Category: Insights

Insights

Is the COO the unsung sustainability superhero?

Chief Operating Officers have both an incredible responsibility and influence on the way companies are run. Operationalizing sustainability is their next mission.

Insights

Scope 3 reductions: The role of brands in decarbonizing the value chai...

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

Insights

Clearing the air on methane

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

Scope 3 reductions: The role of brands in decarbonizing the value chain

Posted on August 8, 2024 by Hayden Jones - Insights

Thick smoke from plant chimney polluting the air

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

In brief:

In a context where value chain decarbonization initiatives are still emerging, businesses may find themselves in a situation where the demand for sustainable products is higher than the offer, making it impossible to meet their scope 3 abatement targets. Those who delay engaging with their suppliers risk falling short of their targets and lagging behind their competitors.
Strategic co-development and co-investment opportunities between brands and suppliers can generate significant value and reduce negative impacts, thus creating mutual benefits while promoting value chain decarbonization.
The use of traceability systems, allowing businesses and their suppliers to quantify, track and create mutual benefit, is essential for successful implementation. Activating these concepts will facilitate accurate reporting and transparency of scope 3 emissions while also supporting scalability and efficiency in decarbonization efforts.
The focus should be on establishing long-term partnerships that include aligned KPIs and working together toward shared sustainability goals.

Businesses are well aware of the importance of reducing their carbon footprint. Typically, a significant portion of the problem comes indirectly through suppliers’ footprints. These indirect emissions, known as scope 3 emissions or supply chain emissions, make achieving sustainability goals and requirements far more complicated, as they lie outside of businesses’ direct control.

To address this, brands need to proactively engage their suppliers to develop an action plan for effective scope 3 reductions in a way that incentivizes both parties. Co-developing sustainable practices and investing in innovative solutions with suppliers can yield mutual benefits and create significant and lasting value.

Fortunately, despite the common misconception that suppliers lag behind, many are actually quite advanced in their sustainability practices. They know change is coming, and some are already making active efforts towards emissions reductions. However, the level of maturity in these practices can vary significantly, depending on the industry and region.

Through co-development or co-investment strategies, companies can establish robust frameworks for collaboration, ensuring accurate and transparent reporting of scope 3 emissions that serve both parties.

What are scope 3 emissions, and why do they matter?

Simply put, the greenhouse gas emissions (GHG) generated through a business’s operations fall into three categories:

Scope 1 emissions, also known as direct emissions, are generated by assets that are either owned or directly operated by a company.
Scope 2 emissions are indirect GHG emissions generated through the purchase of electricity and energy sources that are produced off-site.
Scope 3 emissions, also called supply or value chain emissions, are indirect emissions that arise from all other supply chain activities, up to and including consumer purchases.

Since scope 3 emissions are almost entirely out of the direct control of the company, ensuring compliance can be incredibly challenging.

Yet doing so is critical—especially since emissions produced through the supply chain are, on average, 26 times higher than operational emissions.

Without sufficient scope 3 reduction efforts in the supply chain, companies may find themselves in a situation where the demand for sustainable products is higher than their suppliers can provide, making it impossible to meet their reduction targets.

Suppliers may also find themselves in financial peril. According to the 2020 Carbon Disclosure Project (CDP), the monetary impact of environmental risks on suppliers is projected to reach $1.26 trillion over the next five years. Not surprisingly, many of these risks will result in cost increases. If passed along, corporate buyers could face spikes of up to $120 billion.

With thousands of goods, services and raw materials to manage the transformation of, it can be difficult to track scope 3 emissions, which is why supplier collaboration is so pivotal. By identifying joint development opportunities and aligning relationships toward shared sustainability goals, brands and suppliers can realize mutual benefits within the concept of value chain decarbonization.

The 3 pillars of supplier sustainability engagement

QUANTIFY: Drive and measure impact reduction at scope 3 supplier level

The first step in developing an integrated value chain decarbonization strategy involves ensuring strategic alignment and piloting innovative solutions to help future-proof sustainability efforts.

Companies and their suppliers should come together to decide on a methodology that’s as robust as possible and aligned with industry standards. Standards such as the GHG protocol and the Science Based Targets initiative (SBTi) are regularly updated to incorporate the latest science and input from various sectors.

In the context of scope 3 emissions, future-proofing requires aligning sustainability efforts with these evolving industry standards, which helps maintain credibility and prevent noncompliance.

However, quantifying value chain abatement – GHG emissions reduction and/ or an increase in carbon sequestration – can add another layer of complexity. As such, companies should hone in on robust tools, such as GHG emissions calculators and carbon sequestration models, as well as industry best practices for Monitoring, Reporting and Verification (MRV) protocols. Quantis’ Tracking Progress in the Supply Chain report can serve as a guide for companies on when and where adjustments are necessary.

TRACK: Transfer impact generated at supplier level throughout the value chain

To maintain transparency and build stakeholder trust, companies need credible and verifiable methodologies for reporting scope 3 emissions across the value chain.

At the end of the day, it’s not just about helping suppliers do a better job. Businesses must also connect the dots between what they are buying and where they are buying from. Thus, it’s important to have a system in place to document and track attributes, as they’re not physically attached to the product.

Chain of custody systems are effective at connecting these virtual attributes to the physical flow of products across the entire value chain. These systems track and document the passage of goods and their associated attributes from one party to another at each step of the supply chain.

There are two models of chain of custody that can ensure physical traceability: segregated and mass balance.

Segregated chain of custody requires physical segregation, which can be expensive. The mass balance chain of custody offers increased flexibility by allowing different flows to be mixed while maintaining segregated bookkeeping of the specified attributes.

It’s important to note that there’s been some confusion around the term mass balance. Companies frequently use this term to describe any scope 3 reporting system where volumes of inputs and outputs are balanced. However, a mass balance chain of custody specifically refers to systems aligned with ISEAL or ISO standards, which include precise reconciliation mechanisms at all stages in the value chain.

Interestingly, the integration of mass balance chain of custody models with the sourcing region approach, as introduced by the draft Greenhouse Gas Protocol Land Sector and Removals Guidance (GHGP LSRG), offers significant potential. This method allows for traceability and the measurement of climate performance at a regional level, rather than focusing solely on individual suppliers. By pooling resources and data from a defined region, this approach enhances the efficiency and scalability of a company’s scope 3 decarbonization strategy. The concept is relatively new, and guidance is forthcoming, but some forward-thinking businesses are already anticipating and implementing it.

In any case, businesses should be cautious about which method they choose to ensure that what they’re doing is traceable and will contribute to Scope 3 emission reductions. Failing to do so could lead to inaccurate reporting, reputational damage and potential legal and financial risks.

TRADE: Accelerate decarbonization efforts through adequate compensation and incentive mechanisms

To encourage suppliers to actively participate in scope 3 decarbonization, companies should consider providing financial and non-financial incentives to help mitigate any downside risks on the supply side.

These incentives must create long-term value to be most effective. A one-time subsidy or temporary sustainability project won’t bring about the kind of change necessary to reach global targets. Long-term purchase agreements and ongoing support for suppliers creates a solid foundation for constructive discussions and opens the door for future opportunities.

To establish and nurture longstanding initiatives, companies may need to start with more carrot-based incentives, then navigate towards outcome-based incentives as suppliers mature. For instance, supplier sustainability engagement might begin with practice-based incentives for trying new technologies or approaches and then evolve into more results-based “pay for performance” incentives for delivering on expected results.

Creating a Win-Win Model

Both buyers and suppliers stand to gain significantly from shared decarbonization efforts. By collaborating on reducing the emissions profile of products, both parties can enhance their sustainability reputations and appeal to environmentally conscious consumers. Joint development opportunities and shared sustainability investments can lead to innovative solutions, cost savings and improved operational efficiency. These shared successes foster trust, loyalty and a long-term commitment to the partnership.

When suppliers understand the direct link between their data contribution and the overall success of the decarbonization initiative, they’re more likely to prioritize data sharing and accuracy. This transparency benefits both parties by strengthening the supply chain, mitigating risks and building a foundation for future collaboration.

Transparency and trustworthiness are key

Transparency is fundamental to bringing about any type of change, whether it’s related to climate, soil resilience, biodiversity, water management or other nature-related risks. Organizations need to address the status of internal sustainability efforts and track trustworthiness to bring about meaningful change.

Specifically, transparency in reporting builds trust with stakeholders, driven by pressure from consumers and civil society. There’s growing awareness around climate change and environmental issues, leading to a push for transparency in the supply chain. This is particularly important for addressing climate impact, as its effects are felt globally. Companies who prioritize transparency can maintain credibility and avoid repeating past mistakes.

With greater attention to transparency and accountability, companies need a robust foundation for effectively decarbonizing their value chains, rather than relying on short-term solutions – such as offsetting and compensation mechanisms.

To foster transparency in the supplier-client relationship, consider these concrete steps:

Shared data access: Granting suppliers access to relevant company data can facilitate joint problem-solving and trust-building.

Joint goal setting: Collaboratively define clear sustainability targets and metrics to track progress transparently.

Regular performance evaluations: Establish a system for assessing supplier performance against sustainability goals and sharing findings openly.

Third-party audits: Consider involving independent auditors to verify sustainability claims and build credibility.

Open communication channels: Maintain regular and transparent communication with suppliers about sustainability expectations and progress.

Long-term partnerships and consistency provide a practical pathway for companies to enhance transparency and accountability. While spot buying remains a common (and sometimes necessary) practice for many businesses, moving towards stable relationships with specific source locations can build greater trust. By fostering these longer-term partnerships, businesses and their suppliers can better collaborate on reducing scope 3 carbon emissions and progressing shared sustainability goals.

Starting the conversation

Communication between businesses and their suppliers can be quite complex, especially when transitioning from discussions about purchasing to more sustainable topics like scope 3 reductions. Nevertheless, these conversations must be broached – and sooner rather than later.

To start, internal teams should have the right education on how to start a dialogue with suppliers, considering and aligning KPIs, which are important for measuring performance at both company and individual levels. If there’s no compensation for added tasks, it may not be worth the effort for employees. This is true for both brands and their suppliers.

Crucially, sourcing teams need to upskill to effectively engage with suppliers. Often, sourcing teams find themselves negotiating with suppliers who possess a deeper understanding of supply chain decarbonization. By enhancing their knowledge in this area, sourcing teams can become more strategic partners and drive meaningful change.

Building a better future, together

Businesses aiming to achieve their sustainability goals need to address their scope 3 emissions. Mutual decarbonization efforts, including investments in innovative practices, can offer substantial returns by future-proofing operations, enhancing corporate reputation and meeting growing stakeholder demands for environmental responsibility.

By proactively engaging suppliers in joint development opportunities and shared sustainability investments, businesses can facilitate effective strategies for scope 3 reduction. Through consistent effort and collaboration, brands and their suppliers can achieve significant progress toward their shared sustainability targets, driving mutual business benefits of cost savings, risk mitigation, and competitive advantage.

Author(s)

Jean-Andre Bonnardel Global Supply Chain Lead

Marcial Vargas Global Science + Innovation Lead

Latest resources

Insights

Is the COO the unsung sustainability superhero?

Chief Operating Officers have both an incredible responsibility and influence on the way companies are run. Operationalizing sustainability is their next mission.

Insights

Scope 3 reductions: The role of brands in decarbonizing the value chai...

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

Insights

Clearing the air on methane

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

Clearing the air on methane

Posted on August 6, 2024 by Alice Geronzi - Insights

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

In brief:

Methane is a substantial contributor to global temperature rise and originates from a variety of sources, ranging from natural gas to rice paddies.

Since greenhouse gas (GHG) emissions are often reported as carbon dioxide equivalent, the magnitude of methane’s impact has been largely overlooked.

Methane is a potent, but short-lived greenhouse gas; addressing methane emissions now can help turn the tide on global temperature rise to reach Paris Agreement goals.

With 60% of methane coming from human activities such as agriculture and energy leaks, there are proven solutions available to mitigate emissions.

While carbon dioxide (CO₂) dominates headlines about the climate emergency, another even more pernicious gas, methane (CH₄), shares the blame for pushing our planet towards a tipping point.

In terms of Global Warming Potential (GWP) methane packs a huge punch. And the worrying thing is, we’re pumping out the gas at a faster rate than any time since the 1980s.

But there is a silver lining. As a short-lived climate pollutant, methane’s effects are realized over its 10-12 year lifespan in the atmosphere (compared to hundreds of years for carbon dioxide). Methane is constantly being destroyed through natural processes, such as chemical oxidation reactions, so by reducing human-generated methane now, the atmosphere would benefit relatively quickly. By tackling the sources of methane to bring down emissions companies can also drive reductions in carbon and in many cases, realizing better results in the near-term to help us stick to the 1.5C target enshrined in the Paris Agreement.

Seeing methane for what it is

Methane reduction tactics have been under-exploited, leaving untapped reduction potential. This is, in part, due to our global carbon fixation, which risks creating a methane blind spot, such that many business leaders may not fully grasp the threat posed by this potent greenhouse gas (GHG) to the degree they should.

All this is not to say that addressing our mounting methane problem isn’t getting at least some attention. It’s worth mentioning ongoing efforts such as the Global Methane Pledge, initiated by the United States and European Union in late 2021. There is a clear and growing focus on addressing CH₄ – but there’s much more to do and urgently.

GHGs are measured in terms of GWP with the GWP100 being the most commonly accepted method of calculation, which measures over a 100-year span. According to the US Environmental Protection Agency, methane is approximately 30 times more potent than CO₂ over a 100-year period. But using the 100-year timeframe to assess methane’s GWP doesn’t adequately reflect its short lifespan. Instead, when looked at over a 20-year period, it reveals a warming power 80 times greater than CO₂.

This oversight was partly due to early efforts to make global temperature rise and the role of GHGs more easily understood. But the science, and our collective understanding of the effects of different gases on the climate, has since evolved.

Is GWP* the solution to a more accurate methane measurement? Since the GWP100 methodology was formulated to calculate the emission and subsequent build-up of GHGs, it doesn’t take their removal into account. This poses challenges in the case of methane because it’s neither calculated on the timescale of the gas’s lifecycle nor does it consider the net effects of its breakdown and removal.

Author(s)

Ancelin Coulon Sustainability Consultant

Beatrix Scolari Senior Strategist

Hamed Majidzadeh Senior Sustainability Consultant

There’s a growing argument that biogenic methane emissions, those released by living organisms (the red balls), should be treated differently than CO₂ emissions from fossil fuels (the orange balls). GWP* is a GHG accounting method that takes into consideration methane’s short lifespan, an approach that is more advantageous to legacy methane emitters such as long-time cattle ranching operations.

In effect, unlike CO₂, if methane emissions remain constant, there is no additional warming potential from the perspective of the GWP*. Nonetheless, “no additional warming” should not be confused with “no warming.”

This nuance is a sticking point. There’s mounting concerns that GWP* could enable polluting industries to claim they’re climate neutral without significantly cutting emissions.

Some critics, such as Greenpeace, have flagged potential ‘unethical consequences’ of GWP*. They argue it could be used to justify maintaining atmospheric methane levels, rather than trying to reduce them, while punishing new sources of methane in the Global South over existing emitters in the West, such as the American meat industry.

Understanding the Complexity of Methane Emissions: A Toy Store Analogy

Imagine you own a toy store with a bin full of balls whose shipments come at regular intervals. If you had to calculate how many balls it would take to fill the bin to the point that it’s overflowing (and when) in order to adjust inventory, it would be simple math. But what if the variables are more complex?

Now imagine the toy balls come in two shipments, as well as two sizes and colors: a larger red ball, and a smaller orange ball. The red balls sell at a consistent rate and the smaller balls don’t sell at all. In this case, the answer to “how many” and “when” would depend on several factors, such as the relative size of the balls, the number and frequency of the deliveries of each, as well as the frequency and volume of the sales.

Though in the big picture you know that if the deliveries keep coming, the bin will overflow, if you need to determine how many and when to direct the suppliers accordingly, it’s not so straightforward.

Stemming the flow of methane at the source

Around 40% of the world’s methane is produced naturally, whether by wetlands, wild animals or events such as wildfires. Global warming is likely to exacerbate this too, with more methane released into the atmosphere as polar ice caps and Arctic permafrost melt.

The remaining 60% is the result of human activities, including livestock farming, rice paddy production, landfills, and leaks from oil and gas infrastructure.

We need to become more methane-aware, and drive methane reductions across the value chain. And for companies, a good first step is to differentiate the gases within their footprint to identify their methane hotspots. This data is usually embedded in traditional GHG accounting that converts all emissions to carbon dioxide equivalent.

Tracking methane emissions separately will enable companies to develop reduction strategies tailored to their own operations and supply chain.

First, stop the leakage

Within oil and gas production, the amount of methane lost through leaking is staggering. Dubbed “fugitive” emissions, gas leaks from wells and pipelines are widespread and pervasive, with data from the monitoring company Kayrros showing that one leak from an oil and gas facility in Turkmenistan peaked at 333 tonnes per hour last August.

The International Energy Agency has estimated the industry could achieve a 75% cut in the (fugitive?) methane it produces simply by using existing technologies, and at little extra cost.

The Agency is also encouraging the sector to capture the gas and sell it as an energy source. In many industrial sectors, methane is seen as a by-product. In mining, for instance, it is vented to avoid potentially explosive build ups, while more controversially, within the oil industry, the gas is simply burnt or flared.

There is support for change. Over 150 countries have now signed the Global Methane Pledge, which commits them to reduce emissions by 30% by 2030, while the US is bringing in new rules requiring fossil fuel companies to monitor and fix leaks. And while several big names are missing from the new Global Flaring and Methane Reduction Partnership, an initial $225m has been pledged to help developing countries plug their methane leaks.

Reducing agriculture’s methane output

Animal agriculture is the top source of anthropogenic methane emissions, due to the large amount of methane produced by ruminant animals such as cows and sheep. Ruminants produce methane through their digestive process, called “enteric fermentation,” and their manure. This puts companies that source dairy and beef in a unique position to make a profound impact on global emissions by addressing methane in their supply chains.

At COP28 last December, six of the world’s largest dairy companies came together to form the Dairy Methane Action Alliance, committing to report their methane emissions and develop mitigation plans. The Alliance provides member companies with technical support for accounting and disclosure, and access to research and emerging solutions.

Fortunately, solutions to livestock methane exist. There are a variety of proven manure management practices that reduce methane, and many countries have government subsidies available to support implementation. There’s also rapid innovation in the market for livestock feed additives that promise to mitigate enteric methane and medications that control methane-producing microorganisms in the cow’s digestive system.

Rice production is another substantial methane emitter, and according to the IPCC is responsible for around 10% of all anthropocentric emissions. But there are alternatives to traditional paddy farming which can reduce these by up to 70%.

Rather than continuous flooding, which produces methane-emitting bacteria, (leading to emissions from the anaerobic breakdown of organic matter), the System of Rice Intensification (SRI) involves alternative periods of wetting and drying, with the paddies drained two or three times during the growing season. The system also uses less water and has been shown to produce higher yields. Dryland ways of rice cultivation go a step further, with crops relying on rainfall with no artificial irrigation, again leading to huge methane reductions.

Companies can support their supplier partners on this journey by providing resources and education to promote the adoption of methane-mitigating practices. By connecting methane hotspots to practical solutions, food sector companies can help mainstream more sustainable ways of farming.

No more methane waste

Waste management systems also release a substantial amount of methane through the decomposition of organic matter in poorly managed settings. Last April, the methane released by one landfill in Bangladesh topped 822 tonnes an hour.

With the world on track to generate 3.40 tonnes of waste a year by 2050 (WorldBank) —roughly 1.7x today’s rate — methane emissions from waste management should be a considerable cause for concern.

Food waste is a tangible area where all companies can make a difference by diverting organic waste from landfill. By upcycling or composting food waste, we can prevent organic waste being sent to landfill where it decomposes and produces methane. Private and public sector collaboration is needed to implement food waste collection and composting at the scale needed to eliminate methane emissions from waste.

Methane as a biofuel

One way to mitigate methane emissions is to harness the gas as a biofuel. Methane capture technologies have been developed for many industries and applications.

As an example, many dairy companies are implementing anaerobic digesters as an effective methane mitigation technology for dairy farms. Digestors capture the methane from dairy manure lagoons and use it to generate electricity or renewable natural gas. These systems not only reduce the climate impact of dairies, but also create a new revenue stream for farmers.

Biofuels derived from anaerobic digestion still produce some emissions, but significantly less than a farm using electricity generated from coal or diesel generators. In the absence of a panacea, it’s important not to be too dogmatic: methane capture can be part of an effective decarbonization strategy as long as it’s not deployed to perpetuate fossil fuel infrastructure or used at the expense of renewables.

Our actions on methane between now and 2030 could be the most important contribution we make to turn the tide on global warming for the short-term. Cutting methane emissions is the best way in which we can have an immediate impact of the rate of global warming.

According to the UN, human-caused methane could be reduced by as much as 45% over the next decade, which could avert nearly 0.3°C of global warming by 2045.

As the chances for remaining within the 1.5°C limit grow increasingly slim, reducing methane in the near term might be our best shot to avert a climate tipping point.

Latest resources

Insights

Is the COO the unsung sustainability superhero?

Chief Operating Officers have both an incredible responsibility and influence on the way companies are run. Operationalizing sustainability is their next mission.

Insights

Scope 3 reductions: The role of brands in decarbonizing the value chai...

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

Insights

Clearing the air on methane

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

Sustainable raw materials will drive profitability for fashion and apparel brands

Posted on July 17, 2024 by Thibault Compagnon - Insights, Videos

What are the opportunities and challenges of materials' innovation in Fashion?

How can we define a sustainable raw material? How are preferred materials key to both sustainability and future profitability? What can businesses do to prepare for Materials transformation? In this video, Philipp Meister, Quantis’ Global Lead for Fashion & Sporting Goods and Jocelyn Wilkinson, BCG’s Partner and Associate Director answer these key questions from the fashion & sporting goods industry.

To get the full insights, access the “Sustainable Raw Materials Will Drive Profitability for Fashion and Apparel Brands” report. This report provides a valuable resource for fashion and apparel brands seeking to establish robust strategies in relation to sustainable raw materials in a fast-evolving context.

Download the report

Latest resources

Insights

Is the COO the unsung sustainability superhero?

Chief Operating Officers have both an incredible responsibility and influence on the way companies are run. Operationalizing sustainability is their next mission.

Insights

Scope 3 reductions: The role of brands in decarbonizing the value chai...

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

Insights

Clearing the air on methane

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

Climate progress is stalling in the food and beverage industry. Could nature be the solution?

Posted on July 17, 2024 by Alice Geronzi - Insights

Integrating nature into sustainability strategies enables food and beverage companies to enhance resilience, advance climate goals and streamline efforts through mutually beneficial actions.

In brief:

Food and beverage companies can build resilience and make progress on their climate goals by integrating nature into their sustainability strategies.

Nature and climate action can bring mutually beneficial outcomes. By prioritizing nature, companies can foster synergies that enhance climate efforts, such as adopting regenerative agriculture practices to improve soil health, reduce emissions and stabilize (or even increase) land productivity.

Integrating nature and climate strategies provides a unified, comprehensive sustainability framework that streamlines efforts, offers tangible KPIs and aligns diverse actions toward common environmental and business goals.

If you’ve been in corporate sustainability awhile, you’ve probably noticed a recent addition to the lexicon. From the conference circuit to annual reports, everyone’s talking about “nature”. This reflects a push to expand sustainability strategies, traditionally focused solely on climate, to incorporate the critical role of nature preservation and regeneration. The pursuit of a “nature-positive” economy is gaining momentum as recognition of the interconnectedness between planetary health and business resilience grows. Yet in the food and beverage industry, awareness hasn’t yet translated into sufficient action.

For food and beverage companies, adopting a nature strategy can not only help build a more resilient business model, but also support the achievement of climate goals. The food and beverage industry contributes to nature degradation more than any other sector, while also relying significantly on the ecosystem services it provides and therefore suffering the most from the consequences. Thus the industry has a lot to lose, but even more to gain by halting and reversing nature loss.

Some companies may have already initiated this journey through taking nature-supportive actions as they work toward their climate goals. Yet a more intentional focus on nature will increase long-term resilience in the face of climate challenges and ecosystem collapse.

Investing in nature is a prerequisite for business preservation

Beyond a compliance exercise, food and beverage companies should view nature preservation as a strategic imperative to business survival. As spotlighted in Quantis’ 2024 “Recipe for Transformation” report, the industry could lose around $150 billion – or 7% of its value – by 2030 if companies fail to take action.

The degradation of ecosystem services – through actions such as land use change and the oversaturation of nitrogen and phosphorus in soils – has rendered the conventional ever-expanding, resource-depleting agricultural model unsustainable for both business and the planet. This model is also a large driver of nature loss, resulting in some of the first climate-driven extinctions in plants and animals.

Consequently, physical risks such as extreme weather events, soil degradation and water scarcity can severely disrupt supply chains and lead to significant financial losses. Nature degradation can result in stagnated or lower quality yields driven by water shortages, heat waves and the spreading of disease, with companies shortsightedly relying on an increase of land and water use to maintain productivity.

Transition risks, on the other hand, arise from the shift towards a nature-positive economy, including changes in regulations and market preferences. Ignoring these risks can result in increased operational costs, supply chain disruptions and loss of market share.

Despite the real threats awaiting those that move too slowly, many companies find the prospect of incorporating nature into their business strategy daunting. Integrating climate priorities has proven challenging for an industry heavily driven by scope 3 emissions, and nature represents yet another challenge on top of existing climate efforts. But adopting an ambitious nature strategy shouldn’t be seen as a separate path to climate action. Instead, climate should be integrated with nature rather than placed next to it. The recognition that investing in nature is an essential safeguard for the future of food production is long overdue.

Unveiling the synergy between nature, climate and business goals

One of the key challenges companies face is the perceived dichotomy between nature and climate goals. However, the reality is that these objectives aren’t mutually exclusive; they’re two sides of the same coin. In fact, the Kunming-Montreal Global Biodiversity Framework explicitly includes a focus on minimizing the impacts of biodiversity loss through climate action in its eighth target. The food and beverage industry often underestimates the inherent connection between their climate efforts and nature-supportive action.

Having a holistic nature strategy streamlines sustainability efforts, giving overwhelmed (and often under-resourced) teams a greater sense of focus through a single framework, aligning diverse actions toward a common goal.

The above graphic from IPBES shows synergies between climate and nature-supportive solutions associated with the food and beverage industry (with a few exceptions). By adopting an integrated sustainability strategy centered around nature, companies can uncover mutually beneficial activities that serve both nature and climate goals.

The adoption of regenerative agriculture practices is one example that has proven to be a win-win for both nature and climate objectives. Studies reveal that such practices contribute to healthy soils, concurrently cutting emissions and reducing the need for inputs (such as fertilizer). Investing in soil health also restores local water cycles and enhances the soil’s capacity to sequester carbon.

Integrating nature to streamline sustainability efforts and enhance KPIs

Fortunately, adopting a nature strategy doesn’t require starting from scratch, especially for companies that already have a robust climate strategy or practice regenerative agriculture. While measuring the nature impacts and dependencies of a company’s value chain may require additional metrics compared to climate, companies can typically leverage existing tactics to assess their nature impacts.

Nature-specific KPIs add value to the sustainability strategy as well. They typically utilize much of the same input information as climate metrics, yet nature-based KPIs offer a more granular view into specific impacts and dependencies, enabling companies to gain deeper insights into their environmental footprint and associated risks. This holistic approach allows companies to track tangible progress on critical topics such as land and water use, which are directly linked to nature preservation.

While climate progress often contributes to global trends, nature-supportive KPIs provide a more direct, localized understanding of a business’s environmental performance and can help avoid impact shifting. The synergies that are unlocked through integrating nature-based metrics allow companies to streamline sustainability efforts and strengthen resilience to environmental risks and uncertainties. And concrete examples of this are already beginning to emerge. Several food companies that adopted net–zero roadmaps a few years ago have now realized that without accelerating regenerative agriculture and nature strategies, they‘re unlikely to achieve their climate goals.

As companies realize that climate and nature are collaborators in the journey toward a more sustainable, resilient market, acting quickly to integrate them will pay off. Tangible progress can be made on diverse environmental topics such as land, water and biodiversity, while simultaneously advancing climate goals. Companies that embrace this synergy through innovation and industry collaboration can position themselves as competitive players and guarantee the resilience of their supply.

Author(s)

Charlotte Bande Global Lead of Food & Beverage, Quantis

CONTRIBUTOR(S)

+ Simon Gillet, Sustainability Expert
+ Alain Vidal, Senior Advisor
+ Adam Melki, Sustainability Strategist

Latest resources

Insights

Is the COO the unsung sustainability superhero?

Chief Operating Officers have both an incredible responsibility and influence on the way companies are run. Operationalizing sustainability is their next mission.

Insights

Scope 3 reductions: The role of brands in decarbonizing the value chai...

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

Insights

Clearing the air on methane

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

Don’t vote sustainability off the island! Outplan, outpace and outperform through strategic action and alliances

Posted on July 9, 2024 by Hayden Jones - Insights

Healthy Corals and Beautiful Islands in Wayag, Raja Ampat

Transformative sustainability requires embedding sustainable practices into every department, not just isolated initiatives.

In brief:

To achieve a sustainable transformation, companies need to embed sustainability into every department, moving beyond isolated initiatives to comprehensive, organization-wide action.
While data gathering and analysis are crucial, companies should prioritize implementing sustainability plans rather than just perpetually building business cases.
Businesses need to engage in scenario planning to anticipate future environmental and social pressures, allowing them to adapt and thrive in various potential futures.
Embedding sustainability into the wider corporate strategy involves not only having a seat at the table but also guiding the company’s overall goals toward sustainable outcomes.
Companies need to recognize the greater financial risks of inaction and understand that systemic, transformative changes are necessary to address current environmental challenges.

XYZ Food Corp: A (Fictional But Plausible) Case Study

XYZ Food Corp., the company behind blockbuster product, CandyCakes, was only seeing minimal progress on its sustainability efforts despite having amassed one of the largest, most expert sustainability teams in the industry. During a shareholder call last quarter, CEO Humphry Garland suggested that mandatory reporting highlighted issues in the company’s operations, blaming a lack of cooperation from suppliers. After backlash, COO Judy Gable retracted this statement in a press release. Clint Davis, the CMO, was understandably alarmed, as XYZ had faced criticism regarding its sustainability efforts in the past, and didn’t want a repeat performance of accusations that the company was not taking its consumers’ demands seriously. The C-suite recognized that both their brand and social license to operate were at stake. Yet, the lack of progress made further investment unlikely until some diagnostic activities could be conducted to answer one fundamental question: Why aren’t we transforming?

Let’s pause on XYZ Food Corp’s story and provide some context…

Despite growing awareness and investment in sustainability, many companies still find themselves unable to make the transformative leap necessary to address the global environmental crisis. As the world grapples with the tangible impacts of climate change and nature loss, companies face mounting pressure not just to commit to sustainability but to demonstrate real, measurable progress. The stakes have never been higher, and action needs to be taken now to avoid irreversible consequences.

The United Nations Framework Convention on Climate Change’s (UNFCCC) 2023 Synthesis Report of the First Global Stocktake, which assesses where the world stands on climate change, painted a picture of our stark reality. It showed that global greenhouse gas emissions aren’t in line with modeled mitigation pathways to the 1.5°C goal and assigned businesses and financial institutions with accelerating systems transformation to align with the Paris Agreement.

Most CEOs wouldn’t be surprised by this assessment; they’ve heard it before. The past decade has seen corporate investment and C-suite interest in sustainability increase substantially. And while the recognition of the need for progress is progress, it’s not enough to move the needle. In the meantime, the steady stream of bad news surrounding the state of our planet continues to escalate into a deluge.

While the 1.5°C degree threshold is the favored threshold for both corporate reporting and the media, it represents just the tip of the melting iceberg. Nature is in trouble. Access to abundant clean water, soil health, air quality and our planet’s biodiversity are all in peril. These factors are already wreaking havoc on communities, our natural resources and businesses themselves.

Yet, despite the tangible nature of the environmental crisis, companies simply aren’t transforming at the speed and scale necessary to achieve sustainability goals. They struggle to move past incremental adjustments to the status quo. But more of the same won’t help leaders rise to the challenges facing businesses and humanity at large. Securing a stable planet calls for transformative solutions, innovation and an overhaul of business as usual.

Of course, transformation is easier said than done. It’s a complex, monumental task – to make progress, companies need an accurate picture of the challenges at play and a path to overcome them.

Getting (un)stuck in the data weeds

Businesses continue to spend time, energy and resources building out teams to monitor, measure and manage their sustainability-related impacts. Many have established baselines, collected data, measured their footprints and set appropriate carbon reduction targets. Almost 5,511 companies (at the latest count) have gone further, aligning their goals with the best available science. Naturally, this investment is necessary since a problem can’t be solved if it isn’t first identified and understood. Measurement is key, and digital solutions show tremendous promise to help conduct these activities with greater accuracy and efficiency.

However, all too often, sustainability teams find themselves stuck in an endless cycle of analysis. Sustainability teams are often only in control of perpetually building the business case rather than authorizing concrete actions in the short term. While effective monitoring, evaluation and measurement are critical components to support decision-making and prioritization, continuous number crunching won’t always lead to better insights — and it certainly isn’t a proxy for sustainability progress. After all, even possession of the best data insights in the world won’t lead to actual change unless the information is used to fuel action.

Continuous data analysis won't lead to change unless the insights fuel concrete actions.

Companies shouldn’t limit the scope of their investment to data gathering and analysis. Resources need to be directed at not just developing plans but actioning them. While it may represent a higher upfront cost today, the financial risks of inaction are even greater.

For any chance at avoiding the most severe impacts from the climate crisis and failing ecosystems, entire industries — from food and logistics to fashion and construction — must be transformed. Take transmission system manufacturing, for example. We’ve known that electric drivetrains represent the future of the industry for a long time now, but adoption has been slow. Without a doubt, there are big hurdles for conventional manufacturers to clear. They must retool their factories, retrain their workforce and shift their supply chains. But they also need to push for more extensive charging or alternative fueling infrastructure on cleaner grids. They need to use all their innovation might to make these electric drivetrains as good (if not better) than traditional transmission systems to remove all reasons not to buy. And they need to bring consumers with them.

Harnessing scenario planning to envision alternative futures

Traditionally, businesses have used historic data to solve problems and inform their planning. But the context in which they are making plans has changed profoundly. Environmental and social pressures brought about by global temperature rise, more stringent regulations and changing market conditions mean future conditions will be quite different to those of the past. Erroneous planning and decision-making made in the present – combined with the aforementioned economic, political, technological and market conditions – can have devastating business consequences. Just look at the latecomers to the electric vehicle party to understand the business imperative of understanding what’s around the corner and being prepared to act sooner rather than later.

We can’t prevent tomorrow’s catastrophes unless we anticipate them today. Companies that envision alternative futures can better sense, shape and adapt to the future. To gain this strategic foresight, company executives need more forward-looking analysis, not only of their own operations, but also further upstream to truly understand the environmental impacts and risks across their value chain.

Scenario planning can trigger that “ah-ha” moment for senior leaders and serve as the catalyst to put real change in motion. It allows firms to take some of the uncertainty out of the future by exploring plausible futures – not necessarily to predict what will happen, but to establish how your company can react and navigate across an array of possible realities.

There are many different potential scenarios as to how the climate crisis will impact the planet in the coming decades. A worst-case scenario brings higher physical risks. So companies will need to understand how, for example, increased storms, droughts, floods, and heatwaves might disrupt supply chains. Similarly, if a low-carbon economy becomes a reality very quickly – with heavier carbon-related regulations and increased costs – businesses need to explore their vulnerabilities and understand just how adaptable they are.

Scenario planning can be combined with scenario testing. So, rather than developing their own scenarios, companies apply scenarios that have been developed by others (such as industry bodies) to test what risks the scenarios pose to their company – and whether they’re able to remain resilient under each scenario.

Removing sustainability from its island and playing on the same team

In the global hit show Survivor, contestants are initially split into “tribes” and compete against each other in challenges. As the game progresses, the tribes merge into one, leading to individual gameplay where alliances shift and contestants must adapt to new dynamics to outlast their competitors and win the ultimate prize. It’s not unlike the way corporate players navigate sustainability.

Sustainability typically exists as an entity unto itself. Like any department, it has a limited sphere of influence; it has to compete for resources, make business cases and convince other departments to adopt and act on its advice.

A key factor in the “below the iceberg” considerations of corporate culture is “how things get done around here.” How a company is organized shapes the subsequent practices that enable professionals to work and perform their duties. If your duties consist of enacting changes and driving best practices across functions, you not only need an adequate amount of authority, but proximity and access. Most sustainability teams have neither. They also can’t leverage the usual operational workarounds.

For example, sustainability departments would be hard-pressed to set internal controls to ensure sustainability in the way that marketing can set a control to review any mass communication that leaves the company or finance can require approvals of certain spending levels.

“Make sustainable” isn’t a node on a process flow. Sustainable transformation of an organization not only requires driving change across functions, designing and implementing the actions to achieve it are as complex as the enterprise and its operations itself.

Realizing the diagnostic and actionable strategy needed for operational improvements, perhaps it’s time to consider embedding sustainability specialists into various functions and sub-functions across the organization. By having this proximity and access, transformation can be actively driven from within, rather than passively influenced from without.

Calculating the cost of inaction, not just action

Understanding – and weighing up – the cost of not acting compared with the cost of acting is another crucial shift that will make transformation happen, or at least kickstart action where it’s stagnating. All too often, companies lack the confidence to initiate change because the focus is still very much on the cost associated with taking the action rather than the price of inaction. It’s time for firms to ask themselves some big questions: What are the risks attached to transforming our product lines that may fall out of market, or may not be legally compliant in the near future? How will the price or availability of our raw materials change in the future?

With answers to these questions, companies can explore the fundamental changes required to transform what they are doing, weighing those investment costs against the cost of business as usual.

For this to work, however, the focus on sustainability must be embedded in the wider commercial strategy of the business — not only with a seat at the table, but steering the table in line with the company’s overall goals.

Companies often build individual business cases for individual changes. For example, they might have identified a new source of packaging for one particular product, reducing carbon emissions by 15%, albeit at a slight increase to costs. While this may be a small win for the environment, rather than fighting for incremental changes, businesses must start thinking about systemic changes that drive and accelerate transformative ones.

While any and all progress is welcome, the magnitude and urgency of the challenges we face call for bigger, bolder action. In reimagining our systems, behaviors and priorities to create a more equitable, resilient and regenerative world, companies must understand and accept that they won’t be able to keep everyone happy. The transition period may require short-term sacrifices to enable a long-term future. But it’s only through transformation that we can hope to address sustainability challenges comprehensively and effectively.

Now, let’s check in on the progress XYZ Food Corp. has made…

Though XYZ Food Corp. has a long way to go in its transformation, it has taken significant steps and is finally able to report real progress. In areas where the company fell short of its targets, substantive and accurate explanations were provided. This progress didn’t happen overnight; it involved making key changes to operations. First, it digitized and democratized its footprinting data, making it centrally available for all departments to measure their climate and nature impacts. This created a real-time dashboard to observe the impact of its work. Next, the company prioritized a few key projects to concentrate efforts and demonstrate measurable progress. It also drove accountability across the organization, tying the sustainability agenda to the business agenda. With a few wins under their belt, everyone began rowing in the same direction, gaining momentum. Today, XYZ Food Corp. doesn’t just have an stand-alone sustainability team or function; it’s successfully embedded sustainability throughout the organization to ensure enterprise-wide transformation.

Author(s)

John Willard US Business Transformation Lead

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Embracing planetary challenges: 4 ways to drive environmental and business resilience

Posted on July 3, 2024 by Alice Geronzi - Insights

While business leaders may understand the importance of thinking about sustainability holistically, taking action accordingly is another story. Here are four fundamentals that link the planetary boundaries framework with business strategy and performance.

In brief:

The planetary boundaries framework provides a roadmap for holistic sustainability, allowing companies to target and prioritize environmental areas that pose the highest risk.
By fostering a culture of environmental stewardship, businesses can integrate sustainability goals across all business functions.
Embracing a circular economy model, discarding outdated practices and investing in sustainable alternatives can drive long-term environmental and economic sustainability.
Collaboration with suppliers is key to transforming supply chains, fostering transparency and ensuring commitment to sustainability targets.

The health of our planet requires urgent attention — and businesses are expected to support ambitious efforts to heal it. But with this expectation comes opportunity, since there’s also a clear business case for companies to take on sustainability. As drivers of innovation and progress, businesses are uniquely positioned to steer the economy to align with the Earth’s limits. Yet, the path to operating within planetary boundaries can appear daunting, especially when considering all of the uncertainties and complexities within environmental sustainability.

The updated planetary boundaries framework reveals that humanity’s actions have caused the transgression of six out of nine boundaries and serves as a stark reminder of the need to mitigate the over-exploitation of Earth’s finite resources. But it also provides a beacon of hope by equipping us with a clear roadmap for collective and corrective action. By prioritizing holistic sustainability, companies can adapt to our changing environment and build resilience across their value chain, ultimately ensuring long-term viability.

Here are four critical actions companies should take to operate within planetary boundaries:

1) Understand your dependencies and impacts on nature (and the associated risks and opportunities) across your value chain.

The foundation of sustainability lies in a deep understanding of the nature dependencies and impacts woven into your company’s operations. From raw material sourcing to manufacturing processes, distribution and product use, companies rely on ecosystem services at every stage of the value chain. A common misstep is when companies focus sustainability efforts solely on their highest volume operations, rather than factoring in steps in the value chain that may bear intense environmental impacts.

Companies need to ask themselves: Does my current sustainability strategy consider all nature topics, focusing on areas that make the company most vulnerable to environmental threats? Begin by conducting a robust environmental impact and dependency assessment to identify risks and opportunities associated with your operations. This goes beyond carbon emissions, delving into the intricacies of water and energy consumption, biodiversity loss, and land use and degradation. By understanding these dependencies, you’ll be able to mitigate risks while also uncovering avenues for innovation and efficiency. For example, a cosmetics company may focus on the impact of its packaging or high-volume ingredients, only to find that certain lower-volume ingredients represent much of the environmental burden and constitute a significant dependency, thus posing a potential financial risk to the business. While the company could certainly make progress with its original strategy, it would expose the business to considerable risk by failing to address its biggest environmental hotspot.

High dependencies and impacts may be associated with high physical or transition risks, translating to a potential rise in operating costs or loss of market share. The most challenging part is often not just identifying hotspots across the value chain but juggling the various indicators and articulating them into a consistent action plan – without losing too much energy on indicators that aren’t crucial for company-specific activities.

2) Push the other business functions to embrace environmental stewardship.

Sustainability teams often operate as satellite functions, with strategies and action plans that aren’t fully integrated across the business. Leaving one team to handle an entire company’s sustainable business transformation is unrealistic and overwhelming – especially when that team is siloed from the rest of the business. Sustainability teams aren’t familiar with the operational realities of every department, which makes it even harder to set relevant targets.

To successfully enact sustainable business transformation, sustainability insights and data must be engrained throughout the company, not just within sustainability teams. C-level, V-level and even D-level management across key functions, such as R&D, sourcing and marketing, need to be able to utilize the insights that the sustainability team provides to enact change in their own departments.

For change to truly take root, specific mechanisms and incentives must be adopted to ensure department heads act on these insights in addition to their usual priorities. Each department within the company, from product development to marketing, would be tasked with setting sustainability goals aligned with broader corporate objectives. Such collaboration could look like:

Marketing: launching a consumer engagement campaign focused on educating consumers and incentivizing sustainable behaviors;
Operations: anticipating environmentally-linked operating risks and collecting advice on potential certifications;
Finance: collaborating with the sustainability team to anticipate the regulatory environment, assess potential financial impacts of operational risks and meet investor expectations around sustainability;
Procurement: managing physical and transitional risks associated with a company’s portfolio of raw materials or products to ensure supply continuity.

This type of organizational shift requires a clear sustainability vision where goals are embedded in the decision-making process at every level. By creating goals that are relevant for each department, those outside of the sustainability team can understand how they contribute to the overall strategy, building a strong culture of sustainability. This cultural shift can help companies see real progress in their sustainability efforts and can help generate more business value.

3) Unlearn conventional business philosophies that aren’t aligned with the changing landscape.

Due to overconsumption and the degradation of nature and ecosystem services, many companies have resorted to using more even more natural resources, such as water, that further degrade the land they source from just to get the same quantity yields, thereby begetting further degradation and incrementally diminished quality. This ultimately results in an inferior product at premium pricing. More time, money and resources would be required from companies to maintain product quality, and it simply isn’t sustainable in the long run, both environmentally and economically.

Companies need to discard the take-make-waste practices that don’t set the business up to thrive in a planetary economy. A move to more circular and regenerative approaches requires a fundamental shift in thinking. A circular economy model involves minimizing waste by keeping resources in use for as long as possible, extracting maximum value from them and then responsibly recovering and regenerating products and materials at the end of their life.

Investing in research and development focused on sustainable alternatives to current practices is a way to break free from conventional business models. Companies can start by reevaluating their procurement processes and building stronger relationships with suppliers that adhere to circular economy principles. This includes sourcing materials that are easily recyclable and promoting closed-loop systems. Explore alternative packaging materials, adopt innovative production processes or reimagine product life cycles. Additionally, embracing technological advancements and digitizing business operations can optimize resource use and enhance overall efficiency.

4) Collaborate with suppliers to transform supply chains.

Sustainable transformation cannot be achieved in isolation. Between shareholders, consumers and suppliers, there are several stakeholders that companies rely on to make progress on their sustainability goals, especially since for many value chains, nature impacts lie outside of direct business activities.

Suppliers are integral stakeholders, and collaborating with them is essential for transforming supply chains. Once a company has mapped out its suppliers, conducting a thorough supplier audit and identifying their own sustainability initiatives can unearth opportunities for improvement and foster collective commitment. Engage in open dialogue with your suppliers, encouraging them to embrace sustainable sourcing, labor and manufacturing processes. This will most likely also require some sort of financial support, whether through offering premiums or financing programs to train suppliers on best practices.

Operating within planetary boundaries safeguards the environment and humanity while also yielding tangible benefits for businesses. Companies that prioritize sustainability can future-proof their business against future environmental disruptions, thereby ensuring their long-term resilience and competitiveness in the market. It also makes business sense today: integrating sustainability into business operations can foster, mitigate regulatory risks and enhance stakeholder trust among suppliers, investors and consumers.

These principles provide companies with a roadmap to adapt and thrive within the constraints of our planet’s resources. By taking the right steps to address their impacts, companies can mitigate environmental risks and unlock their sustainability transformation.

Author(s)

Auriane Bodivit Sustainability Consultant

Marcial Vargas Global Science + Innovation Lead

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Understanding the impact of PPWR on fast-moving consumer goods

Posted on May 23, 2024 by Alice Geronzi - Insights

Exploring the evolving landscape of sustainable packaging under the influence of PPWR regulation and the importance of transparent communication with consumers.

In brief:

Discover how the European Packaging and Packaging Waste Regulation (PPWR) is reshaping the sustainability landscape within the fast-moving consumer goods industry.
Explore innovative approaches and best practices for achieving compliance with PPWR while maintaining product integrity.
Learn about the key challenges and opportunities faced by companies in adapting to PPWR.
Understand the implications of PPWR on packaging design, material selection and waste management strategies.

The changing EU regulatory landscape in packaging

Packaging in the consumer goods industry serves as both a vessel for products and a vital element of branding, functionality and sustainability. Yet, as consumer awareness of environmental issues grows, so do sustainable expectations of the industry’s packaging practices. Packaging waste in particular has come under scrutiny, prompting regulatory bodies to tighten their grip through sustainability standards, as outlined in the PPWR, recently voted by the European Parliament.

In response to this mounting pressure, companies find themselves compelled to reevaluate their packaging strategies. They must strike a balance between aligning with their own sustainability goals while navigating complex regulatory requirements.

The environmental impact of packaging cannot be overstated; the European Commission estimates that 40% of plastics and 50% of paper used in the EU is destined for packaging. Furthermore, the European Parliament found that packaging accounts for a staggering 36% of municipal solid waste.

As consumer goods companies work to tackle these challenges, the need for innovative and sustainable packaging solutions has never been more urgent. If companies don’t take action, the European Commission predicts that packaging waste will increase by approximately 19% by 2030. Embracing a circular economy approach to packaging offers a promising solution, one that may reduce reliance on natural resources while also contributing to broader sustainability objectives such as climate impact reduction and biodiversity preservation.

What are the components to consider when navigating PPWR compliance?

The PPWR lays out several sustainability requirements that are designed to reduce packaging waste and promote a circular economy, setting out requirements for all packaging in the EU market and 2030 and 2040 targets for minimum recycled content in plastic packaging. The regulation outlines three main objectives:

Prevent packaging waste generation, reduce and restrict unnecessary packaging and promote reusable and refillable packaging solutions;
Boost closed-loop recycling by making all packaging on the EU market recyclable by 2030; and
Reduce demand for virgin resources and create a mainstream market for secondary raw materials, including an increased usage of recycled plastics in packaging.

The European Commission emphasizes that these four outlined objectives will ideally benefit both consumers and the industry as a whole. Consumers will have increased access to more reusable packaging options, less unnecessary packaging and clear labels that highlight how to recycle packaging. The consumer goods industry will benefit from this regulation through new business opportunities, a decreased dependence on raw materials and accelerated progress toward net zero by 2050.

The touchpoints outlined by PPWR may affect various industries in different ways. For example, food and beverage companies may need to overhaul their packaging designs for compliance. By 2030, PPWR will impose anticipated reuse targets for beverage packaging, with exceptions for milk, wine and spirits. Additionally, beverage and takeout meal distributors will need to offer at least 10% of their products in reusable packaging by the same deadline.

Cosmetics and personal care companies are also facing the need to innovate, particularly utilizing sustainable materials and enhancing transparent communication to ensure compliance and satisfy environmentally conscious consumers. For instance, from 42 months of PPWR’s enactment, packaging placed on the market must have a label detailing its material composition, aiding consumer sorting. Additionally, by 2030, policymakers will need to adopt a minimum percentage – notably 30% for contact-sensitive packaging made primarily from polyethylene terephthalate (PET) – of recycled content recovered from post-consumer plastic waste in packaging materials.

The draft regulation was presented to the European Parliament for a vote in its April plenary session, which ran between April 22 and 25 in Strasbourg, where it was voted to advance the adoption process. However, the regulation is still subject to legal checks, which likely won’t be decided until after the European Parliament elections in June 2024, adding an extra layer of urgency for the text to be finalized and entered into force by July 2024. The EU also intends to define standards for packaging and provide guidelines for Design for Recycling (DFR) by the end of 2025 to aid this timeline, with the goal of having 75% of the European population adhere to these standards by 2035.

As a proposed timeline, the European Commission will begin adopting the methodology for calculating and verifying the percentage of recycled packaging content starting in December 2026, and it shall establish the recycling criteria and performance grades by January 2028. PPWR’s initial recycling and reuse targets will be enforced starting in January 2030, and innovative packaging will only be allowed on the market for a maximum of five years. Stricter provisions will be enforced later, such as ensuring that packaging can be collected separately and with higher grade quality. By 2040, companies will need to meet PPWR’s secondary recycled content and reuse targets, including a minimum percentage of recycled content from post-consumer plastic waste and 70% of reusable packaging actually being reused.

The Commission will establish the criteria and recycling performance grades through delegated acts, and it will devise methodologies to assess recyclability at scale for various packaging types. As seen below, packaging failing to meet these standards, particularly those with a recyclability assessment under 70%, will be deemed non-recyclable, and financial contributions by producers for extended producer responsibility will be adjusted based on recyclability performance grades. Any innovative packaging recyclability must be proven within 5 years from the date of entering the market.

Table: Assessment of recyclability per unit, in terms of weighting

Utilizing PPWR to boost consumer engagement and transparency

It’s especially important for companies to consider their consumers’ role in PPWR compliance, as their engagement will be needed during the use phase of a product.

Luckily, the objectives set out by the PPWR aim to provide standardization and clarity around packaging for both companies and consumers alike. While companies will be able to follow the same framework for compliance, the regulation’s labelling requirements will help consumers better understand what a product’s packaging is made of and how to dispose of it in the proper waste bucket. Labelling will be further clarified because waste collection containers will carry the same labels as packaging, and the same symbols will be utilized throughout the EU.

The call for transparency will have indirect benefits regarding consumer engagement. By standardizing packaging frameworks and educating consumers about the environmental benefits of sustainable packaging and how they can support sustainability goals, companies that enthusiastically adapt to the PPWR could see increased brand trust and loyalty. Consumers value authenticity and accuracy around sustainability communications, and having clear guidelines around what labels to put on packaging will allow consumers to receive consistent information about packaging composition and disposal.

Sustainable packaging strategies for fast-moving consumer goods companies

As set out by Articles 11 and 29 of the PPWR, packaging is deemed reusable if it meets the following:

Designed and marketed for continual reuse or refilling;
Conceived and designed to accomplish as many rotations as possible under normal conditions;
Fulfills consumer health, safety and hygiene requirements;
Can be emptied or unloaded without damage;
Can be emptied, unloaded, refilled or reloaded while meeting safety and hygiene standards, including food safety;
Can be reconditioned without compromising functionality;
Can be emptied, unloaded, refilled or reloaded while maintaining a product’s quality, safety and label attachment; and
Fulfills recyclable packaging requirements once it becomes waste.

Additionally, packaging needs to meet specific recyclability requirements upon becoming waste, and compliance with these conditions must be demonstrated in technical information. However, as of right now neither re-use nor refill targets have been defined for cosmetic products, so the only implications for the cosmetic industry now are targets related to transport packaging.

While the new guidelines set forth by the PPWR may bring restrictions and challenges to packaging design and innovation, they also present opportunities for creative alternatives and the development of innovative materials to meet sustainability requirements. Some such alternatives could include, for example:

Lightweighting: Lightweighting is the process by which a company adjusts or redesigns a product’s packaging to reduce the overall weight without compromising the protection of the product.
Refillable packaging: Refillable packaging allows the consumer to reuse old packaging when repurchasing a product, which reduces waste and saves the company money.
Biodegradable materials: Biodegradable materials break down more easily than their traditional counterparts, which minimizes waste. However, companies should tread carefully when using biodegradable materials as a packaging solution, as the PPWR requires companies to highlight the environmental benefits of their specific use, their value to the circular economy and proper labels around how long it will take to biodegrade, under which circumstances and in what type of environment. These guidelines will ideally prevent companies from using these materials to continue using single-use packaging that’s likely to be littered. Furthermore, companies should be careful to avoid environmental trade-offs when opting for biodegradable materials, such as land use changes, deforestation or biodiversity loss.

What can you do now?

The EU Parliament reviewed and approved the draft regulation during its April plenary session in Strasbourg, and the delegated acts submission deadline is slated for August 2025. While these deadlines may seem far off now, companies should start planning their course of action for the regulation’s implementation starting in 2026.

For right now, companies should get familiar with the guidelines that the PPWR puts forth and how their product portfolio will be impacted. Understand which products will be the most impacted and start researching potential solutions that both reduce dependence on virgin raw materials and remain true to your brand.

Please note that information in this article does not constitute legal advice. This is a general summary based on information accessed by Quantis.

Author(s)

Laura Peano Principal Expert, Plastics & Packaging

Victor Frontere Cosmetics & Personal Care Co-Lead, France

CONTRIBUTOR(S)

+ Emmanuel Hembert, Cosmetics & Personal Care Lead
+ Paul Spitzmuller, Strategist

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Weaving innovation into the fabric of fashion

Posted on May 21, 2024 by Hayden Jones - Insights

Rather than back away, fashion brands need to double down on innovation to future-proof their businesses.

In brief:

The fashion industry is struggling to move beyond the pilot phase with innovative, low-impact materials, which are essential to future-proof businesses and can help meet sustainability goals.
New regulations focusing on reducing the environmental impact of raw materials are driving the need for brands to adopt alternative, low-carbon materials.
Strategic investment in innovative materials can provide significant financial benefits and help brands mitigate risks associated with traditional raw materials.
Effective communication and collaboration with start-ups, alongside robust environmental assessments and strategic planning, are crucial for successfully integrating sustainable materials into fashion products.

The fashion industry is no stranger to creativity. Yet when it comes to finding innovative solutions to the environmental crisis, brands seem stuck in a never-ending pilot phase. Low-impact alternative materials are gaining traction as part of the industry’s response to calls for sustainability, but not at the speed or scale the planet requires.

And that’s not to say there’s been a lack of good intentions. Brands let out a collective sigh of dismay when news broke this year that one of the most promising material innovators had filed for bankruptcy. This blow to the industry’s innovation momentum begs the question: Are innovative materials — and the innovators and startups behind them — really something the industry should be banking on?

The answer is an emphatic “yes”. Rather than back away, fashion brands need to double down on innovation to future-proof their businesses. The development and demand for lower-impact raw materials versus virgin conventional ones is a particular area to prioritize. And not just because mushroom “leather” shoes or lab-grown fiber sweaters are de rigueur on the runway, but because the industry’s livelihood — and our planet’s — hinge on parting ways with “business as usual.”

Materializing risks spark material innovation opportunities

Keen to use regulation to reduce the industry’s environmental impact, policymakers seem to have fashion in their sights. Over the next four years, more than 35 new pieces of legislation will be introduced around the world, including import restrictions on garments deemed to be fueling the climate crisis, product design guidelines and new labelling requirements. Much of this regulatory focus will be on raw materials, since they can account for up to two-thirds of a brand’s climate impact.¹

As brands prepare to meet future regulations and embrace sustainability, innovative, next generation materials have emerged as a promising piece of the puzzle. Using circular, 100% recycled, bio-based or lower carbon footprint materials can significantly reduce the environmental impact of a fashion brand and support the more than 85% of brands that have made public decarbonization goals.²

Pivoting away from conventional materials may also be a smart business move. The latest analysis by BCG, Textile Exchange and Quantis estimates that brands acting now to secure a supply of alternative, low-carbon raw materials will be able to capture an average 6% profit uplift after five years. Further, the modelling suggests that a fashion brand that turns over $1 billion a year has the potential to tap a cumulative opportunity of approximately $100 million over five years. These regulations could put 8% of EBIT at risk for brands that don’t adjust their portfolio of raw materials.

The environmental crisis – which is rapidly accelerating changes to our ecosystems, growing conditions and harvest quality – continues to jeopardize the availability, accessibility and price of conventional raw materials. Fashion brands are increasingly acknowledging the need to act swiftly, and many have already begun to explore the world of material innovation.

However, there are several examples of big fashion brands that have taken the leap to invest and help scale up innovative start-ups, only to find major economic and logistical hurdles that are too big to overcome. Navigating the market and vetting potential solutions can be a minefield, so it’s no surprise that real progress has given way to an endless cycle of pilot programs that hardly ever take off. But how can brands change that?

Without a robust strategy, even the most promising partnerships and well-intentioned pilots can crumble. Going ‘all in’ on innovation to support the creation of the materials of the future means going beyond simply developing a small collection of garments to appeal to the eco-conscious consumer. There must be a strategic commitment to going further, past a pilot phase to ensure security of supply at the scale required to fulfill all purchasing and planetary commitments.

Creating an ecosystem of innovation

Innovation moves fast, so brands need to act decisively while ensuring they lean on the right expertise. Though it’s easy to be dazzled by start-up innovators showcasing their solutions, brands must be pragmatic about deciding which path to take regarding alternative materials. When assessing their potential, skipping out on the environmental assessment piece is risky business. Robust data analysis and sound science should inform strategy and help develop an approach that makes sense to a business and its product portfolio.

Start by strategically selecting the focus area where innovative materials can truly add value and make a difference over the long-term. As part of this process, it’s critical to conduct screening environmental assessments both dynamically and repeatedly for continual improvement within your R&D process. Ensure you have enough quality data to base your decisions on in the early stages of screening and account for the fact that materials may perform poorly in initial environmental assessments. Economies of scale will address those issues down the road, so forecast accordingly. After screening assessments have given the brand and its supplier a sense of direction, more in-depth analyses can help eliminate any blind spots, such as simply transferring a product’s impact to a different part of your value chain.

With such a wealth of interesting and potentially game-changing solutions in an increasingly crowded alternative-raw-materials market, fashion brands must do their due diligence. For instance, make sure that the start-up with which you are interested in partnering has a sound business model and the capability to scale before moving forward. To be viable, the innovator’s business model must serve the brands. That said, brands must also be willing to take on some of the risk through volumes and purchasing commitments. The innovation journey must be truly collaborative; since investments in new technology will be required, brands should be willing to invest alongside their supply chain partners — who also need a seat at the table.

It’s also important to ensure expectations are managed carefully. New materials may not perform in the same way and with the same qualities as conventional materials, so keeping an open mind and being patient is critical. It may be necessary to keep investing in improvements and further testing.

Communicate carefully and claim clearly

Effectively communicating your innovation journey is almost as important as the journey itself. As with any fast-moving R&D activity, engaging with start-ups and innovators can get complicated. At the start, there’s often limited data and achieving scale can take time. By keeping your stakeholders up to date with transparent, precise and intentional storytelling, you’ll buy yourself time. Alternative materials might not yield immediate results in terms of environmental impact, so it’s important that your communications are nuanced and capture not only the positive, scalable potential for your materials, but also the limits of what can be achieved.

Excitement for the potential of alternative materials should never give way to greenwashing, or over-selling sustainability in product claims. Speak to the true, quantifiable benefit of the material — don’t promote it as “green” or “eco-friendly” just to drive consumer demand. Brands should be sure to seek support where needed, since the story can make or break the success of the endeavor.

Don’t be deterred: We need innovation in fashion like never before

The widespread shift to lower-impact materials has the potential to change the conversation in fashion. The challenge of finding the right partners to solve the supply-demand conundrum should not be a deterring factor in embracing innovation. In fact, as the BCG and Quantis market analysis confirms, there’s a significant first-mover advantage on the table when it comes to raw materials, since only 19% of materials are expected to be low impact in 2030.

In plotting out a robust strategic approach to innovation investment, you’ll have the clarity and confidence to look further ahead into the near future (rather than focusing on immediate returns), where you’ll achieve efficiencies of scale and be able to seriously turn the dial in reducing fashion’s environmental footprint forever.

By taking a pragmatic, science-based approach to materials – integrating next-generation materials where they truly add value, vetting innovators and their solutions, taking risks and communicating with care – brands can solve the innovation enigma and fast-track sustainable transformation.

¹Recent Quantis analysis project examining the impacts associated with Tier 4 to Tier 2 within the corporate carbon footprints of fashion and apparel brands.

²BCG analysis based on 36 fashion and apparel organizations, including brands and parent organizations, representing more than 10% of the industry’s revenues.

Author(s)

Kate O’Brien Senior Sustainability Consultant

Lara Pizzato Principal Sustainability Strategist, Fashion + Sporting Goods

Olivia Yu Sustainability Consultant, Fashion + Sporting Goods

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Leading the sustainable revolution through data democratization

Posted on May 8, 2024 by Alice Geronzi - Insights

As businesses navigate the potential solutions of digitalization, data democratization emerges as the guiding force that can propel holistic sustainability progress across an organization.

In brief:

Structuring, centralizing and democratizing footprinting data unlocks benefits like enhanced decision-making and increased transparency.
Despite the advantages, companies hesitate to invest in digitalization due to resource constraints and challenges in quantifying ROI.
Overcoming these hurdles requires strategic investment, prioritizing data integrity and fostering cross-functional collaboration.
Practical next steps include developing a robust data strategy, accessing reliable emission factors and selecting the right footprinting tool that meets unique business needs.

As the adage goes: knowledge is power. That’s why we collect data and are on a constant quest to find better ways to store, organize and manage it so it can be put to good use. But data on its own is not knowledge, rather knowledge is created through the insights we draw from it.

Digital technologies supercharging our ability to do all this is hardly news, but the scale and sophistication – along with the new possibilities that technology can unlock to address society’s most critical needs – are still making headlines. This is just as true for addressing the environmental crisis, as we’ve only begun to explore digital’s potential in supporting sustainable transformation.

The opportunities of democratizing data through digitalization are nearly endless

Centralizing and democratizing corporate and product footprinting data across business functions can significantly contribute to creating a more sustainable enterprise in several ways:

Enhanced Decision-Making: With centralized sustainability data, decision-makers across different departments can access consistent, comprehensive information about the environmental impact of their operations, products and services. This enables more informed decision-making that aligns with sustainability goals.

Increased Transparency: Democratizing access to footprinting data ensures that all stakeholders, including employees, customers and investors, can understand the company’s environmental impact. This transparency can build trust and enhance the company’s reputation, potentially leading to increased customer loyalty and investor confidence.

Improved Sustainable Innovation: By making footprinting data widely available, companies can foster a culture of innovation where employees across functions are empowered to propose and develop solutions that reduce environmental impact. This collaborative approach can lead to the discovery of more efficient processes, sustainable materials and innovative products that align with sustainability objectives.

Streamlined Reporting and Compliance: Centralizing environmental data simplifies the process of compiling reports for regulatory compliance and sustainability certifications. It enables businesses to more efficiently track their progress against sustainability targets and communicate this progress to external stakeholders.

Cost Reduction: Identifying areas for environmental improvement often coincides with finding efficiencies that can reduce costs. For example, reducing waste, lowering energy consumption and optimizing supply chains not only decreases environmental footprints but can also significantly cut operational costs.

Enhanced Competitive Advantage: A strong focus on sustainability can differentiate a company from its competitors. By leveraging centralized and democratized footprinting data, a business can highlight its commitment to sustainability, appealing to environmentally conscious consumers and employees.

Risk Management: Access to comprehensive environmental data allows companies to better identify and manage risks associated with climate change, resource scarcity and changing regulatory landscapes. By proactively addressing these risks, enterprises can avoid potential fines, supply chain disruptions and damage to their brand reputation.

Cross-Functional Collaboration: Democratizing data fosters a sense of shared responsibility for sustainability goals across the organization. It encourages collaboration between departments such as R&D, procurement, marketing and logistics, leading to a more cohesive approach to sustainability.

If there are so many benefits, why aren’t more companies doing it?

Despite the evident advantages of centralizing and democratizing corporate and product footprinting data, the uptake among companies could stand to improve, with several factors contributing to this reluctance.

One significant barrier is the resource constraints that companies face. Implementing a centralized data system requires a considerable upfront investment in technology, personnel and training. Additionally, dedicating staff to be trained and manage sustainability data may divert resources from other pressing business priorities, making it a challenging decision for companies weighing the costs and benefits. However, it’s essential to recognize that while there may be initial costs associated with implementing a centralized data system, the potential long-term benefits often far outweigh these expenses. By streamlining processes, identifying cost-saving opportunities and enhancing decision-making capabilities, centralized data management systems can ultimately lead to significant cost reductions and improved efficiency.

Moreover, some companies struggle to quantify the return on investment (ROI) of centralized data management systems, partly due to hesitation around whether to buy or build such systems. This raises questions around the total cost of ownership, which can be difficult to appreciate without constructing the proper business case and requesting information from vendors (RFIs). While there is ample evidence to suggest that investing in sustainability initiatives can yield long-term benefits, the lack of a clear understanding of the potential financial gains may deter decision-makers. The benefits of sustainability also extend far beyond financial returns, so while quantifying the ROI of sustainability initiatives may be challenging, the overall value proposition is undeniable.

Ensuring the accuracy and reliability of sustainability data is another concern that holds many companies back. Poor data quality can undermine trust in reported metrics and hinder efforts to drive meaningful, positive change. Rather than viewing data quality concerns as a reason to avoid centralization, companies should see them as an opportunity to prioritize data integrity and invest in robust systems for data collection, validation and verification. With the right research and processes in place, centralized data management systems can actually enhance data quality by providing greater visibility and control over data inputs and outputs.

The regulatory landscape surrounding environmental reporting and compliance is also a source of hesitancy for many companies. Uncertainty about future regulations can also make companies wary of investing in new systems that may need to be adapted or expanded in the future, further complicating the decision-making process. However, rather than waiting for regulatory clarity before taking action, companies should view regulatory changes as an opportunity to future-proof their operations and demonstrate leadership in sustainability. By investing in flexible, adaptable systems for data management, companies can position themselves to quickly comply with future regulations while also gaining a competitive advantage in the marketplace.

Organizational silos present another significant obstacle. In many companies, departments operate in isolation, with limited communication and collaboration across functions. Entrenched organizational structures and resistance to change can further impede sustainability progress. Breaking down these silos and promoting cross-functional cooperation is essential for successful data centralization and democratization, and it can also unlock synergies and drive innovation that benefits the entire organization.

Similarly, shifting towards a more sustainable business model requires a cultural shift within the organization, with buy-in and commitment from all levels of leadership and staff. Resistance to change, skepticism about the value of sustainability initiatives and a lack of awareness or understanding about the importance of environmental stewardship can all pose significant barriers to progress. By engaging employees, fostering a sense of shared purpose and aligning sustainability goals with business objectives, companies can overcome cultural barriers and drive more significant, meaningful change.

So, where can companies go from here?

While the journey towards centralizing and democratizing footprinting data may seem daunting, there are practical steps that companies can take to move forward:

1. Develop a data strategy

Developing and refining a robust data strategy is the cornerstone of effective footprinting data management. This involves consolidating scattered data sources of various quality and establishing clear governance for the deployment of high-quality data. Through careful analysis and strategic planning, companies will be better prepared for automation and progress tracking, laying the foundation for successful sustainability initiatives.

2. Access the right emission factor (EF) database

Access to reliable emission factors becomes increasingly essential as companies mature for accurately assessing carbon footprints and setting meaningful sustainability targets. When companies begin to strategize on reducing their footprint and reflecting progress, they’ll have a greater need for granular, accurate data. Furthermore, auditors often demand more recent and precise data as companies advance in their sustainability journey. Therefore, companies should seek access to emission factors from recognized databases, complete with regular updates and versioning. Having a robust emission factors source ensures accurate progress tracking and informed decision-making regarding environmental impact.

3. Select the right footprinting tool

Choosing the right footprinting tool is essential for streamlining sustainability efforts. Companies need to first acknowledge the risks inherent in chasing different solutions, including the potential for them not to perform as planned, contain bugs, lack maintenance or (in the worst-case scenario) lead to financial instability. To help mitigate this, businesses should do their due diligence and involve representatives, knowledgeable in both information technology systems and sustainability, to guide this selection process. Both functional and non-functional requirements, including security and IT access, need to be considered. This necessitates the active involvement of the IT department from the project’s inception, emphasizing that it’s a joint IT-sustainability initiative. By adhering to these principles and involving the right stakeholders, companies can mitigate risks, ensure alignment with organizational objectives and select a footprinting tool that meets their unique needs. This approach also increases business autonomy and improves complexity tracking through automation.

4. Implement the footprinting tool

Implementing the footprint into the chosen software requires careful planning, delegation and execution to ensure its effectiveness. There needs to be a clear delineation of responsibilities among the stakeholders involved; it’s crucial to establish clear ownership of the methodological requirements to ensure consistency and accuracy throughout the implementation process. Companies should assemble a diverse and dedicated team with knowledge of the company’s footprint, data, goals and chosen digital tool. This team will guide the implementation process, from data integration to result testing and insights preparation, facilitating a seamless transition to a digital footprinting solution.

To successfully centralize and democratize corporate and product footprinting data, companies should invest in robust data management systems, encourage a culture of transparency and collaboration, and provide training to ensure that all employees are equipped to use this data effectively. This strategy not only contributes to environmental sustainability but also enhances operational efficiency, innovation, and competitiveness.

Author(s)

Carole Dubois Senior Sustainability Consultant

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Everything businesses need to know about the EU’s Corporate Sustainability Reporting Directive (CSRD)

Posted on May 6, 2024 by Libby MacCarthy - Insights

All listed and large private companies that are active in the EU will have to implement the CSRD by 2029.

Environmental, Social and Governance (ESG) reporting is instrumental in showcasing a company’s commitment to sustainability. And in today’s business landscape, it’s a strategic imperative.

Yet, in most markets, regulations that enforce standardized metrics and methodologies are few and far between, leading to inconsistent data that hampers comparability across companies and sectors. Without clear reporting standards, companies are free to emphasize their strengths and downplay their weaknesses. The result? Under-informed investors and accusations of greenwashing, neither of which help most companies in the long run.

The European Union is taking the lead to address these shortcomings and codify a standard that can be uniformly applied so that companies’ sustainability efforts can be fairly compared and those who count ESG as investment criteria can be duly informed. On July 31, 2023, the European Commission adopted the European Sustainability Reporting Standards (ESRS) to be used by all companies subject to the Corporate Sustainability Reporting Directive (CSRD).

The published delegated act adopts the final version of the ESRS, and is supplemented by Annexes I and II, which define sustainability reporting standards that companies must use in accordance with the CSRD.

What is the CSRD?

As part of the European Green Deal, the CSRD aims to enhance sustainability reporting and transparency by obligating companies to use common standards, helping make it easier for investors, civil society organizations, consumers and other stakeholders to evaluate companies’ sustainability performance. The directive requires all large companies and listed companies — with the exception of listed micro-enterprises — to disclose information on the risks and opportunities for their business arising from social and environmental issues and on the impact of their activities on people and the environment.

The information needs to be reported following the ESRS, which have been adopted by the Commission through delegated acts that define the content and, if applicable, the structure for presenting the information. The ESRS delegated act will be passed along to the EU Parliament and Council for a two-month scrutiny period, with implementation set to begin for some companies for the 2024 fiscal year.

The CSRD replaces and builds on the existing Non-Financial Reporting Directive (NFRD) to strengthen and streamline sustainability reporting requirements. The NFRD lacked crucial details for investors and stakeholders, making it challenging to compare company reports and creating uncertainty about their reliability and actionability. For the green investment market to be credible, investors need reliable information about companies’ environmental impacts (and their strategies for reducing these impacts in the future) to appropriately direct funds toward sustainability-linked initiatives.

The CSRD’s expanded scope of the NFRD intends to reduce corporate greenwashing, as well as implement full and harmonized disclosure of ESG topics. The CSRD also puts sustainability reporting on the same level as financial reporting, requiring that information about sustainability risks are more publically available.

What does the CSRD mandate?

The main objective of the CSRD is to provide relevant stakeholders, including investors, consumers and policymakers, with comparable non-financial information to assess company risks around climate change and other ESG issues. Since companies will have to report under one common framework, stakeholders will have access to clearer, comparable and more reliable information.

Overview of environmental ESRS under CSRD

Companies will have to start by disclosing an overview of their legal and policy structure before diving into their sustainability journey. However, certain ESG topics are more relevant to some companies and sectors more than others. When determining which ESG topics companies will need to report on, the ESRS takes a “double materiality” perspective. Reports should also include corporate strategies to mitigate and adapt to ESG risks, depending on the results of their double materiality assessment.

The reported information should cover short-term, medium-term, and long-term perspectives, as appropriate. The report must be integrated within a company’s management report, rather than published as a separate annual report, and it must be in a standardized digital format so it can be easily compared with other companies.’

What is Double Materiality?

The CSRD emphasizes double materiality as a key step for compliance and requires companies to perform a double materiality assessment, which considers both a company’s material impact on society and the environment and how a company is materially impacted by ESG issues.

Depending on the results of a company’s materiality assessment, reporting under the CSRD will need to cover a range of environmental topics beyond climate, such as pollution, water, biodiversity and natural resource use, as well as social and governance topics.

Key Terms

Double Materiality → An approach that includes both how sustainability issues create financial risks and opportunities for a company (financial materiality) and a company’s own impacts on people and the environment (impact materiality).

Financial Materiality → A sustainability issue has an impact on or could reasonably be expected to have an impact on (positive or negative) a company’s business model, cash flow, revenue or enterprise value.

Impact Materiality → A business activity has an actual or potential impact (positive or negative) on people or the environment over the short-, medium- or long-term.

Mitigation and adaptation

In addition to double materiality, companies must disclose their strategies to mitigate and adapt to sustainability-related risks. Companies will need to outline their business model and strategy, a timeline of sustainability initiatives, governance, impacts, risks and KPIs. This information will enable investors and other relevant stakeholders to track the progress of corporate sustainability initiatives.

Reporting under the CSRD

The CSRD requires sustainability information to be subject to assurance. Companies’ statutory auditors will be required to carry out sustainability reporting assurance in partnership with another auditor or an independent assurance provider. Auditors’ reports must be integrated into the company report and align with other global standard-setting initiatives, such as the Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy Regulation.

Information on how or when the EU Commission will impose sanctions for businesses that fail to comply with the CSRD is not yet available. However, we expect them to be significant.

There are 12 reporting standards covering the full range of sustainability issues, in line with the European Financial Reporting Advisory Group’s (EFRAG) proposal:

Group	Number	Subject
Cross-cutting	ESRS 1	General Requirements
Cross-cutting	ESRS 2	General Disclosures
Environment	ESRS E1	Climate
Environment	ESRS E2	Pollution
Environment	ESRS E3	Water and marine resources
Environment	ESRS E4	Biodiversity and ecosystems
Environment	ESRS E5	Resource use and circular economy
Social	ESRS S1	Own workforce
Social	ESRS S2	Workers in the value chain
Social	ESRS S3	Affected communities
Social	ESRS S4	Consumers and end users
Governance	ESRS G1	Business conduct

ESRS 1 (“General Requirements”) sets general principles to be applied when reporting and doesn’t set specific disclosure requirements. ESRS 2 (“General Disclosures”) specifies essential information to disclose, irrespective of the sustainability matter being considered. ESRS 2 is also mandatory for all companies under the CSRD.

All the other standards and individual disclosure requirements — including the data points within them — are subject to a materiality assessment. Companies will only need to report relevant information and may omit information that isn’t determined to be material to its business model and activities.

Which companies will be impacted by CSRD, and when?

CSRD will apply to EU-based public companies, alongside all EU-based private organisations considered “large”. This means that the have 250+ employees, €50m+ annual revenues and/or €25m+ balance sheet.

There are around 50,000 listed companies that will eventually have to comply with the CSRD, although there are some exemptions to the initial implementation. All listed companies that are active in the EU will have to implement the CSRD by 2029.

Companies will have to start reporting under ESRS according to the following timetable:

FY 2024 → Companies previously subject to the NFRD (large listed companies, large banks and large insurance undertakings that have more than 500 employees), as well as large non-EU listed companies with more than 500 employees will need to report on the 2024 fiscal year, with the first sustainability statement published in 2025.

FY 2025 → Other large companies, including other large non-EU listed companies, will need to report on the 2025 fiscal year, with the first sustainability statement published in 2026.

FY 2026 → Listed SMEs, including non-EU-listed SMEs, will need to report on the 2026 fiscal year, with the first sustainability statements published in 2027. However, listed SMEs may decide to opt out of the reporting requirements for a further two years. The last possible date for a listed SME to start reporting is the 2028 fiscal year, with the first sustainability statement published in 2029.

FY 2028 → In addition, non-EU companies that generate over EUR 150 million per year in the EU and that have, in the EU, one of the following

(a) a branch with a turnover exceeding €40 million

(b) a subsidiary that is a large company

will have to report on the sustainability impacts at the group level of that non-EU company as from the 2028 fiscal year, with a first sustainability statement published in 2029. Separate standards will be adopted specifically for this case.

Beyond CSRD

While the CSRD has been adopted by the European Commission, it will have global implications. Any listed company that is active in the EU, even if they are headquarted outside of the EU, will have to comply under CSRD, which hints at the start of globalizing sustainability reporting.

Many other countries have plans to create regulations in alignment with the CSRD or match its ambitions. For example, the UK is planning to create UK Sustainability Disclosure Standards (SDS) for corporate reporting on sustainability-related risks, setting the foundation for future legislation around sustainability topics. Switzerland has also announced plans to discuss alignment with the CSRD. The ultimate goal is to have a standardized global framework for sustainability reporting.

What can businesses do to prepare?

There are five steps that every company should take to prepare for CSRD:

Step 1: Know if and when you must comply. Before making any plans, you need to know whether or not your company falls under the CSRD’s purview. If you do, it’s important to know where you fall in order to accurately determine your timeline.

Step 2: Address your corporate sustainability governance or the roles and responsibilities regarding CSRD reporting and disclosure within your organization. Who is responsible? Who needs to be involved across the value chain? What kind of training and engagement is needed?

Step 3: Start addressing double materiality and engaging your relevant stakeholders. A materiality assessment can capture multiple perspectives on ESG and provide important information to set a course and determine where future investment may be required. CSRD double materiality (financial impact and environmental and social impacts), results in a matrix clustering of ESG topics, which companies can use to either monitor for compliance or enable sustainable transformation.

Step 4: Look for gaps in your data collection and data management systems. What are you currently reporting? What are you not reporting? Compare your current sustainability framework (if you have one) with the requirements of the CSRD and ESRS. The ESRS is a framework that is based on other frameworks — GRI, TCFD, EU Taxonomy, etc. — so if your company is already conducting non-financial reporting with these frameworks, performing a gap analysis will be easier.

Step 5: Identify potential financial effects, transition risks and climate-related opportunities. For example, while climate change disclosure isn’t mandatory, it’s strongly recommended. If a company decides that climate change isn’t a material topic and doesn’t report on it, it must include a detailed explanation outlining why, based on the materiality assessment. Since climate change has wide-ranging, systemic impacts across the economy, companies may need to report Scope 1, 2 and 3 greenhouse gas (GHG) emissions and reduction targets. If you don’t currently have reduction targets, you’ll have to disclose when those plans will be made.

It’s essential not to underestimate the work that will need to be done to comply with the ESRS and start preparing now to set your company up for success with investors, consumers and relevant regulatory frameworks.

Need help navigating the CSRD or any of the five environmental standards? Contact our team!

Author(s)

Amina Marelli Sustainability Consultant

Arnt Diener Quantis Alum

Geraldine Noe Global Lead — Strategy Design

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Narratives on nature: How CSOs can persuade stakeholders to embrace their next priority

Posted on April 25, 2024 by Alice Geronzi - Insights

CSOs will need to secure buy-in on nature from the same colleagues who might have been hard to win over on climate action, or sustainability in general.

In brief:

Chief Sustainability Officers (CSOs) can position nature conservation as integral to achieving climate objectives, leveraging existing groundwork and highlighting the intersectionality of nature and climate crises.
By appealing to emotions and values, CSOs can effectively engage stakeholders from various departments, aligning CEOs, CFOs, COOs, product leaders and others with the nature agenda through tailored messaging that emphasizes both risks and opportunities.
Defining nature’s significance within the organization, addressing stakeholder fatigue and leveraging existing infrastructure fosters internal buy-in and operationalizes a company’s nature strategy, ultimately enhancing resilience, innovation and long-term value creation.

Sustainability teams have a lot on their plates. Feeling the heat from investors, consumers and employees to go further and faster with climate action, Chief Sustainability Officers (CSOs) are hard at work building momentum internally, ushering and encouraging teams across departments to buy into their climate strategy.

Now, CSOs have an equally important priority to take on: nature. The rapid decline of our natural ecosystems is a major risk for business, with companies already experiencing costly disruptions due to nature loss. The business case for taking action to protect and enhance nature and biodiversity is clear — business needs nature to thrive for its activities to thrive.

The financial world has taken note and as a result of investor alarm, policymakers and regulators are making moves. Companies will soon be required to describe their nature-related impacts, dependencies and related financial risks. But most department heads have yet to grasp this, which is why convincing their peers to embrace nature is the CSO’s next challenge.

Here’s how you can steer internal stakeholders on the road to a nature-positive world as CSO.

Nature as a core path, not a sidetrack, to climate goals

While the prospect of mobilizing internal stakeholders around ‘another’ crisis might seem daunting, the interconnectedness of the climate and nature emergencies actually make them one in the same challenge. As such, much of the groundwork for addressing nature loss has already been laid as part of corporate climate efforts. And where companies are failing to deliver on their climate ambitions, nature offers answers. CSOs can frame tackling the nature crisis as an opportunity to get themselves out of their climate ‘rut’.

WWF and Boston Consulting Group’s analysis on the potential benefits and risks to nature of rapidly shifting to clean energy systems is a good case in point. Our ecosystems act as natural carbon sinks, absorbing large quantities of greenhouse gas emissions. Peatlands represent only 3% of the Earth’s surface, but source nearly one third of soil carbon— and mangroves can store up to 50% more carbon than tropical forests. Conserving and restoring our lands and oceans is essential to limiting carbon emissions and adapting to the impacts already being felt.

As numerous UN bodies and NGOs point out: Climate objectives won’t be met if nature loss is not reversed, but many nature interventions are climate-supportive, and vice-versa. Integrating nature into sustainability strategies gives companies the opportunity to tackle challenges from a new, more effective angle. Nature serves as the bridge between all environmental areas – from climate to water, biodiversity to plastics and beyond.

There’s no hiding place on this issue; it’s now just as important for companies to integrate nature-based strategies, actions and plans – and CSOs will need to secure buy-in from the same colleagues who might have been hard to win over on climate action, or sustainability in general.

How to speak to stakeholders – from the CMO to CFO

The good news is that in speaking about nature, food and living creatures you can appeal to emotions in a deeper way than when discussing carbon. More and more individuals are passionate about saving our natural world. Nature speaks to our human values, whether that’s recreational or spiritual, making it easier for CSOs to connect with stakeholders in a positive way.

As you’ve learned in developing your climate strategy, executing a similar plan for nature will require building a team of internal champions.

Your CEO needs to fully understand how the business interacts with nature, its key dependencies on biodiversity, how the organization will fail to meet its net zero targets without fully addressing nature – and how doing so will propel the business to lead on climate action. Since your CEO will need to secure buy-in among board members, connecting the dots between nature degradation and increased operating costs, exposure to risks (physical and reputational), as well as the opportunities on the flipside will help make the case.

Your CFO must appreciate the wealth of incoming policy and regulation that asks your business to translate nature impacts into financial terms, including the exposure to risk and how the business will reduce those risks, ultimately future-proofing its activities. To avoid overwhelm, help your CFO see that nature reporting (TNFD) follows a very similar approach to climate reporting (TCFD).
Your COO needs to see that while climate strategies tend to be more top-down (increase energy efficiency, change product designs, install low-carbon equipment, etc.), nature actions call for a local lens. This requires deeper, on-the-ground stakeholder engagement to really understand the intricacies of specific sites or facilities, for example – and a strategy that is much more tailored to operational realities. In return, the operations department gets to be the sustainability hero, with increased visibility into the contribution these teams are already making to environmental goals.
Your product and R&D leaders must understand the opportunities nature-related products offer (e.g., waterless processes), providing the chance to be an innovator in the market.

Your procurement leader will know that supplier risks are growing. Many of these are connected to nature (e.g., sourcing crops from water-stressed regions, deforestation impacts). Addressing nature risks at source through increased traceability can enhance resilience in the supply chain, helping to stabilize and ensure security of supply. Help them understand the physical risks that could lead to cost increases and collaborate as thought partners to develop supplier engagement strategies.

Your CMO needs to feel inspired by the storytelling potential associated with nature issues which are often much more tangible and people-centered. If leveraged well, nature can be the next big thing in consumer marketing. Just as many brands have used climate awareness to build trust and connection with customers, marketers have a chance to extend that relationship further by exploring hyper-local issues in a way that brings about lasting change in local communities.

Your CHRO has a critical role to play in ensuring change is operationalized — and they shouldn’t be overlooked. After all, change management is a determining factor in the success or failure of organizational transformation. And with a heightened focus on local teams as part of nature interventions, HR will have the opportunity to strengthen company culture and sense of belonging across its sites. Your CHRO will also be instrumental in ensuring the business is equipped with the talent required for the sustainability transformation and will provide counsel on the right incentives to utilize across teams.

The way sustainability teams are structured will also be a determining factor in your engagement success. There are some emerging examples of firms that have established separate climate and nature teams, both reporting into CSOs, each with their own targets, approaches and action plans. Remember: nature projects help make your carbon strategy more operational. Similarly, climate action can spur activity on nature and biodiversity. If you are to make the case that net zero goals will not be achieved without giving focus to nature, you will need to ‘walk the talk’ by de-silo-ing climate and nature teams and establish closer working practices.

Making the case for nature relevant

While for some, nature may feel more tangible and hit closer to home than climate issues, most organizations don’t yet have a common understanding as to what it constitutes. Some might think it’s about protecting bees. For others it’s about making sure rainforests aren’t destroyed. So, it’s important to develop your own in-house definition, to determine what nature means to your business. This will be based on where you have an impact, as well as the ecosystem services you depend on, but also where you think you can have the biggest positive impact and make the biggest difference.

Yes, there will be some fatigue among some stakeholder groups, tired of conversations about carbon, pollution, Scope 3, greenhouse gases and electricity. So, just as you did with carbon, it’s crucial to answer the ‘what’s in it for me?’ question that will be running through people’s heads. Be ready and able to respond with strong examples to speak not only to hearts and minds but also the commercial brains of your busy colleagues — safeguarding nature means safeguarding the business.

And remember that teams probably have a lot of the processes and infrastructure already in place to support the nature strategy, so it isn’t always necessary to ‘reinvent the wheel’. Recognition that teams are already partially equipped to operationalize the nature strategy will help empower them, avoiding the ‘top-down’ approach to change which risks creating resistance.

Whatever you do, don’t underestimate the importance of stakeholder engagement, which is essential for driving sustainability within a business. Having colleagues on board helps to identify priorities, build trust, foster innovation, manage risks and create long-term value. Effective engagement also boosts accountability within different departments so that the responsibility moves outside of the sustainability function and progress is owned by the many, not just the few.

Author(s)

Alessandra Meloni Global Communications + Engagement Lead

Auriane Bodivit Sustainability Consultant

Marcial Vargas Global Science + Innovation Lead

Supporting companies on the road to a nature positive world.

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Every business needs a nature strategy. Here’s how to build one.

Posted on April 17, 2024 by Thibault Compagnon - Insights

Companies need to widen their sustainability focus, shifting from climate-centric to holistic, integrated approaches to addressing nature.

In brief:

The rapid decline of our natural ecosystems is a major risk for business continuity. Companies are already being significantly impacted by nature loss, with mounting pressure to act from regulators, the business community and civil society.
Fortunately, several recently developed frameworks and tools, combined with international, commonly agreed upon frameworks, are making it easier for companies to quantify their impacts on nature — and set targets to address and reverse nature loss.
Companies need to widen their sustainability focus, shifting from climate-centric to holistic, integrated approaches to addressing nature.
Systems-level transformation is necessary — incremental change will not suffice on the road to a nature-positive world.
Successfully tackling nature loss requires a different approach than companies are used to taking with climate initiatives, including problem solving through a local lens.
Companies must understand their reliance and impacts on nature, and accelerate action to address them, in order to mitigate serious physical, regulatory, reputational and market risks.

Nature is in freefall. Around the world, almost a million species are on the verge of extinction. A third of the land we depend on to grow crops and feed animals has been degraded. Every year, 400 million tonnes of toxic sludge, plastic and heavy metals are dumped into our oceans.

All of this is catastrophic for business. Most industries rely on biodiversity, not least farming and agriculture. More than half of the world’s GDP is ‘highly’ or ‘moderately’ dependent upon nature. This 50% of GDP provides the key goods and services on which we all depend – and without which the other 50% cannot function. It comes as no surprise that the World Economic Forum has repeatedly identified biodiversity loss and ecosystem collapse as major risks in its annual Global Risks Reports.

Nature is finally having its moment

The business case for looking beyond climate action to address the wider range of nature issues is clear. Nature loss is physically impacting companies, from supply chain disruptions caused by soil degradation and water scarcity to facility damage and loss of production caused by flooding, and beyond. And the pressure to act is mounting, both from the outside (in the form of more interested and informed investors, legislators and consumers) and from within (in the form of more vocal and passionate employees).

Fortunately, the world is finally waking up to the need to act. On the global stage, the Kunming-Montreal Global Biodiversity Framework was adopted by UN Parties in late 2022 as a means to stop and reverse biodiversity by the end of this decade, setting a global framework to guide nature action. In parallel, progress has been made in developing assessment and reporting tools, as well as more robust regulatory frameworks:

Science-based targets for nature: Last year also saw the Science Based Targets Network (SBTN) launch the first version of its guidance for setting science-based targets for nature for corporates, enabling companies to set more ambitious and measurable targets on both climate and nature in tandem.

The Taskforce on Nature-related Financial Disclosures (TNFD): These recommendations provide organizations with guidance for reporting and acting on nature-related dependencies, impacts, risks and opportunities, so that nature is fully integrated into decision-making.

The Corporate Sustainability Reporting Directive (CSRD): Applicable to all listed companies that are active in the EU, the CSRD strengthens the rules concerning the social and environmental information that companies are required to report.

The International Financial Reporting Standard (IFRS): The IFRS, which provides accounting standards for public companies, is beginning to release sustainability guidelines through its International Sustainability Standards Board (ISSB). General sustainability and climate disclosure guidelines were published mid-2023 and it plans to add other environmental aspects, including nature.

As frameworks start to create operational guidance based on the standards set by international bodies like the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), it’s now more straightforward for companies to examine the pressures they put on nature and set targets to reduce – and ultimately reverse — those impacts it by making a positive contribution.

The increase in frameworks and guidelines provide companies with much-needed clarity, especially since addressing and quantifying impacts on nature is a more complex undertaking than with climate impacts. The actions required are often multi-dimensional; dealing with nature loss means tackling land use change, controlling pollution, protecting and restoring biodiversity, and more — all of which require detailed traceability of raw materials and visibility across complex, global supply chains. This is due the fact that local context needs to be considered to meaningfully address nature impacts. The good news is that tackling one impact can often help address other

How companies can contribute to a nature-positive world

Integrating nature into corporate strategies is critical, but hardly a mainstream practice. While nature loss is a global phenomenon, it requires a local lens. Protecting a local water basin, for example, requires on-the-ground assessment and intervention. Companies can, of course, set global corporate targets on nature, but they must be informed by examining their operations’ hotspots and confirmed by setting some targets locally. At the same time, they’ll need to pursue transformational change to the business model, shifting from extractive to restorative practices.

To get started, it’s important to set a common understanding of what nature means to your business, your employees and your wider stakeholders. As with carbon, nature is relevant to every business function, and it’s critical to build cross-departmental buy-in to ensure that action doesn’t happen in silos but rather is spread throughout all departments. Procurement teams will need to engage suppliers of key priority commodities and materials; enterprise risk management will want to include nature-related financial risks into their business strategy and continuity planning; marketing and communications teams will need to develop new product mixes, and articulate the corporate approach to addressing nature-based risks in a way that avoids greenwashing; and operations teams will need to engage with site managers to find local solutions.

But before assigning the actions required of each department, you’ll want to conduct a thorough nature assessment. This involves measuring and identifying your most at-risk areas – areas with the highest pressures on nature (whether that be land use change, water, biodiversity, etc) – and tackle these. You’ll need to collect data on the origins and quantities of your raw materials, assess the pressure that these activities put on nature and, lastly, look at the state of natural ecosystems and resources to determine whether these pressures have a high impact on nature. This exercise will provide visibility into whether, for example, a factory is running water-intensive operations in a water scarce area, or raw materials are being sourced from a region known for deforestation – and make decisions about where to focus action so that you can create the most positive impact. In addition to assessing the risks of your nature dependencies, you’ll be able to identify the opportunities that come with nature interventions, placing a financial value on taking action — or not.

As with any sustainability initiative, setting ambitions and targets is key, as is communicating them to and building engagement with the relevant stakeholders within the business who will need encouragement and incentive to make change happen. The SBTN framework emphasizes the need for nature to be assessed with a local perspective, advising companies to set targets at a local level across different impacts. For large companies, gathering local data and setting targets for all commodity and location pairings or for each site can be quite the undertaking. To set nature targets that are relevant for such companies, Quantis recommends setting up a target framework: setting local targets for hotspot sites and commodity and location pairings, and using these to inform more global nature targets applicable to all commodities and sites (which are not hotspots or do not have the traceability data). This way, companies can set science-informed targets covering all operations and purchases, moving towards set impact-reducing actions as fast as possible. Waiting for the perfect data never justifies stalling action.

Activate your nature strategy and correct course along the way

As mentioned earlier, a successful nature strategy must be embedded across the business, with every department responsible for implementing change. In practice, actions will need to be prioritized and stakeholders given guidance for execution — especially product design, sourcing and procurement and marketing teams. Finally, you’ll need to create an effective way to track progress so that you can communicate success and fuel further action on nature. Unlike reducing greenhouse gas emissions, nature interventions require more creativity and dynamism when it comes to measuring progress. Again, understanding how impacts are being felt locally is crucial. Local stakeholders are increasingly willing to help, given they are the ones feeling the impacts of nature loss the most. Local factories are witnessing how water shortages are gravely affecting their business, and farmers are trying to improve their soil quality to remain as productive as possible.

In fact, to make truly meaningful progress on nature companies will need to develop strategies that look beyond their own operations and even value chains to work in collaboration with other companies that face similar nature challenges, NGOs, governments and academics. Industries will need to come together to rethink the future and transform value chains, embracing circularity and decoupling business activity from natural resource use.

The natural world offers businesses priceless assets, ecosystem benefits and innovative solutions, not to mention boundless resources. However, to adequately address nature-based risks, companies must elevate the issue to the forefront of corporate strategy, affording it equal importance to climate action. Embracing and leveraging nature’s potential enables us to expedite our journey towards achieving net zero while preserving the vitality and adaptability of ecosystems for generations to come.

Author(s)

Emily Dobson Innovation Project Manager

Julie Christiaen Sustainability Consultant

Tatiana Fedotova Quantis Alum

Want to learn more about our nature solutions?

Quantis guides companies on the road to a nature-positive world, leveraging these frameworks and beyond.

Learn more

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Canary in the gold mine: The call is out for sustainability in the watches and jewelry industry. Who’s listening?

Posted on April 15, 2024 by Thibault Compagnon - Insights

sustainability watches and jewelry industry

In an environmentally conscious era, the watch and jewelry industry must choose between business-as-usual and future-proofing its business models.

In an environmentally conscious era, the watch and jewelry industry must choose between business-as-usual and future-proofing its business models. Anne-Sophie Verquère, Principal Strategist serving the luxury watch industry at Quantis, and Sabine Loetscher, Quantis Switzerland’s Fashion + Sporting Goods Sector Lead, answer a few questions about sustainability issues, risks and challenges facing the watches and jewelry sector.

How sustainable is the watches and jewelry industry?

Sabine: Sustainability in watches and jewelry has gained traction in recent years. Companies are increasingly recognizing the need to integrate sustainable practices into their operations; however, while engagement is on the rise, the pace of progress falls short of what’s necessary to address the pressing environmental concerns associated with the industry. A particular concern stems from the mining process for the precious stones and other raw materials that are used to craft these items. The WWF’s 2023 Watch and Jewelry report gave a sustainability rating to the top 21 luxury watch and jewelry brands, and only 7 brands broke the upper half of the rating system.

Anne-Sophie: There’s also been growing awareness among consumers about the environmental and social impacts of their purchases. This shift in consumer behavior is propelling companies to rethink their approaches to sustainability, especially as younger generations begin to earn more and increase their collective purchasing power. Millennials and Gen Zers, as well as urbanites, are generally more willing to pay for products that have net-zero production emissions. The companies that tackle their environmental impacts today are more likely to earn – and maintain – the trust of these consumers.

What are the environmental impacts of mining in the watches and jewelry industry?

Anne-Sophie: The mining activities associated with the watches and jewelry industry exert significant pressure on the environment spanning multiple topics. From deforestation to soil degradation, these operations leave a profound footprint. Forests are cleared to make way for mining sites, leading to biodiversity loss. Soil quality suffers due to the disturbance caused by mining activities, which also harms local ecosystems and agricultural productivity.

Sabine: To add on to that, mining operations disrupt the natural water cycle, leading to water scarcity and contamination. The use of toxic chemicals in mining processes further exacerbates these environmental challenges, posing risks to aquatic life and human health. Environmental and social issues are deeply interconnected, with the loss of biodiversity and the degradation of water sources profoundly affecting human rights, including livelihoods, land rights and access to clean water in mining regions.

When working with the watches and jewelry industry on sustainability, what are the biggest challenges you typically encounter?

Anne-Sophie: The sector is very traditional but is gradually catching up with ‘modern’ expectations of sustainability. Recently, there’s been increasing awareness, and the major players in the sector have launched initiatives to accelerate their commitments, such as the Watches and Jewelry Initiative 2030. Even though they’re not directly involved in metal extraction activities for the most part, watch and jewelry brands can still have tremendous influence and lead the charge for fairer, more transparent and responsible value chains, be they for gold, silver or precious stones. The main challenge remains addressing the climate crisis and nature loss in mining regions. Mining is highly energy-intensive, accounting for up to 11% of global energy consumption.

Sabine: Sustainability requires a complete business model transformation and shakes up the culture of established companies. Exploring and refining new business models demands dedicated involvement and seamless teamwork across the C-suite, strategy, design, marketing, sustainability, operations and finance teams. Brands have a social and environmental responsibility along the value chain from the mining sites from which they obtain their supplies to their customers. The sector also has a duty to set an example because it has the means to finance its own transition, with brands having strong positioning and comfortable margins.

What risks does the industry face if it fails to prioritize sustainability?

Anne-Sophie: Failing to prioritize sustainability poses multifaceted challenges for watches and jewelry companies. Firstly, there’s a reputational risk; in an era where consumers increasingly value transparency and ethical practices, companies that neglect sustainability may face backlash, damaging their brand image and market standing. While watch and jewelry consumers are not yet calling for sustainability at the same scale as in consumer goods industries, the industry can play an inspirational role in proactively championing sustainability. The industry has already faced scrutiny for the social impact of watches and jewelry, the call for environmental sustainability will only grow as consumers connect unsustainable mining practices with the brands they purchase from.

Sabine: Companies need to consider the supply chain risk, especially the potential disruptions in mining regions where the consequences of the climate crisis are already visible. There are also recent regulations that demand transparency and non-financial reporting around sustainability, such as the recent (CSRD). A lack of traceability within supply chains makes it difficult to ensure the sustainable sourcing of materials, exposing companies to these potential operational and regulatory risks. Companies can start mitigating these risks by conducting supplier audits, establishing best practices or standards for them to abide by, and investing in technologies that can provide material tracking information.

What recommendations would you offer to watches and jewelry companies to enhance their sustainability efforts?

Sabine: To drive meaningful, positive change, companies need to start by understanding their nature impacts and dependencies through a comprehensive footprint of their operations. This can help identify hotspots for improvement and inform targeted sustainability strategies. From there, nature dependencies can be tracked and analyzed to increase transparency along the value chain and inform business decision-makers about the best next steps.

Anne-Sophie: Effective communication, both internal and external, is key to fostering a culture of sustainability across the industry. Companies should engage their stakeholders, including suppliers, employees and consumers, in open and honest dialogue about their sustainability initiatives. With consumers, companies can harness direct-to-consumer (D2C) retail methods, which allow them direct access to their target markets to clarify their sustainability initiatives and progress.

While the industry may prefer to remain discrete and limit sectorial initiatives, sustainability challenges cannot be tackled alone. By communicating authentically about their commitments and progress, companies can inspire broader adoption of sustainable practices within the industry. We’ve started to see more willingness for collaboration, especially on topics like footprint methodologies and supplier engagement. This is a good sign.

Sabine: I’d also recommend that brands embrace ecodesign principles and promote circularity with their materials. Using recycled materials and exploring opportunities for product recycling and refurbishment could drive down impacts. BCG analysis predicted secondhand luxury watches to make up 35% of the market by 2026. In fact, some watch models increase in value on the secondhand market since brands typically only release a limited number. Often consumers are more willing to pay a premium on the secondhand market to obtain rare, collectible products.

Author(s)

Anne-Sophie Verquère Principal Strategist

Sabine Loetscher Quantis Switzerland's Fashion + Sporting Goods Lead

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Generating the right demand: un-niching sustainable products

Posted on April 9, 2024 by Thibault Compagnon - Insights

It’s time to bring sustainable products into the mainstream.

By now, every marketer can recite this conundrum: studies show that customers want more sustainable products, but customers don’t buy sustainable products. A 2023 BCG survey found that while 69% of respondents claimed they were concerned about sustainability in grocery retail, only 7% were actually buying more sustainable products.

So why is that?

The easy conclusion is that customers don’t back their convictions with action. But could there be other drivers in play? By now, there’s certainly no shortage of products that claim to be ecofriendly. Putting aside any cynicism from rampant greenwashing, let’s assume they’re at least more sustainable than their flagship brethren. So why don’t they move from store shelves into the shopping cart?

Is it really the customer? Or could the real issue be the marketing mix, also known as the 4Ps of product, price, promotion and placement.

Every product has an “Ideal Customer Profile” (ICP) in mind. The ICP is the archetype of the target market, but these archetypes can often calcify in the minds of marketers, taking on a level of permanency that can fall out of pace with changing times. Moreover, this myopia is exacerbated by concerns of cannibalizing sales from other product lines meant for other ICPs, or in the case of mass-market products, everyone else. In short, they don’t find new markets because they aren’t meant to.

Harvard Business Review explains that consumers often have negative associations with sustainable product options around quality, aesthetic and price. We’ve all seen these products. They live secluded, tucked away from their brighter counterparts in either an isolated section or on the bottom shelf. They have drab, minimalist labels. Despite costing more, they look inferior in quality. Whether they actually are is a mystery: most mainstream customers won’t try them to draw their own conclusions. They’re figuratively (and literally) not for them.

Does it really have to be this way?

Rather than having a sustainable product line, why not have a product line that’s sustainable? It may seem nuanced, but it’s time to bring sustainable products into the mainstream. Marketers must drive demand for them with the same exuberance as the tried-and-true flagship products for which customers can whistle every jingle or quote their favorite commercial. Or better yet, make the flagship lines themselves sustainable.

Start with the packaging

Sustainable packaging is a critical component of a product’s life cycle, impacting both environmental footprint and customer perception. Eco-friendly packaging solutions, crafted from recycled or biodegradable materials, significantly reduce waste and carbon emissions, aligning with the global move towards environmental responsibility and new packaging and packaging waste regulations. But the revolution doesn’t stop there. For sustainable packaging to be effectively un-niched, it must also focus on innovative design and functionality, ensuring not only environmental friendliness but also convenience and appeal for the consumer. In short, marketers need to decouple the association between “eco-friendly” and “drab” if they expect the mainstream customer to buy the product.

Though many companies have made strides to transition to sustainable packaging, ensuring their products are encased in materials that reflect their commitment to both quality and sustainability, there’s still a long way to go. Many consumers believe that the packaging from their favorite products is recyclable – they certainly go to the curb in the correct bin – but most of it still goes to a landfill, often offshore. In fact, a 2022 OECD report found that only 9% of plastic waste globally is recycled, while 22% is mismanaged.

Plastics are a particular problem, because even if containers have that recyclable symbol that has become so pervasive, it doesn’t necessarily mean they will take on new life. Most plastics undergo a decline in quality (downcycling), limiting their recyclability potential. To make matters more complicated, there are numerous kinds of plastics, each of which requires different recycling processes. Dealing with contaminants and implementing the right infrastructure are other drivers in the complexities of plastics recycling.

If companies simply must continue using plastics, they need to design their packaging to address these complexities or innovate to develop new solutions. Otherwise, the best option is to either minimize (or preferably dispense with) plastics altogether wherever possible.

Consider what’s on the label too

When faced with two choices between two equally attractive and well-promoted products, which brand gets chosen? All things are not equal in this regard. Of course, brand loyalty is a powerful consideration, but customers will scrutinize labels if they’re truly uncertain. With increasing consumer demand for more sustainable products, customers on the hunt for products that minimize harm to the planet are all the more likely.

Too often, labels will make a broad claim like, “Now, better for the planet!” or something along those lines, but the customer would be hard-pressed to derive any meaning. Maybe that worked a decade ago, but now customers are far savvier and want to know how and why they are better. Even more, soon the regulatory landscape will simply not allow it – the EU’s PPWR is establishing strict guidelines on labeling to provide a standardized framework for consumers to compare products’ environmentally friendliness.

Not having enough space to elucidate the several reasons why your brand’s product is indeed better for the planet is a good problem to have (and if so, congratulations). If that’s the case, or your brand is somewhere along the way to that goal, QR codes provide an excellent way to not only educate your customer but to engage with them as well.

Price aggressively

Customers shouldn’t have to pay more just to do the right thing, but many have to do just that. Why? Oftentimes it’s not because the sustainable version is more expensive to make, but rather that the product line lacks the scale to maintain a competitive price point. In other cases, it’s priced for what the traditional, eco-friendly ICP can afford. Or it could be a mixture of the two.

The mainstream sustainable product should have multiple ICPs at multiple socio-economic levels. Right now — in many cases, living sustainably is associated with privilege.

Moreover, this perpetuated inequality in the availability and affordability of sustainable products further exacerbates societal divisions. It sends an unintended message that sustainability is an exclusive club, only open to those who can afford the price of admission. The perpetuation of this notion not only harms the planet by limiting the adoption of sustainable products but also undermines the global movement towards universal environmental responsibility.

Consumer Goods companies have both an opportunity and a responsibility to put sustainable choices in front of the average consumer, not just those with disposable income. By ensuring that sustainable products are competitively priced and widely available, companies can stimulate increased demand, leading to larger-scale production and further cost reductions, creating a positive cycle of growing sustainability and affordability. Companies that can out-green and out-price will enhance their brand standing and break the competitive gridlock that brands so often face in a crowded field.

Beware of overconsumption

Are your marketing strategies driving market share or market size? According to the traditional marketing playbook, either is just fine, so long as the product is being sold. But from a sustainability perspective, be it social or environmental, that’s short-sighted.

Marketing strategies are tied to a desired outcome. For example, you can compete through a lower price, or perhaps you position your product to be of higher quality, so you don’t. Digital coupons can sway the buying decision on a commoditized product. These levers are exercised every day. The most effective strategies tend to be the ones that get the customer to stock up because, in doing so, you can be sure of two things: 1) They bought your product with their need more than amply met, and 2) they won’t be buying your competitors’ products any time soon.

The sustainability risk arises if you’re encouraging customers to purchase more than they can realistically consume. This is particularly problematic with perishable products, leading to waste of the excess. Alternately, there’s the risk of driving irresponsible consumption, because a customer’s unlikely to use a product sparingly if it’s in short supply.

Quality matters

A large misconception is that there’s a tradeoff between sustainability and product quality. This assumption has hindered the broader acceptance of sustainable goods beyond niche markets.

Though a certain ICP or target market would gladly trade some quality for peace of mind, when you broaden outside of that niche, that may not hold true. In fact, it’s highly likely it doesn’t. If the product doesn’t work, or doesn’t taste/smell good (depending on what it is), then why would anyone buy it? This isn’t news. What might be news is that sustainable products don’t have to be inferior in quality.

Depending on the scope of marketing in each organization, how a product’s made might be out of the CMO’s direct control, but they’re still the vanguard of what most customers want and can advocate for it. A 2023 BCG article encourages business decision makers to utilize innovation to activate lasting consumer behaviors; by removing other barriers to address the core needs of consumers, companies can sell products that resonate with potential buyers while also pushing their sustainability agenda.

Given the range of consumer goods, be it fashion, food, or cosmetics, innovation can take on many different meanings. It involves reimagining every aspect of the product, including its functionality, durability and aesthetics. Ultimately, though, it’s about making quality goods that customers want.

And that’s always been true. Sustainable products shouldn’t be the exception; in fact, they should strive to surpass the standards set by traditional counterparts. When consumers realize that they don’t have to compromise on quality to make sustainable choices, it becomes a more attractive option for the masses.

In essence, prioritizing quality in sustainable products meets market demands, sets new market standards and reshapes consumer perceptions around sustainable goods. By delivering sustainable, quality products, companies can truly make sustainability accessible to larger markets and drive widespread adoption of their brand.

Author(s)

Quantis Insights Hub

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Nature’s runway: Why nature is the crisis the fashion industry can’t ignore

Posted on March 28, 2024 by Alice Geronzi - Insights

In brief:

The fashion industry has a close mutual reliance with nature, especially in the areas of biodiversity, water and land use. Yet the shift from an extractive to a reciprocal relationship between the industry and ecosystems isn’t happening fast enough.
If companies fail to reduce their impacts and dependencies on nature, they’ll expose themselves to operational, regulatory and reputational risk.
Fashion brands can’t afford to consider climate action as separate from nature conservation and regeneration. Rather than looking to reduce carbon in a silo, companies should be aiming to reduce impacts and dependencies on nature to boost business resilience and preserve the planet’s finite resources.
By bringing nature into the fold, fashion companies can fortify themselves against future environmental shocks and build a more resilient business model.

Nature has long been a rich source of inspiration for the fashion industry. Yet many brands seem to ignore the various ways in which their activities put nature and, in turn, their business – at risk. From the fibers woven into fabrics, to the land used for production, the fashion industry’s success is inherently tied to the health of our planet’s ecosystems.

What if the key to future-proofing fashion was protecting and restoring nature?

How nature underpins the fashion industry

As an industry, culture and system, fashion has a close interdependency with nature, especially in the areas of biodiversity, water and land use.

+ Biodiversity

The fashion and sporting goods sector relies on biodiversity for both the raw materials that go into products —such as cashmere, cotton, leather, viscose and wool — and packaging. Due to the rise of mono cropping and related crop efficiencies, we’ve seen a decline in the number of species used within production. In fact, it’s estimated that biodiversity is declining at a rate 1000x higher than natural rates. Not only does this reduce genetic diversity and make agricultural systems less resilient to environmental threats, but it also increases the industry’s dependence on the remaining species to pick up the slack.

And while natural fibers pose a risk to nature by nature, this doesn’t mean that synthetic-heavy sectors like the sporting goods industry get a free pass on setting a nature strategy. Issues like microplastic leakage, water use and biodegradability are critical to address.

+ Water

Water quality and availability are lifelines for both natural ecosystems and fashion, as the industry consumes over 79 trillion liters of water each year. From crop irrigation to dyeing processes, the sector’s reliance on water is multifaceted.

The production and processing of crops like cotton is highly dependent on water. Poor water management drives water scarcity, as the surface and groundwater used to irrigate cotton fields leads to freshwater loss.

According to Material Exchange, the fashion industry is the second largest consumer of water due to bleaching, dyeing, finishing, softening, spinning, and growing materials. Unfortunately, most of the water is contaminated by chemicals during these processes, which are often improperly disposed of, polluting our already scarce water supply and contributing to the degradation of aquatic ecosystems.

+ Land use

Overproduction in apparel has an intense effect on land degradation and deforestation as well, through the cultivation of crops, animal grazing, and manufacturing facilities all requiring substantial land use.

Leather and viscose production contributes significantly to the deforestation of several ecosystems, including the Amazon. Around 200 million trees are cut down every year to support the production of viscose fibers, and many of these are taken from at-risk, old-growth forests, rather than managed tree plantations. Deforestation and land degradation lead to soil erosion, depleting the fertile topsoil and reducing the land’s productivity.

The livestock industry uses around 80% of the world’s agricultural lands. The overgrazing of livestock for wool and cashmere affects the balance of plant species too, with an increase in grass-like plants and a decrease in woody shrubs and trees thus affecting species and ecosystem biodiversity. Most grasslands in Mongolia have already been degraded due to cashmere over-grazing practices. Furthermore, failure to address these issues in the fashion industry could lead to supply chain disruptions, increased costs, regulatory risk and reputational damage.

What is fashion without nature?

The relationship between fashion and nature needs to shift from extractive to reciprocal – nature provides the resources that underpin the industry and, in return, the industry must take actions that protect and restore ecosystems. If companies fail to reduce their impacts and dependencies on nature, they’ll expose themselves to operational, regulatory and reputational risk.

+ Supply chain resilience

Ecosystem disruptions can reveal vulnerabilities in a company’s supply chain. Relying on a narrow range of resources or sourcing solely from regions prone to environmental instability exposes companies to risks such as price volatility, supply shortages and compromised product quality. For example, many luxury fashion companies prefer longer cotton fibers, which can only be produced in a few regions. The climate and biodiversity crises lead to lower cotton quality due to temperature changes and a reduction in pollinators. This example also extends to raw materials from animals, as rising temperatures can result in lower–quality wool.

+ Costs and operational efficiency

Environmental disruptions, from water scarcity to extreme weather events, can lead to higher production costs and decreased operational efficiency. Rising costs of raw materials, energy and waste disposal put increasing pressures on profit margins, showing how conventional, resource-intensive practices are both environmentally and financially unsustainable. The fashion industry’s linear model of production, consumption and disposal is a dead-end strategy in the face of rising resource costs and potential regulatory measures aimed at curbing further environmental impacts.

+ Innovation and future-proofing

The very nature of the fashion industry is to be forward-thinking, but neglecting the importance of nature-related topics is starkly at odds with a culture of innovation. Taking a reactive stance to nature will only put fashion on the defense, leaving companies vulnerable to various risks and environmental disruptions to their business activities. Investing in regenerative ecosystems and adopting circular economy principles are essential for staying ahead in a rapidly changing market shaped by increasingly environmentally aware consumers.

+ Regulatory compliance

Governments and international bodies are recognizing the urgent need for more stringent environmental regulations. Earlier this year, the European Union adopted the EU Deforestation Regulation, which requires companies to meet three conditions to help minimize the risk of deforestation and forest degradation associated with products in the EU market. Companies that don’t align with these evolving standards risk legal repercussions, fines and reputational damage. CSRD is another example. Embracing sustainable transformation is imperative for long-term viability, success and compliance.

How can fashion hit the runway with nature?

Today, reducing greenhouse gas emissions is at the forefront of sustainability strategies and target setting. But we can’t afford to consider climate action as separate from nature conservation and regeneration. Rather than asking how to reduce carbon in a silo, companies should be asking the question: How can we reduce our impacts and dependencies on nature to boost business resilience and preserve the planet’s finite resources?

To address their dependencies and build a more resilient business model, businesses will need to:

1+ Understand their dependencies

While historically the market has lacked a standardized method to quantify biodiversity footprints, strong global frameworks are quickly catching up.

Since nature impacts are heavily dependent on where they’re located, initiatives and actions that work in one landscape, ecosystem or community may not necessarily work in another. Start by thinking about your portfolios that can be measured on a regional basis, as biodiversity and nature-related issues are geographically specific. Once increased visibility is established, companies can collect environmental data from their growers to better prepare for the future. This can be facilitated through taking part in industry collaborations and collective initiatives that drive effective data collection. This is a crucial starting point for understanding both your dependencies and associated risks.

2+ Address and reduce risk exposure

As previously mentioned, tackling biodiversity-related issues and dependencies requires a regional perspective. The Taskforce on Nature-related Financial Disclosure (TNFD) recently issued guidance for companies looking to identify nature-related dependencies, impacts, risks and opportunities using their Locate, Evaluate, Assess and Prepare (LEAP) framework.

The Science Based Targets Network (SBTN) also released a framework for setting science-based targets for nature. This framework aims to help companies take immediate action on nature topics such as biodiversity, freshwater and land use by having them identify areas of impact and opportunities for positive change.

3+ Conduct scenario planning (dependencies, opportunities, risks)

Scenario planning is a strategic tool that fashion companies can utilize to assess both their impacts and dependencies on nature and delve into adaptation strategies for future environmental shocks. By developing alternative scenarios that represent potential futures based on variations in key drivers, companies can consider scenarios that explore different options for sourcing, circular economy practices and innovative technologies that can mitigate environmental impacts. They can then strategize on how to appropriately adjust their operations, supply chain practices and product offerings to thrive in each scenario and better prepare them for times of uncertainty.

4+ Take immediate action

Setting targets and ideally a regional strategy can take time, especially considering what it takes to secure internal buy-in and establish a common understanding is factored in. It’s critical to take action today by joining industry initiatives and partnering with peers on vetted supplier and field-level programs to drive short-term impact. Increasing traceability of raw materials is key to understanding direct nature impacts. While brands work to improve traceability, they should start to address impacts within the life cycle stages they have visibility into. For example, while a company might not know the regional origin of its cotton, it can still take action to limit the impacts of its wet processing, a significant driver of water pollution and consumption.

5+ Raise the bar even higher

Ultimately, fashion brands need to set the stage for a complete transformation of their business model, building circularity into products to extend their life and avoid the use of virgin raw materials. It’s important to remember that overconsumption is the number one barrier to securing a sustainable future for the planet and the industry itself.

The fashion industry needs to utilize sustainability as a roadmap for enduring success. More than a moral or ethical imperative, it’s a strategic business move that aligns with growing consumer expectations, regulatory landscapes and the demands on our planet. By understanding and addressing their dependencies on nature, fashion companies can fortify themselves against future environmental shocks and build a more resilient business model. The call is clear — embrace sustainability and embark on a holistic transformation journey toward a future where fashion and nature coexist harmoniously.

Author(s)

Molly Yestadt Senior Sustainability Consultant

Philipp Meister Global Fashion + Sporting Goods Lead

Simon Gillet Senior Sustainability + Nature Expert

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Discover our nature solutions

Nature integration: Overcoming business hurdles

Posted on March 14, 2024 by Thibault Compagnon - Insights, Videos

The integration of nature into corporate strategies remains critical, yet underexplored. Despite the interconnectedness between climate and nature, many companies grapple with establishing an integrated approach. Companies that adopt holistic, nature-centric strategies stand not only to protect their operations, but also lead the business community towards responsible stewardship of our planet’s resources. Watch Quantis Global Water and Ad Interim Biodiversity Lead Tatiana Fedotova’s interview with Global Leader Allon Zeitoun to learn more.

Nature solutions

Quantis guides companies on the road to a nature-positive world, leveraging these frameworks and beyond. Our modular approach meets you where you are and ushers you to the next stage of your nature journey.

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Is the COO the unsung sustainability superhero?

Chief Operating Officers have both an incredible responsibility and influence on the way companies are run. Operationalizing sustainability is their next mission.

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Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

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Navigating 2024: Pursuing adaptation and resilience in the fashion and sporting goods industry

Posted on March 7, 2024 by Alice Geronzi - Insights, Videos

Sustainability in the fashion industry 2024

Quantis experts have identified four pivotal pillars for 2024 that will play a critical role in shaping the future of sustainable Fashion.

2024 represents a critical opportunity for fashion and apparel companies to accelerate action on corporate sustainability initiatives. Our experts came up with four key themes for companies to embrace in the coming year to double down on their contribution to a sustainable future where both business and planet can flourish.

1. Prepare for the upcoming regulatory landscape.

Globally, fashion and apparel brands will have to contend with more than 35 pieces of significant new legislation in the next several years, as highlighted in our report titled Sustainable Raw Materials Will Drive Profitability for Fashion and Apparel Brands. Upcoming regulations will touch on every aspect from manufacturer, brand, and retailer operations, covering all life cycle stages of a product. Some such changes include:

The way products are designed with the EU’s Ecodesign for Sustainable Products Regulation;
How products are marketed with the EU’s Green Claims Directive; and
How they’re discarded with the EU’s Waste Framework Directive and the Extended Producer Responsibility.

As the regulatory environment evolves, companies must proactively align their strategies to ensure compliance to both uphold sustainable practices and safeguard the industry’s future.

2. Set science-driven targets for nature.

The call is clear: Fashion brands need to embrace sustainability and embark on a holistic transformation journey toward a future where fashion and nature coexist harmoniously. The relationship between fashion and nature needs to shift from extractive to reciprocal – nature provides the resources that underpin the industry and, in return, the industry must take actions that protect and restore ecosystems. One of the most pressing issues that fashion companies face is their overreliance on finite resources such as water, land and raw materials. If companies fail to reduce their impacts and dependencies on these various nature topics, they could expose themselves to operational, regulatory and reputational risk.

3. Transform product portfolios.

At the core of every brand’s identity lies its products, and as the industry pivots towards sustainability, a profound reassessment of product portfolios is imperative. Brands must embrace strategic pathways that diverge from traditional, linear business models and instead operate within planetary boundaries. Innovations in product design, manufacturing processes and material selection – or even reimagining the core structure of a brand’s business – can position brands as pioneers of meaningful change, fostering both sustainability and business resilience.

4. Invest in data digitalization.

Digitalization is a big trend impacting footprint integration, at both corporate and product levels. With this shift come new complexities, all while existing impact assessment challenges (like tracking progress, developing roadmaps and transforming products and process) remain. In the current context of rapid growth and consolidation of the footprinting software market, brands need trusted support that ensures sustainability science drives selection criteria and decision making. Armed with the right insights, teams can make informed decisions that bring them closer to goals, mitigate risk and help the company adapt to a changing landscape.

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Is the COO the unsung sustainability superhero?

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Scope 3 reductions: The role of brands in decarbonizing the value chai...

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

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Clearing the air on methane

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

The hidden face of beauty: Mitigating raw material risks in sustainable cosmetics

Posted on February 19, 2024 by Thibault Compagnon - Insights

With thousands of ingredients used in today’s beauty product formulas, and the importance of packaging as the face of the product, R&D and product design teams must make critical choices about the raw materials they use.

With thousands of ingredients used in today’s beauty product formulas, and the importance of packaging as the face of the product, research and development and product design teams must make critical choices about the raw materials they use. As consumers pay closer attention to ingredient labels, R&D teams face pressure to prioritize sustainable materials. What’s more, regulatory requirements around product sustainability are intensifying, investors are scrutinizing non-financial disclosures, and retailers such as Sephora are introducing their own sustainability guidelines for brands.

In response, many cosmetics and personal care brands are looking for innovative solutions. But they often find themselves focusing on a narrow set of objectives, such as targeting specific consumer trends like natural beauty, or focusing on meeting communicated carbon emission or plastic reduction targets. This runs the risk of unintended impact shifting. 

Impact shifting: A major challenge for the beauty industry 

For beauty brands, impact shifting risks are particularly relevant in the widespread move towards raw materials from natural sources. Demand for bio-based feedstocks has grown as consumers perceive natural ingredients to be less chemically harmful or more sustainable. Other common sustainability priorities, such as decarbonization and reduction of plastic pollution, are also driving a shift towards natural feedstocks, both for ingredients and packaging materials. Examples include the boom in popularity of plant-based essential oils, demand for bioethanol from sugarcane, replacement of carbon-intensive silicones with bio-based esters, shifts from plastic to fiber-based packaging materials, and introduction of cellulose to replace microplastics.

But bio-based materials can have significant impacts on land use and biodiversity. In a now-familiar cautionary example, cultivation of palm oil ended up driving 7% of global deforestation between 2000 and 2018. For some inputs, such as essential oils, rising demand has also led to industrialized production. Essential oils need large amounts of raw materials for small yields, e.g., taking 50 rose petals to extract a single drop of rose oil. Industrializing their production can involve higher-impact use of fertilizers and pesticides to meet demand. Thus, these materials changes result in unintended impact shifts from one natural system to another—reducing carbon emissions while increasing water use or eliminating plastic pollution while driving up deforestation.

Impact shifting occurs even with the best intentions for sustainable transformation. Cosmetics and personal care companies must remain aware of the risks and make informed decisions.

Avoiding impact shifting requires moving from an innovation model focused on a narrow set of objectives towards a more holistic ecodesign approach to sustainable product innovation, which aims to limit overall environmental impact. Companies that identify and mitigate impact shifting risks will future-proof their material choices and speed their trajectory towards impact reduction. To make this shift, companies must take three important steps:

1. Understand the holistic impacts of raw materials and identify impact shifting risks

To make informed material innovation decisions, brands first need to perform a product Life Cycle Assessment (LCA) to assess multiple impacts across the entire product life cycle. One resource is the European Product Environmental Footprint (PEF) methodology, which includes 16 indicators measuring impacts across climate change, ecosystems, human health, resource use and water use. In collaboration with Quantis, L’Oréal developed the Sustainable Product Optimization Tool (SPOT), an ecodesign tool to evaluate the brand’s environmental performance over time.

2. Empower R&D teams to leverage impact data

Impact measurement alone is insufficient to drive sustainable innovation. Companies need to enable their teams to use impact data to inform product design choices, and can do so by:

Redesigning product development processes to include environmental impact information in the earliest design stages. Today, available impact data is often siloed within dedicated sustainability teams, leaving out R&D teams. Environmental considerations are included late in the product development process, if at all.

Integrating environmental considerations into governance structures alongside other business considerations, like profitability and efficacy. Having clear rules and structures in place can help streamline decision-making at key development stages. For instance, brands may opt to only approve products which have less impact overall than their predecessors, or which have certain sustainability characteristics.

Upskilling R&D and other teams around product sustainability and LCAs to help them understand data, develop an ecodesign mindset and arbitrate between potential impact trade-offs.

3. Work collaboratively with the value chain

Sourcing teams play a major role in integrating the most sustainable materials to reduce impact shifting risks. But this requires internal dialogue between sourcing, R&D and sustainability teams to align on objectives. Levers companies can deploy to mitigate impact shifting in the value chain include:

Applying sustainable sourcing best practices for high-risk materials, whether by relying on recognized certifications such as the Roundtable for Sustainable Palm Oil (RSPO) or the Forest Stewardship Council (FSC), or by monitoring and collaborating with suppliers on sustainable procurement policies. Working with suppliers can have the added benefit of securing supply of some short-term limited sustainable materials.

Deploying and supporting agroecology practices, such as regenerative agriculture, within their value chains. Implementing these practices at scale allows companies to move beyond impact reduction and towards positive action on nature.

Supporting continuous material innovation by working with suppliers (including startups) to develop vetted alternatives to natural feedstocks, such as algae or agricultural waste. Some fragrance brands have experimented with ethanol from carbon capture, which reduces land use and nearly eliminates water consumption, while companies looking to replace silicones may consider bio-based esters from waste.

A holistic approach to innovation

Government regulations, reporting standards, and public discourse are all evolving towards a more comprehensive view of sustainability. According to a Boston Consulting Group study 71% of skin care consumers reported sustainability concerns. In Europe and the US, recent and upcoming legislation relevant to beauty products tackles issues such as deforestation, plastic pollution reduction and regulation of ingredients deemed harmful to the environment. At the same time, the EU’s Corporate Sustainability Reporting Directive (CSRD) is evolving requirements to include not only climate change but also disclosures on companies’ impact and dependence on nature.

To future-proof products and business models and avoid impact shifting, beauty brands must apply a holistic lens and consider multiple environmental impacts in designing their products. This will ultimately empower R&D teams to produce more sustainable cosmetics and lead the industry forward.

Author(s)

João Guimarães Ingredient Sustainability Expert

Polina Dekhtyar Senior Strategist, Cosmetics & Personal Care

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How the pharmaceutical industry can support vitality for both human and planetary health in 2024

Posted on February 14, 2024 by Thibault Compagnon - Insights, Videos

sustainability in the pharmaceutical industry

Quantis experts have identified three pivotal pillars for 2024 that will play a critical role in shaping the future of sustainable pharmaceutical companies.

In response to the heightened demand for transparency and environmental stewardship, especially from health authorities in the pharmaceutical sector, industry players are undergoing a transformative shift toward integrating planet health with human health. Quantis experts have identified three pivotal pillars for 2024 that will play a critical role in shaping the future of sustainable pharmaceutical companies.

1. Increase ecodesign & circularity.

Ecodesign is essential to address the rising demand from health authorities and regulators for increased transparency around the environmental impacts of pharmaceutical products. This approach not only allows organizations to align with stakeholder expectations but also fosters a culture of accountability within the industry, accelerating the shift towards sustainable and responsible manufacturing practices.

2. Adopt sustainable manufacturing & supply chain practices.

The market is increasingly demanding more sustainable manufacturing processes, waste reduction, and the integration of sustainable practices within the supply chain. When implemented correctly, these changes increase process efficiency, enhance product quality and ensure long-term business continuity and resilience.

3. Set an integrated nature strategy and science-based targets.

Given the functional integrity of ecosystems is critical for human health, it’s imperative that pharma companies assess their nature-related risks, set science-based targets for nature and develop a detailed action plan to preserve their ability to develop new drugs and medicines. This shift in focus acknowledges the interconnectedness of pharmaceutical activities with nature, aligning the sector with broader environmental objectives and enacting sustainable transformation within the industry.

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Is the COO the unsung sustainability superhero?

Chief Operating Officers have both an incredible responsibility and influence on the way companies are run. Operationalizing sustainability is their next mission.

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Scope 3 reductions: The role of brands in decarbonizing the value chai...

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

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Clearing the air on methane

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

The sustainable beauty revolution: Meeting cosmetics and personal care industry challenges head-on in 2024

Posted on February 14, 2024 by Thibault Compagnon - Insights, Videos

sustainability in the Cosmetics and personal care industy

Our experts highlighted five key themes to guide action in the coming year toward a sustainable future.

For the cosmetics and personal care industry, 2024 represents a year of opportunity to move beyond sustainability pledges and implement tangible actions. Our experts highlighted five key themes to guide action in the coming year toward a sustainable future where both business and the well-being of the planet thrive.

1. Increase consumer education and engagement

The product use phase is responsible for 40% of the cosmetic industry’s environmental impact. While companies can set sustainability strategies and act themselves, changes in consumer behavior are imperative to making real progress on sustainability goals. Changes in consumer habits, through a mix of education and incentivization, can help companies deliver on their sustainability commitments. The industry is working to increase consumer awareness and engagement through the EcoBeautyScore, a harmonized environmental score for cosmetics products.

2. Embrace ecodesign and circularity

Companies need to maximize their business impact within planetary boundaries by integrating ecodesign into every stage of product development, distribution and disposal. By approaching product production through a holistic, sustainable lens, companies open doors to new opportunities while also avoiding potential negative trade-offs, such as solutions that may advance climate goals but contribute to land degradation.

3. Incorporate new ingredients

The cosmetics and personal care industry is witnessing a notable sustainability trend driven by the incorporation of new and innovative ingredients into products. Preserving nature and biodiversity can open the door to new plants and species that can be utilized for innovative cosmetics ingredients.

4. Drive climate action toward a net-zero future

In order to reach net zero emissions by 2050, the cosmetics industry needs to make more significant progress on climate goals. Cosmetics companies have several practices they can operationalize to accelerate this journey — from sustainable sourcing and circularity to product labelling, supply chain decarbonization and innovative packaging solutions.

5. Adopt an integrated nature strategy and set science-based targets

While many cosmetics companies have a strategy in place to address their climate impacts, there’s also a growing awareness of the industry’s impacts and dependencies on nature, including biodiversity. Cosmetics and personal care companies need to assess their nature-related risks and dependencies, set science-based targets for nature and develop a detailed action plan to achieve their 2030 goals.

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Is the COO the unsung sustainability superhero?

Chief Operating Officers have both an incredible responsibility and influence on the way companies are run. Operationalizing sustainability is their next mission.

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Scope 3 reductions: The role of brands in decarbonizing the value chai...

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

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Clearing the air on methane

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

Navigating 2024: Operationalizing sustainability in the food and beverage industry

Posted on February 14, 2024 by Thibault Compagnon - Insights, Videos

Our experts came up with five key themes for 2024 to guide companies, and the industry at large, toward a sustainable future.

For the food and beverage industry, 2024 presents a pivotal moment for companies to move beyond sustainability commitments to decisive action. Our experts came up with five key themes for 2024 to guide companies, and the industry at large, toward a sustainable future in which both business and the planet can thrive.

1. Increase resilience in the food supply chain

In the face of potential financial crises and unforeseen environmental shocks, companies must invest in supply chain programs that foster business resilience. Increasing investments in regenerative agriculture programs can ensure long-term commodity supply, nurture farmer and grower relationships and secure business continuity within a planetary-aligned economy. By prioritizing sustainability in the supply chain, companies can adapt to disruptions and contribute to a more robust, sustainable food ecosystem.

2. Transform product portfolios

What are the highest– and lowest-performing products across environmental, nutritional, quality and profitability metrics? A forward-thinking approach to sustainability involves a comprehensive assessment of alternative ingredients, recipes, packaging design and portion sizing. Scaling sustainable practices requires pragmatic piloting and collaboration within the industry. Innovation in product portfolios should be driven by both the desire to reduce environmental impacts and risks while also meeting consumer demands for quality and diversity.

3. Shift away from carbon tunnel vision

To effectively transition our food systems to align with a planetary economy, companies have to broaden their perspective beyond purely reducing carbon emissions. In the food and beverage industry, nature has a crucial role to play, given the sector’s heavy dependence on agriculture. While leaders may be overwhelmed by the idea of adopting a nature strategy in addition to climate initiatives, nature strategies can actually enable companies to reach their climate goals and ensure long-term resilience.

4. Drive consumer behavior changes.

While setting nature and climate strategies can help lead companies in the right direction toward holistic sustainable transformation, it’s just as important to embark stakeholders—especially consumers, in the push for progress on sustainability goals. Companies remind consumers of their direct impact on planetary boundaries and how to positively contribute to corporate sustainability goals through responsible consumption, reducing food waste and encouraging more sustainable diets.

5. Prepare for the upcoming regulatory landscape.

Preparation is key when adapting to ever-evolving regulations. Companies should hold C-suite, board members and functional leaders accountable to ensure compliance with upcoming regulations related to deforestation, packaging, ecolabeling and broader ESG reporting. Some such regulations to be aware of include the EU Deforestation Regulation (EUDR), the 2030 EU Biodiversity Strategy and the Packaging and Packaging Waste Regulation (PPWR). Staying ahead of regulatory changes in end markets and supplier regions will not only avoid incurring the cost of inaction, but also position companies as leaders in sustainability.

Latest resources

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Is the COO the unsung sustainability superhero?

Chief Operating Officers have both an incredible responsibility and influence on the way companies are run. Operationalizing sustainability is their next mission.

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Scope 3 reductions: The role of brands in decarbonizing the value chai...

Enhanced collaboration between brands and their suppliers is needed to drive an integrated, in-value-chain decarbonization strategy.

Insights

Clearing the air on methane

Reducing the emissions of this often-overlooked greenhouse gas could have a dramatic impact on addressing climate change in the short term.

5 ways you may be sabotaging your corporate sustainability efforts

Posted on February 7, 2024 by Thibault Compagnon - Insights

Mastering the basics of corporate sustainability means steering clear of common pitfalls. Dive into the five missteps that often plague sustainability efforts and discover how to transform your intentions into tangible results.

The research is clear: Sustainability and business success go hand in hand. Whether the aim is to increase brand value or meet stakeholder demands, pursuing a sustainability strategy has become a vital tool for businesses to remain competitive and tackle climate and nature-related risks.

So if corporate sustainability has finally entered the mainstream, why is meaningful progress largely lacking? As companies adopt sustainability strategies and work towards environmental targets, there are a few common missteps that risk derailing progress. We’ve flagged five common mistakes you may be making that — despite good intentions — undermine your sustainability success in the long run and what to do about them.

1) Pursuing perfect data at the expense of action

Often, decision-makers want to know exactly where they stand before acting taking action, so they spend large sums for increasingly granular data. But the quest for perfection can cause companies to lose sight of why they’re investing in data collection in the first place and, ultimately, stall action. This is called “analysis paralysis,” and can prevent companies from putting all the data and insights they’ve gathered to good use (i.e., making decisions that help them make progress on their goals and commitments), causing delays, missed opportunities and an overall loss of momentum.

What to do instead: Don’t let perfection be the enemy of progress. Even the most comprehensive data is useless if it isn’t used to drive meaningful action. It’s critical to consider the “why” behind the data you’re collecting. What information will it reveal that will help you move forward on your sustainability journey?

The value of sustainability data comes from the answers and insights it provides into the root causes of environmental challenges — and it should be utilized to find solutions. There’s a lot of progress that can be made with readily available data of sufficient quality. You can continue to work on collecting more refined data in parallel and use it to fine-tune as you go.

2) Succumbing to burnout after setting targets

With the so many new and evolving frameworks, setting science-based targets can be a huge undertaking (though an important one) and companies often lose steam once they’ve set their targets. Underestimating the task at hand is one of the biggest culprits and can leave teams feeling burnt out and progress at a standstill.

Another issue is that many companies spend so much time worrying about what needs to be achieved that they don’t sufficiently consider how they’ll achieve them. It’s only after the fact that they realize that they don’t have the knowledge, capacity or resources to implement their strategies. This not only prohibits progress, but it could also lead to greenwashing accusations when commitments aren’t met.

What to do instead: Public commitments are just the start of your journey. Delivering on goals and achieving transformative outcomes requires companies to examine the gap between where they are today and where they need to be. By identifying potential roadblocks early in the process — such as a lack of in-house knowledge or skills or incompatible processes, governance structures or company cultures — and taking steps to address them, you can avoid some headaches down the road and keep teams engaged and motivated. Define responsibilities across the organization, allocate the appropriate resources, and establish digestible timelines. A well-structured action plan transforms lofty sustainability targets into practical, achievable milestones.

3) Neglecting what’s material to business survival

Aware of the numerous physical, financial and transitional risks climate change poses to business, many organizations have directed the focus of their sustainability efforts on climate action and reducing greenhouse gas emissions. But climate is just one piece of a much larger planetary puzzle and failing to address other environmental issues, including biodiversity, water quality and more could put your business at risk, as well as undermine your climate efforts. 

Every company depends on nature in some way, but the vast majority of organizations operate without taking it into account. However, the critical role nature plays in maintaining economic stability is becoming ever clearer. Natural shocks linked to the increasing frequency and intensity of extreme weather events and the disturbance, decline and loss of ecosystem services on which companies’ operations depend are disrupting the status quo and generating significant costs and losses for businesses. 

What to do instead: Climate and issues are interlinked, so solutions must take a holistic approach and consider how these different pieces fit together. For example, regenerative agriculture can lead to better outcomes for soil fertility, biodiversity, pollination and water regulation while also helping to reduce emissions.

Companies that take steps to gain a complete picture of both their impacts and dependencies on nature will gain clarity on how they’ll to adapt in a changing world so they can better navigate uncertainty and reduce exposure to physical, transitional and reputational risks.

4) Not linking environmental decisions with business decisions

While many agree that sustainability needs to be integrated into the business model to maximize impact, few companies have done so. A 2023 BCG survey of corporate directors found that while 66% of respondents believed sustainability should be an integral part of business strategy, only 25% believe that it’s appropriately in place today. A primary reason for this disconnect is that the directors felt that their time was better devoted to high-priority, non-sustainability related topics.

If businesses want to mitigate their environmental risks, which amounts to $44 trillion of economic value generation, this needs to change. To build a more resilient business, business leaders can’t treat sustainability as a “nice to have.” It needs to be a consideration in every business decision, in every department.

What to do instead: Your sustainability goals can’t be achieved by the sustainability department alone; business functions across the entire enterprise — operations, sourcing, R&D and even marketing — should be using the data, research and insights developed by the sustainability team to inform their decisions and activities. Leaders need to understand how climate and nature can impact business operations and make sustainability a core component of corporate DNA, fostering a strong culture of sustainability.

If you’re financing sustainability separately from the rest of your business activities, you aren’t allocating enough resources to implement holistic, sustainable business transformation. Instead of having a siloed sustainability budget, look at what each department needs to achieve and build sustainability into each team’s budget for the year.

5) Talking the talk but not walking the walk with sustainability

Some companies fail to see progress because their efforts go in contradictory directions, such as lobbying for policies that undermine their sustainability agenda or failing to give sustainability teams any real power within the organization. Not only does this run the risk of creating distrust with consumers, it exposes them to greenwashing accusations. With mounting regulations and reporting requirements, it’s going to become all the more challenging for companies to continue in this vein without facing consequences.

What to do instead: It’s important to have the right narrative around your corporate sustainability initiatives, and your actions must tell the same story. Maintaining credibility will require executives and functional leaders to examine whether the status quo aligns with or undermines the organization’s sustainability vision. Ultimately business decisions and operations should be consistent with your goals. Any discrepancies signal areas for improvement.

Rather than focusing on how you can push your sustainability narrative externally, keep the promotion of your activities at the same level as your actual achievements. Regularly monitor and report that progress, showcasing your commitment to sustainability both internally and externally. This promotes brand authenticity and transparency, which will please both shareholders and consumers. You don’t need to be perfect on your sustainability journey, but you do need to be genuine.

Effective corporate sustainability programs should be dynamic and transformative. Sustainability goals can and should be used to guide business activities toward a future where business success aligns harmoniously with regenerative ecosystems and the respect for planetary boundaries.

As your business navigates this terrain, remember that sustainability isn’t just about mitigating risk or meeting regulatory demands: it’s about redefining success in a way that’s aligned with the well-being of our environment and society. The boundaries of our planet are also the boundaries within which businesses must operate to thrive in the long run.

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Why biodiversity is so important for the pharmaceutical industry

Posted on January 8, 2024 by Alice Geronzi - Insights

Die Pharmabranche ist auf eine intakte Natur als Lieferant von Wirk- und Rohstoffen angewiesen.

NZZ | The biodiversity of our planet, an important source of inspiration for pharmaceutical breakthroughs, is at a critical point. Its preservation will determine whether the pharmaceutical industry can continue to launch life-saving innovations in the future. Jessica Browning, Pharmaceuticals Strategist at Quantis sat down with NZZ to share insights on how the industry needs to consider biodiversity as a strategic necessity.

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Navigating the upset over carbon offsetting

Posted on January 4, 2024 by Thibault Compagnon - Insights

Carbon offsetting — is it a lifeline for the planet or a loosely governed loophole?

At Quantis, our north star is helping companies find opportunities within their own operations and supply chains to drive the transformation needed to stay within planetary boundaries. But our clients naturally wish to understand the full spectrum of business and financial models that can help drive this transformation. Among these options is the purchase of carbon credits to use as offsets. Our clients often have questions to gain a better understanding of how they work, and the challenges they pose. Since carbon credit projects are part of the larger toolbox to address climate change and nature loss, we thought it would be valuable to share our perspective more broadly, particularly considering the recent controversies reported in the press.

As we start a new year, we want to look back at a topic that loomed heavily in 2023. Carbon offsetting — is it a lifeline for the planet or a loosely governed loophole?

The answer to both questions is a qualified “maybe.” The situation is far more nuanced and complex than many media outlets make it out to be. But what is all this upset about offsets about, and more importantly, what are companies to do about it?

Amid recent controversies about offsetting schemes concerning the validity of claims and the impact of the projects underpinning them, it would be easy to dismiss the practice — and voluntary carbon credits more generally — as fundamentally bad or a failed idea. Offsetting schemes are undoubtedly flawed, but dispensing with them altogether would be shortsighted.

Most companies can’t rework their business models and operations to drive long-term emissions reductions overnight. Some changes are complex and take time because of financial, logistical, technological, or any number of other constraints. Offsetting mechanisms can enable organizations to contribute to the sustainability agenda and slow the global warming trajectory while they figure out how to reduce their own emissions. Such mechanisms include direct investment in mitigation projects (e.g., forest and wetland conservation) or financing for climate action via the purchase of voluntary offset certificates.

That is, of course, if the offset certificates they purchase are linked to verifiable, quality projects that move the needle in the right direction and deliver the results they promise. It’s clear, though, that we’re not quite there yet. Though well-intended, there are numerous examples reported in scientific journals and the mainstream press that suggest offsetting, as it exists today, isn’t quite living up to its potential.

Caught in the crossfire are business leaders who are understandably confused and are right to ask the question, “So, what now?”

What’s off about offsetting + the controversy around voluntary carbon credits

Before diving into the issues, here’s a quick refresher on what offsetting is, what it does, and why anyone would do it in the first place.

What is carbon offsetting?

Offsetting is when an organization purchases certificates (carbon credits) linked to activities that lower, avoid or sequester CO2 emissions.

These certificates represent one metric ton of carbon dioxide that’s been avoided, reduced or removed from the atmosphere, as the result of a project that mitigates climate change.

Offsetting offers a way for companies already making significant strides to reduce their impacts to mitigate emissions beyond their own value chains (what the Science Based Targets initiative terms “Beyond Value Chain Mitigation”). It serves as a means to contribute to global climate action or compensate for unavoidable (residual) emissions — emissions that remain after all reduction opportunities have been exhausted within a company’s own operations and supply chain.

Offsetting is meant to be supplemental to value chain GHG reduction measures, allowing businesses to contribute towards reaching societal net zero, which is defined as a balance between the GHGs emitted and those that are removed on a large scale. According to SBTi, companies cannot themselves reach net zero by offsetting (SBTi doesn’t count offsetting towards SBTs) — they must reduce scope 1, 2 and 3 emissions by 90-95% by 2050. But instead of using offsetting to go above and beyond, far too many companies are using it as a license to pollute while continuing business as usual. They use offsetting as a crutch and a way to make claims about their sustainability efforts rather than investing in deep decarbonization.

That alone was enough to make them controversial even before issues around the credibility of the projects underpinning offset schemes were uncovered. But even organizations who are aggressively pursuing reductions and are using offsets to go above and beyond are affected by the shortcomings of offsetting mechanisms and junk credits. Regardless of the initial motivation for purchasing offsets, it’s important to consider the risk factors at play — even if it’s unlikely to be possible to eliminate all risk.

Voluntary carbon credits promise environmental benefits that are challenging to predict.

Credible credits include “safety factors” that consider risks associated with fires or other forms of “leakage” (i.e., unintended GHG emissions). That said, if you purchase a reforestation credit today, it may take years to reap the climate benefits. That’s if those forests ever reach maturity to begin with, and if they do, it’s important to consider that long-standing forests are more effective carbon sinks. A newly planted tree can take decades to capture the level of CO2 reduction promised by a carbon credit, and it would take decades and countless forests to offset just a small fraction of global emissions — and that’s if the forests aren’t wiped out by droughts, wildfires, diseases or deforestation. While those forests are growing, and the pollution continues, the CO2 reductions will never catch up to the ongoing emissions. Also, it’s worth noting that CO2 isn’t the only GHG warming the atmosphere.

Carbon offset projects may have unintended (or unexamined) environmental consequences.

Another critical issue is that many carbon credit projects sold through offsetting schemes fall victim to the “carbon tunnel vision” trap. They place a hyper focus on carbon while ignoring other sustainability concerns, such as biodiversity or land-use change. In the case of reforestation projects, in particular, there’s concern that focusing on carbon alone could create detrimental land-use changes, or adversely affect water supplies or challenge biodiversity. Failure to consider other environmental factors could promote monoculture plantations over restoration plantings of native species of trees and shrubs, particularly when these ecosystems require more diversity and greater density. Carbon removal should not mean trade-offs for biodiversity, carbon, water and soil regulation. Further, studies are increasingly showing that offset projects that deploy monoculture plantations are actually less effective at storing carbon than restoration projects.

Carbon credit projects might not actually decrease the amount of GHG emissions entering the atmosphere.

According to a study in the journal Frontiers in Forests and Global Change, which looked at hundreds of carbon offset projects, offsetting schemes tend to allow project developers to claim more climate benefits for their projects than they produce. Researchers point to poor carbon accounting practices as the problem, which include generating carbon credits based on baseline assessments that don’t align with past practices in the area in question. These various shortcomings have enabled developers to continue operating under a business-as-usual model rather than making real improvements. As a result, companies purchasing offsets to make carbon neutrality claims are painting a misleading picture of progress. A 2022 Bloomberg investigation revealed that almost 40% of the offsets purchased in 2021 were from renewable energy projects that didn’t actually reduce any emissions.

Offsetting has become a gateway to greenwashing.

Corporations that buy credits to offset and tout their commitment to sustainability, but don’t make an effort to cut back on their emissions or properly vet their offset purchases are greenwashing — point blank — and risk reputational ruin if their consumers get wise to it. Too many companies are using offsets as get-out-of-jail-free cards to continue generating the same level of GHG emissions, meaning our planetary crisis continues…or worsens. According to Bloomberg Green, “Dozens of the biggest global companies — from banks to industrial heavyweights — have made bold climate claims justified by cheap renewable-energy offsets that don’t counteract global warming.”

In response, European lawmakers will begin banning climate/carbon neutral claims based on offsetting beginning in 2026.

Offsetting lets companies throw money at a problem without fixing it.

Though not all companies are blindly purchasing offsets without making the necessary reduction efforts, there are those that do. Offsetting has created a mechanism that allows companies to appear as if they’re making headway without addressing the root of the problem. While corporate heads believe they’re compensating for contributions to the environmental crisis, they’re cultivating a dangerous false sense of security. Especially because offsets can be cheap (as cheap as $2 per ton) — far cheaper than conducting reduction measures. But you get what you pay for. It’s now clear that cheap offsets yield minimal, or no, environmental impacts.

Considering these factors, businesses have ample cause for concern. Now that its shortcomings have been brought to light, the carbon market may see some reform. In the meantime, businesses should embrace the notion that you don’t have to remove what you don’t emit in the first place. So, if the choice is between investing in emissions reductions in your own value chain vs. actions or investments outside your value chains (e.g., purchasing voluntary carbon credits), we recommend the former over the latter. If you want to do both, even better so long as the projects you choose are high quality. Offsetting should be a complement to reduction efforts, not a substitution or a shortcut.

That said, we do recognize that reducing scope 1, 2 and 3 emissions by 90-95% by 2050 is within reach for some sectors more than others. Given the slow rate of progress on scope 3 targets across the board and the level of additional funds urgently needed to fill the climate finance gap, a debate is emerging about how carbon credits can be used on the road to success more broadly.

Businesses must contend with the fact that the carbon offset system as we know it simply isn’t working and act accordingly. While not easy, there are elements in your control and risks you can mitigate.

For an effective offset strategy, focus on quality — not quantity

In light of recent events, if your business is claiming “net zero” based on offsets, there’s some risk that you’ve made a false claim, however inadvertent. It’s worth taking a hard look at the credits you’ve purchased in the past and used to make claims. If you find that the credits grossly overestimate the benefits generated by the project, you’ll need to take some corrective action. Unfortunately, that may require you to walk back a previous claim. The good news is you won’t be alone.

But it needn’t be a PR disaster either if the narrative is well-managed and transparent. Keep in mind that the entire point of your sustainability program is to make a positive impact, not a claim. Reminding your customers and the general public about your intentions and how projects fell short of them can help manage expectations. If your company is making serious strides towards reduction, even better. We cannot stress this enough: reductions are really the only way to tackle impacts and should be priority #1 for investment.

If you do decide to fill the gap by buying voluntary carbon credits while working to slash your emissions, you’re in a position to influence the voluntary carbon market for good: Armed with the right information, you can demand quality offsets and normalize a higher standard in the offsets industry, per the laws of supply and demand. Yet, it’s important to recognize that the state of the market is such that risks are bound to remain for some time even as you deploy your best efforts — an inevitable part of being a leader.

To get there, you need to know that not all carbon credit projects (or brokers) are created equal. To some degree, you get what you pay for — cheap offsets probably won’t net meaningful results. The more expensive ones? They might be high quality and impactful, but it’s still a good idea to scrutinize them.

There are different types of carbon credits and different criteria for determining their quality, but we think there are five “must-have” attributes. (You can learn more about identifying high-quality credits and even find a free scoring tool at the Carbon Credit Quality Initiative.)

To get started, look for offsets with the following qualities. This is not an exhaustive list, but it’s a great place to start.

High-quality offsets are:

Real: The project leads to real, avoided emissions or the sequestration of CO2 emissions — not just emissions that have been shifted from one area to another (i.e., leaked).
Additional: CO2 emissions reductions or removals couldn’t have happened under business-as-usual conditions; the project’s activities would not have occurred without the added incentive provided by the carbon market.
Permanent: The project keeps emissions out of the atmosphere for a reasonable length of time (the IPCC’s definition of permanence is 100 years or perpetual) and/or the risk of reversal is adequately addressed through assurance mechanisms.
Quantifiable/Verifiable: The project’s CO2 impacts can be quantified accurately and precisely with sufficient confidence, it’s regularly monitored, and the results are verified by a third party.
Enforceable/Unique: Credits from the project are tracked and ownership is enforced so that each credit is claimed only once, offsetting one ton of CO2 emissions — with no unacceptable double counting.

This represents the minimum, most basic criteria.

We recommend looking deeper and considering some other key factors, such as:

Co-benefits: Does the project provide additional environmental and social benefits such as protection of biodiversity, improvement of livelihood for local communities, improved air quality, etc.?
Scalability: Can the project meet the demands of large-scale purchasers and the volumes required for 1.5˚ C degrees pathways?
Social and environmental risks: Does the project comply with all legal requirements in the jurisdiction where it is located? Sometimes, additional reviews and safeguards may be necessary to guard against negative outcomes unrelated to GHG emissions.
1.5°C contribution: Does the project type contribute to emissions avoidance or removals that are in line with what’s needed to reach 1.5˚ C targets?
Pricing: Is it in line with the average cost per credit and range of costs typically associated with this project type? If it seems too good to be true, it most assuredly is.

In the past, misleading claims and severely limited transparency made it difficult to identify and vet legitimate carbon-reduction projects, the kind that meet these criteria. But there’s change on the horizon, including a new independent assurance body.

Independent offset vetting has arrived

The Integrity Counsel for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Markets Initiative (VCMI) are offering direction and much-needed independent assurance in the voluntary offset market.

ICVM has delivered the Core Carbon Principles and corresponding CCP Assessment Framework, setting forth standards for governance, emissions impact, and sustainable development to help buyers identify high-integrity credit quality. Carbon-crediting programs can now apply for assessment to determine if their offsets meet CCP standards. While it’s hard to predict whether the introduction of this independent verification standard will get us closer to the 1.5˚ C goal, it’s a step in the right direction. Unfortunately, it’s not without its flaws, particularly regarding double-counting.

VCMI’s new Claims Code of Practice, “Carbon Integrity” Claims Branding and Monitoring, Reporting and Assurance (MRA) Framework builds on ICVM’s work, focusing on how carbon credits are used once purchased. It puts guardrails in place around the use of carbon credits to ensure they’re used appropriately and that claims are legitimate. Offsetting is not allowed as part of the Claims Code, which asserts that “carbon credits cannot be counted towards the achievement of within-value chain emissions reductions targets, but instead the most aspirational VCMI Claims in the Claims Code should represent a contribution to both the company’s climate goals and global efforts to mitigate climate change.”

To ensure that your sustainability program (and your investment) is meaningful, it’s in the best interest of your brand (and the environment) that you demand transparency and quality when you do use carbon offsets. How? Ask good questions, see if they meet CCP standards, and don’t be afraid to dig deep.

Your impact is greater than the sum of your offsets

As our planetary crisis continues to unfold, your business must keep pace with the solutions and challenges that will determine our course. Your stakeholders are watching to see if you’ll use the resources at your disposal to make a real impact — either way, the financial (and planetary) ramifications are enormous.

You’re poised to make the biggest impact by starting now. Though thoughtful and impactful offset projects are a critical tool in the arsenal to make the fleeting 1.5˚ C target, doing the work of eliminating GHG emissions in your value chain and protecting nature is the most assured way to drive progress.

Here’s what we suggest:

Go looking for trouble: Conduct a thorough audit of your offsets portfolio to determine the extent of your risk exposure.
Tell it like it is: Walk back any carbon claims you’ve made that have proven false and be transparent about why this is the case — authenticity is in.
Ramp up your reductions: Create or revise your sustainability action plan to incorporate more emissions reductions wherever possible.
Be discerning: Where full reductions aren’t possible, use higher–quality, verified offsets or consider insetting projects along the value chain.

Author(s)

Quantis Insights Hub

CONTRIBUTOR(S)

Alexi Ernstoff, Principal Expert — Land + Agriculture
Lizzie Grobbel, Senior Sustainability Consultant

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The role of the pharmaceutical industry in advancing planetary health

Posted on October 10, 2023 by Libby MacCarthy - Insights

Heavily reliant on natural resources, the pharma industry is highly vulnerable to nature-related risks and climate-based disruptions. To deliver on its mission to improve health and quality of life into the future, it must prioritize practices that build resilience and adapt to the changing landscape.

In brief:

Though the pharmaceutical industry is critical to global health in the medications it produces and provides to treat patients, global health also requires a healthy planet.
Despite pharma’s reliance on nature for active substances and raw materials, its activities significantly contribute to nature loss, requiring conservation efforts to ensure a stable supply and to protect ecosystems.
Pharma manufacturing’s dependence on water poses a particular need for effective water stewardship.
Pharmaceuticals’ plastic packaging contributes to recycling challenges and pollution, underscoring the urgency to find sustainable alternatives.
A sustainable pharmaceuticals industry requires collaborative efforts across the value chain, innovative design, and moving beyond regulatory compliance.

The pharmaceutical industry (pharma) has long played a pivotal role in advancing the health and well-being of billions of people around the world, through the discovery, development, production, and distribution of preventive and curative treatments, such as medications and vaccines. It’s also an economic powerhouse, contributing around US$1.8 billion to global GDP.

Yet, as the industry grows (it’s projected to surpass US$2.4 trillion in revenue by 2030), a complex challenge emerges: how to provide high-quality, innovative and safe pharmaceutical products (and sufficient quantities of them) to the population while reducing the industry’s impacts and dependencies on nature.

To deliver on its mission to improve health and quality of life into the future, the pharmaceutical industry will need to prioritize sustainable practices that reduce its impacts on climate but also on biodiversity, water and plastic pollution, which compromise human and ecosystem health.

In the intricate dance between pharmaceutical innovation and environmental conservation, our duty is clear: to forge a harmonious future where life-saving medications coexist with thriving ecosystems. As we navigate the complex terrain of sustainability, our actions today will determine the health not only of the people but of the planet.

Biodiversity: nature’s pharmacy

Biodiversity, defined as the range of species and biological communities on earth and the genetic variation within them, has been a fount of inspiration and remedies for human ailments for centuries. Plants, fungi and microorganisms, in particular, with their natural compounds and properties, have served as a treasure trove for pharmaceutical discoveries. Around 80% of registered medicines are derived from or inspired by plants. And much of the world still relies on traditional medicines derived from plants and animals as their primary source of treatment.

The functional integrity of ecosystems is therefore crucial to human health.

Declines in genetic and species diversity driven by unsustainable human activities (e.g., overexploitation, environmental degradation and habitat destruction) undermine ecosystems’ capabilities to function effectively and as a result compromise our own ability to develop new drugs and medicines. These declines mean valuable compounds and molecules may disappear before they’re even discovered. And we’re already missing out. Because of the increasing rate of extinction among plant species, research suggests that at least one undiscovered drug is lost every two years. This risks the future of human health and can prevent companies from finding solutions for currently incurable diseases.

Within this context, conservation and restoration efforts become more than just a moral imperative, they’re crucial for ensuring a steady supply of active substances for pharmaceutical production.

Pharmaceutical companies that take action now to address their contribution to biodiversity loss will simulataneously safeguard the future of biomedical research, drug discovery and development, and ultimately human health. Not to mention, they’ll be able to make headway on other important and interrelated environmental topics, including climate change.

To get started on this transformation journey, companies will need to:

Understand their reliance and impact on biodiversity via a biodiversity impact assessment
Set an integrated environmental strategy that sets objectives for the main drivers of biodiversity loss, including climate, land-use change, overconsumption and pollution of water, plastic pollution, etc.
Put appropriate governance structures and mechanisms in place to successfully implement these strategies
Work collaboratively across the value chain and within the sector to accelerate systemic change

Water: keeping pharma operations afloat

Water quality and supply are critical sustainability factors for the pharmaceutical industry. Companies in the industry are both highly dependent on and have direct and indirect impacts on water, which is a major raw material and critical to operations. Changes in water quality or availability (as well as increasing costs) create substantial risk exposures and build barriers to the production of new and existing medications.

Though many companies are taking action to address water-related risks through water conservation measures such as recycling and advanced wastewater treatment, efforts are largely focused on formulation, production and owned operations. Water-related activities occuring at other stages of the value chain related to raw materials and patient use tend to remain blind spots that go unaddressed.

Operational resilience hinges on the industry’s ability to prioritize responsible water use across the entire value chain, including investing in water-saving technologies, and work together with industry peers to tackle shared water challenges and basin-related risks (e.g., increased competition for local water use).

Steps to start addressing current and future water risks:

Diagnose water risks: Conduct a thorough assessment of dependencies and impacts across the pharmaceutical value chain to identify existing and potential water risks, including those related to leakage of Active Pharmaceutical ingredients (APIs) into the environment and raw materials. Collaborate with experts to gain a holistic understanding of the challenges ahead.
Set science-based water targets aligned with local needs: Recognize the shared nature of water challenges and set context-specific water targets at priority basins. By understanding and responding to site-specific risks, pharmaceutical companies can contribute to their own water security while benefiting surrounding communities and the long-term health and sustainability of the environment.
Adopt water stewardship programs: Shift the focus from water management to water stewardship, working collaboratively with basin stakeholders to create solutions to shared challenges in priority basins where the pharmaceutical companies operate. Establish pilot programs that prioritize efficient water use within site boundaries, water quality, and collective action opportunities within the basin. This not only mitigates risks but also demonstrates leadership in finding solutions that benefit both the sector and local communities.

Plastic pollution: a mounting challenge

Tasked with preserving product integrity and ensuring patient safety, packaging and delivery devices have a crucial function in pharmaceuticals. However, because of industry regulations, safety reasons and habits, single-use plastics are used by the vast majority of pharmaceutical manufacturers to package their products and, in some cases, deliver the drug to patients, contributing to the global plastic pollution crisis. The magnitude of this problem is amplified by the complexities of plastic recycling, with less than 10% of plastic placed on the market actually being recycled.

The repercussions of plastic pollution are far-reaching. Discarded plastics not only clog landfills, blight beaches and litter the oceans, but they also release contaminates into the environment, posing threats to both ecosystem and human health — the exact thing that the industry is trying to improve. The urgency to address this issue has led to a growing concern among patients, prompting both public awareness campaigns and legislative measures, which will have a major impact on pharmaceutical companies.

This includes the EU’s revised regulation on packaging and packaging waste (still in draft), which will require that all packaging for medicinal products be recyclable and made from a minimum percentage of recycled content by January 2035. Additionally, packaging will need to be reduced to its minimum size. These requirements create unique challenges for the industry: it will require time and investment to find viable solutions that reduce the environmental impact of packaging waste while meeting high safety and quality standards for pharmaceutical products.

Principles to guide the transformation of pharmaceutical’s packaging impact:

Optimize packaging: Remove unnecessary packaging elements without compromising product safety. Streamlined packaging not only reduces waste but can also help minimize other environmental impacts.
Increase recycled content use: Incorporate higher levels of recycled content in packaging materials where possible while continuing to follow quality requirements, promoting a circular economy and reducing the demand for virgin resources.
Design for recycling: Create packaging designs that are easy to disassemble, prioritize materials with lower environmental impact, and comply with the design for recycling criteria set by the draft EU Packaging and Packaging Waste Regulation.
Educate patients: Take steps to ensure that patients have the information they need to dispose of packaging appropriately after use.

Paving the way forward

The pharmaceutical industry has arrived at a pivotal moment on the journey to a sustainable future for healthcare. Adressing the climate challenge is not enough. Striking a balance between providing essential medications and safeguarding the natural world will not be an easy task, but it’s an imperative that must be met both for the benefit of the industry – and humanity. By embracing innovative technologies, collaborating within and across sectors, and adhering to stringent regulations, the industry can forge a path towards a healthier, more sustainable world—a world where pharmaceutical advancements are not just conducive to human health, but also to the vitality of our planet.

Author(s)

Emmanuel Hembert Global Cosmetics + Personal Care Lead

Julie Boussuge-Roze Pharmaceuticals Strategist

CONTRIBUTORS

+ Edith Martin, Global Biodiversity Lead
+ Tatiana Fedotova, Global Water Lead
+ Laura Peano, Global Plastics + Packaging Lead

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For financial institutions, nature is the next frontier

Posted on September 22, 2023 by Thibault Compagnon - Insights

Financial institutions understand the need to accelerate progress toward net zero—and many are actively advancing efforts to do so. But climate is just one part of a larger nature-based ecosystem on which people, industries, and entire economies depend. Today, many elements that make up that ecosystem, from water and critical minerals to farmland and pollinators, are under threat. Some are being depleted, others contaminated, and still others destabilized by habitat declines.

In their role as capital providers and advisors to entities and individuals around the world, financial institutions are at the epicenter of many of these changes, and their portfolios fundamentally depend on and impact nature. This two-way relationship gives institutions a unique vantage point to identify key risks, fund smart interventions and open new avenues of growth. By leading on nature, financial institutions can also facilitate a just transition that addresses environmental challenges in ways that support human rights, social inclusion, and the eradication of poverty.

Achieving these goals can’t be left to chance. For the sake of the planet and their own long-term growth, financial institutions need to develop a comprehensive nature strategy.

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