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IFFO Conference 2023: Key takeaways from the Closing session (25 October)

Reflecting on the business risks and opportunities associated with ESG and sustainability

The IFFO conference's closing session focused on the changing global context of sustainability/ESG, and reflected on the roles, responsibilities, and implications across the marine ingredients value chain.

HanksIncreasingly, companies across all sectors are being requested to understand, address and report on the environmental, social, governance (ESG) risks and opportunities affecting their business, and to fully consider the impacts of their business on the economy, people and the environment. In many jurisdictions, reporting on ESG risks, opportunities and impacts is becoming mandatory, while across the world the rising profile of ESG issues is impacting financial investment decisions, with inflows into sustainable funds increasingly prioritised.

This has been accompanied by increasing stakeholder scrutiny of company impacts. Although the environmental component of ESG, and particularly climate-related issues, has long been a driving force, the social dimension is now gaining prominence.

Our challenge now is that most of the players in the ESG investment space are still prioritising data flows that reflect the harm reduction and early-stage integration (i.e risk or pre-purpose) eras. One reason is that it’s easier to standardise risk across sectors than to focus on how companies innovate to address them. Standardisation makes comparison possible and it lets machines do the jobJonathon Hanks (Incite) explained.

ESG standards

The ESG standard landscape is plethoric, with the Global Reporting Initiative dating back to 1997, the IFRS starting in 2005, the United Nations’ Sustainable Development Goals being launched in 2016 and the European Union’s Sustainability Reporting Standards (EU CSRD) appearing in 2022. All these standards are now being consolidated within the International Sustainability Standards Board. Double materiality is emerging as a framework that highlights both how ESG pressures impact your organisation and how an organisation impacts society and environment. There are significant commercial opportunities in addressing sustainability challenges. While harm reduction used to be the preferred option in the 1995s, we have now entered a regenerative era, where companies look at growing resilience and collaborate on systemic risks.We are facing a fundamental transition in many systems, in energy, transport and foods. As players in the food sector, you have a particular responsibility and opportunity”, Hanks concluded.

A Banker’s Perspective on ESG and the Marine Ingredients Value Chain

HvistendahlEurope has been at the forefront of ESG and so has the salmon sector. “But Europe is just at 1 in the World populations’ “pin code” (see Opening session key takeaways). The Panama Papers were a wake-up call for DNB and we realised back then that we should take the interests of all parties into accountAnne Hvistendahl (DNB) highlighted. ESG is a multi-faceted approach to business accountability.

carbon footprint

In terms of environmental impacts, food production accounts for one third of climate gas releases. If all other sectors achieve net zero, but we continue to produce food the way we do today, we will reduce greenhouse gas emissions by only half. Emissions from food will increase by 2/3 in 2050 if we continue to produce it the way we do today. “The good news is that seafood is low carbon, however, feed ingredients have a significant impact on farmed fish’s carbon profile. Marine salmon feed ingredients have demonstrated a low climate footprint”.

Human rights, Workers’ rights, Indigenous people’s rights and responsibility through value chain form part of the social components. New reporting requirements address the social components: Norway’s Openness Act requires businesses to carry out due diligence assessments in order to stop, prevent and limit negative consequences on human rights and decent working conditions. The new European directive on Corporate Sustainability Reporting (CSRD) and its mandatory European Sustainability Reporting Standards (ESRS) will gradually apply as of January 2024. 

Governance covers ethics and integrity standards, good governance, anti-corruption and anti-money laundering, policies and routines for following them. Among the many organisations involved in driving the ESG agenda, the EU has a prominent role. CO2 emissions have been the EU’s main focus so far, but biodiversity and social issues are moving up on the agenda. Seafood is not included in taxonomy yet. Regarding the role of banks, ESG risk is a financial risk to be taken into account, which is why strong KPIs apply to salmon farming:

Salmon farming KPIs

Salmon is seen as being very focused on carbon footprint, but the feed ingredients make up ¾ of their total footprint. Certification of ingredients is seen as a relevant way to provide customers with sustainability assurances. "There is a strong focus on novel ingredients. The shrimp sector, 50% larger than salmon in value globally, is lagging salmon in ESG terms, but will likely follow suit as it increasingly gets more industrialized", Hvistendahl stated.

How sustainability and ESG (Environmental, Social and Governance) issues can protect and create value in the marine ingredients value chain

To explore this topic further, Jonathan Hanks chaired a panel of representatives from the industry to provide their insights on ESG on the ground, looking at how ESG issues can protect and create value in the marine ingredients value chain. Panellists included Anne Hvistendahl (DNB Bank), Lahsen Ababouch (FAO), Nicola Clark (MarinTrust), Gert le Roux (Woolworths Foods), and Karen-Dawn Koen (Oceana Group Limited).

ESG panel

To meet the projected demand for fish and seafood for 2030, a significant increase in production is necessary, mainly from aquaculture. The FAO Blue Transformation aims at increasing aquaculture production by 35% and a significant reduction in aquatic food loss and waste by 2030. This requires adequate supply of marine ingredients and feeding efficiency to sustain the aquaculture growth and further innovations to recycle fish and aquaculture by-products. AbabouchMarine ingredients should only be produced from sustainably managed stocks. Otherwise we’ll have less and less resources to produce them. The social aspect is important to ensure that the interests of the local communities are taken into accountLahsen Ababouch highlighted. Governance is key to ensuring sustainable practices are implemented: “Co-management has shown successful: involving the communities in discussing how the resources should be managed is really important” Lahsen Ababouch added.

HvistendahlHow to ensure proper management of the resources? Political accountability in agreeing on shared quotas is important” commented Anne Hvistendahl.

Certification programmes are a strategic tool in the box: “The fish you are using in a MarinTrust certified marine ingredients production factory must demonstrate that it has been sourced responsibly. We do not certify the fisheries though, but we conduct a fishery assessment against the FAO Code of Conduct” Nicola Clark insisted. As for the assurance regarding maintaining traceability throughout the value chain, it comes with our Chain of Custody standard”.

Nicola ClarkPutting in place effective management strategies in place for fisheries is very important. The Global Roundtable on Marine Ingredients that IFFO and Sustainable Fisheries Partnership put in place in 2021 is a powerful platform to drive positive changes.

What are the key opportunities to ensure that ESG is implemented and considered a key driver of business strategies? Oceana, the largest seafood company in Africa, not only produces protein for direct human consumption but also fishmeal and fish oil: according to Karen-Dawn Koen, “investors keep asking about our sustainability strategy. Our reports reflect the good and the bad. Our sector is heavily regulated, not only from a fishing perspective but also on land-based activities. In our countries’ constitution, everyone has a right to a healthy environment. This underpins our license to operate”.

From a retailer perspective, Gert le Roux from Woolworths Foods noted that integrating sustainability and ESG within the business has been easy, guided by Woolworth’s purpose to add quality to life, and the vision to be one of the world’s most responsible retailers. WoolworthsInitially sustainability was very much considered within a corporate social responsibility framework, but the potential financial impacts of the climate crisis has caused a significant shift and we are increasingly considering climate change and other sustainability issues as both business problems and opportunities. Integrating sustainability and ESG in our supply chains has been more challenging. The first reason for this is just the scale and complexity of our supply chains. We have 542 primary, Tier 1 food suppliers and more than 2500 farms that supply us with terrestrial livestock and produce. In their seafood supply chains, there are 156 companies in 32 countries, excluding feed ingredient suppliers. Many of their suppliers, especially smaller suppliers, just do not have the required inhouse sustainability expertise and at the moment many companies are just trying to survive”. With a global food system context, seafood is already the most sustainable protein, but the scrutiny of seafood supply chains exceeds that of any other global food production system. Le Roux insisted that plans don’t have to be perfect and immediate implementation and increasing efforts over time is more important.

This was echoed by Nicola Clark (MarinTrust), who explained that certification developments are all about consensus and compromise: “Because we are a global standard, we need to make sure that our requirements are achievable, and over time we can look at raising the bar”.

To conclude, the panellists addressed Africa’s fish consumption: how can it increase as the continent's population keeps growing? The pressure for more seafood to be produced in Africa should come from Africa. Egypt plays a big role in producing tilapia. Lots of investments are needed though" according to Ababouch. "Africa’s focus should be on aquaculture: a combination of small-scale and large-scale activities. There is a need to develop infrastructure throughout Africa" le Roux added

Petter JohannessenAnticipating EU regulations about due diligence, identifying actual or potential adverse impacts and finding ways to prevent, mitigate, minimise or end them is a long-term journey. “The pioneering third party study which the Global Roundtable on Marine Ingredients published in October 2023 highlights the gaps between current practices in some factories operating in West Africa and our industry’s global standards. We want to encourage positive changes and develop a clear understanding of everyone’s responsibilities” concluded Petter Johannessen, IFFO’s Director General.