Social Responsibility
Environmental, social and governance in agricultural markets: a brief analysis
October 2021
As consumers and investors take a much closer interest in corporate ethical and sustainability behaviour; environmental, social, and governance (ESG) criteria are taking on a whole new importance. In this article I discuss ESG and its importance to the agricultural market.
A consumer-driven scenario
In large businesses, especially agricultural businesses, ESG has become strategically important. Investors who are increasingly looking for companies committed to governance, sustainability, and social issues are driving this, along with consumers who are increasingly aware and demanding socially responsible products.
Many companies have taken this as an opportunity, seeing room to add value to their product and boost their ESG data, attracting the attention of investors. Thus, we have certified eggs, chicken, beef, and even grains from certified farms with environmental sustainability practices.
While this enhances any ESG report and attracts investor interest, the driver for its creation is a public thirsty to consume proven sustainable products. While fostering interest in companies that can certify environmentally sustainable products, this has also encouraged innovation in the products becoming available to the public. The ESG commitment, while meeting the interests of investors, has also created a market niche: certified meats and grains coming from properties with environmentally sustainable practices.
The movement for environmentally sustainable consumption largely comprises those from Generations Y and Z who are far more committed than earlier generations. Consumer awareness of environmental responsibility and animal welfare has driven an increase in the availability of natural products as people stop eating meat and dairy products for ideological rather than health reasons. So the agricultural businesses developed and offered products to meet the demand of this growing consumer sector, in the process merging customer service and environmental sustainability. Everybody wins. Further, the ESG data from the agricultural businesses are enhanced by a market driven by environmentally aware consumers.
While it may be difficult to point to any tangible added product value from governance and social aspects, environmental sustainability presents a huge opportunity, especially in the agricultural sector. While social responsibility, for example who a business hires and how it treats them, and corporate governance such as how a business meets its legal obligations, can have a positive or negative effect on brand and reputation, it doesn’t filter down to an individual product level. That’s not to decry its importance; for example, the G in ESG can add value to overall product portfolios through data-driven projects that optimise market position and attract consumers seeking environmentally friendly characteristics.
Cost and Opportunity
The perception of cost and opportunity drives management vision and strategy. Agricultural businesses have an advantage over other businesses in that they bring fresh produce to market. Fresh produce prompts interest in its origin and attracts consumers who care about this. Answer questions about origin and a business begins to capture environmentally aware consumers who are willing to pay more for a sustainable and healthy product.
It is against this backdrop that certified chicken meat emerged, with evidence of origin and rearing methods. Eggs that are certified organic appeared too and we can buy beef certified to show a commitment to animal welfare. And it’s not just animal products, grain products can be certified as non-transgenic and free of pesticides.
Not too long ago the market for these products was tiny. However, there is now a growing band of consumers who actively seek out sustainable products and they are willing to pay a premium. The environmental strand in ESG can bring the greatest returns for businesses. It not only enriches the reports that potential investors read, it also adds value to products that sell in a premium market niche.
In agricultural markets, unlike other markets, ESG brings enormous opportunities for both increases in sales and inward investment.
About the author
Luis Felipe Canto Barros
Porto Alegre, Brazil
Luis is Head of Legal at Russell Bedford Brasil. He holds a master's degree in International Relations Law and is a specialist in Environmental Law, Civil Procedural Law, Labor Law and Labor Proceedings Graduated in Law.
In his role as Head of Legal at Russell Bedford Brasil, Luis is responsible for team coordination and making strategic legal decisions. He has a prominent role in bids, administrative contracts and writs of mandamus in Brazil. He also represents Russell Bedford Brasil before the Courts of Auditors, and leads on indemnification actions, challenges to notices and administrative appeals and defence.
luis@russellbedford.com.br