppliers who do not have their CSRD issues in order. But perhaps the biggest challenge is that all these sustainability obligations could lead to loads of extra paperwork. Laurens Sloot, founder of EFMI Business School, says that this may force manufacturers to raise the prices of their products by as much as 10-25%. How this will affect manufacturers is not yet known, but it is clear that this is not a desirable scenario for the food sector or for consumers.
An overview of all the different emissions to be reported according to CSRD guidelines.
The opportunities for food manufacturers
Fortunately, the new CSRD guidelines do not only create challenges. In fact, those who look closely can see opportunities in this dense jungle of sustainability obligations. For instance, the new legislation will affect retailers' supplier choices. While price and quality will still remain the most important criteria, sustainability will become increasingly important as retailers also face the same CSRD obligations. Manufacturers that have their sustainability reports in good order are therefore more likely to be seen as attractive supply chain partners for retailers, potentially resulting in higher volumes and a growing market share. Another potential opportunity of the CSRD legislation can be found in the labour market. This is because more and more (young) professionals are increasingly choosing companies with a green focus. The CSRD allows them to better compare potential employers on the impact they have on sustainability. Companies that can demonstrably show that they are good for people, the environment and society may have an edge among job-seeking talents. You can also say the same for consumers and the choices they make for their groceries. However, I expect that aspects such as price and taste will continue to dominate consumers' buying behaviour.
What does this mean for the innovations within the food sector?
The requirements of the CSRD also affect the way food manufacturers innovate. Manufacturers must increasingly consider the environmental footprint of all their products and packaging. With manufacturers having to reduce their emissions, they are increasingly turning to more sustainable innovations. The CSRD is proving to be a stimulator for the plant-based protein transition in particular. Animal proteins generally have a higher ecological footprint than plant-based protein products, and this is beneficial for achieving sustainability goals. It is therefore expected that more plant-based products will fill the shelves in the coming years due to the CSRD guidelines. But not only does the CSRD affect the introduction of new products, this sustainability law also affects how manufacturers look at their existing product portfolios. At Bamboo Brands, we are getting more and more requests for so-called ‘sustainable packaging projects’. For example, we recently received a request from an international candy manufacturer who wanted to replace the plastic packaging of one of their biggest brands with paper packaging. But these kinds of packaging renovations are not without risk. It often happens that consumers do not react positively to packaging changes, resulting in a significant drop in sales. This is very painful while also being unsustainable. The lesson is clear: just because packaging is good for the planet does not automatically mean it is also good for the bottomline of your business.
The new recyclable paper packaging of Pringles is a typical example of a 'sustainable packaging project'.
Webinar: Launching a sustainable packaging? This is how you avoid a decline in sales
Are you considering switching to sustainable packaging for your brand, but not sure yet whether this will have an impact on sales? On Thursday 21 November, we will host an online webinar where you will learn all about launching sustainable packaging in retail. Completely for free and specifically for food & FMCG professionals. Curious? Then click here for more information!
