Agriculture sector needs to prepare for incoming carbon tax and ESG guidelines

As the world approaches planetary boundaries, the agri-food sector must also do its fair share of adaptation to ensure the sustainability of global food systems.

This presents an opportunity for those who can pivot to adopting more sustainable practices.

On June 9, industry body Agri SA hosted a webinar explaining what environment, social and governance (ESG) means for the agri-food sector and what regulatory trends can be expected.

Law firm ENSafrica natural resources and environment senior collaborator james Mark discussed the opportunities and risks that arise for companies putting ESG at the heart of their concerns.

ESG, a concept that emerged from the United Nations Environment Program (UNEP) as a sustainable investment movement in 2005, was both a risk and an element of impact, he explained.

More than $120 trillion in investments is expected to be invested in an ESG-focused manner, given the rapid growth rate of Principles for Responsible Investment signatories.

South African institutions are signatories to various ESG-related frameworks, including the Equator Principles, to which Absa, First Rand, Nedbank and Standard Bank adhere; the United Nations Global Compact, to which Investec subscribes; the Dow Jones Sustainability Index and the UNEP Finance Initiative.

“If you look at ESG from an impact perspective, it implies that companies are spending money without expecting a profit in return, but rather a positive impact. We are seeing a move away from a financial model focused solely on monetary value for shareholders,” notes Brand.

“Life on earth can only exist within the safe operating space of nine boundaries – freshwater change, stratospheric zone depletion, atmospheric aerosol loading, ocean acidification, biogeochemical fluxes, new entities, system, biosphere integrity and climate change,” Brand said, noting that South Africa is already experiencing changes in humidity and rainfall patterns.

So far, a few key pieces of regulation inform South Africa’s ESG policy position, including the draft Treasury Technical Paper which was updated in October 2021, the draft JSE Sustainability Disclosure Guidance of 2021 and Green Taxonomy published in April of his year.

Work was underway to harmonize global sustainability frameworks, which would begin to facilitate ESG measurement and disclosures, Brand confirmed.

In terms of supply chain due diligence, on which South Africa currently has no policy position, the companies most affected by the directive in due course will be those generating either a net turnover of more than 150 million euros in the European Union (EU ), i.e. a net turnover of more than 40 million euros in the EU and at least 50% of its worldwide net turnover in the sectors of textile, leather and footwear manufacturing, agriculture, forestry, fishing, agro-processing and wholesale of agricultural raw materials, and the extraction of mineral resources and the manufacture of metal products basic.

More technical benchmarks specifically related to crop and animal production will be developed in the future. These are not yet regulated directly in the carbon tax regulation, but they are linked to future regulation and phasing-in.

On that note, the Managing Director of Black Economic Empowerment, Taxation and Private Equity at ENSafrica Mansour parker discussed the carbon tax and carbon offsets.

The agriculture, forestry and other land use sector is not yet subject to the carbon tax, at least until 2026, when phase 1 of the South African carbon tax will end. However, South African farmers practicing regenerative agriculture can earn additional income through carbon credits.

Domestic sales of carbon offsets may be considered carbon offsets under the Carbon Tax Act. He suggested that farmers compare the costs and administration of carbon certification to determine the potential benefits.

Typically, Parker explained, the farmer would provide a carbon consultant with baseline reports and data on sustainable farming practices, after which the consultant could calculate the carbon credit potential.

Small farmers can use an aggregation model to gain economies of scale, Parker pointed out.

“As the carbon rate increases, the price of carbon offsets will also increase. Carbon offsets typically trade at around 80% to 90% of the carbon tax rate,” Parker said, referring to the government’s plan to raise the carbon tax rate eventually from 2026 and gradually, at the end of the day. end of phase 1 of the carbon tax.

STARTING POINT

Responding to how agribusinesses could get started with ESG adoption, Brand noted that the first step for large organizations is to identify potential risks, define them in a strategy, and get buy-in. board membership.

Larger organizations can then follow this process by adopting some kind of policy to define a path for integrating ESG into operations.

Brand explained that smaller organizations could focus on reducing food waste, which was a “massive inefficiency” in the food system — on average, one-third of the food in the global system is wasted.

He added that food loss occurs all along the value chain and therefore stakeholders need to be more efficient in how they produce and consume food.

Moreover, he believed that water efficiency could be improved, firstly, by collecting data, especially because agriculture is a large user of water and there was a lot of room for water. optimization of water use.

Small organizations can also integrate renewable energy as much as possible and adopt regenerative agriculture practices.

Brand also considered it prudent for smaller organizations to comply with biodiversity laws, as these would experience an increasingly significant policy shift.

DEALER VIEW

Food Safety Technical Manager for food retailer Woolworths Kobus Pienaar presented on the company’s ESG approach.

He explained that, in an increasingly uncertain world, focusing on system value would become increasingly critical to business success, adding that the interconnection between environment, society and business was key. progress.

The Woolworths commercial farmer is typically pressured by rising input costs and reliance on external factors they cannot control, such as the price of oil and the exchange rate, as inflation food reduced demand.

There is also a decline in the health and functioning of natural support and foundation systems, as well as a lack of subsidies and extension support for established commercial farmers and for emerging farmers.

“There is very little market predictability and increasing competition from cheap and subsidized imports. Then there is also the high murder rate and increasing land insecurity, not to mention the predicted long-term negative climate changes.

For customers, sustainability means not only supporting the environment, but also society and the economy. Around 23% of Woolworths customers consider sustainability to be important, and 56% consider it “extremely important”, referring to their main concerns as being food safety, nutritional value, value for money, people in the supply chain, animals in the supply chain. and environmental impact.

Woolworths has three ambitions: better food choices, which talk about healthy foods and antibiotic resistance; building thriving communities, which speaks to ethical and economic transformation, as well as food security; and being positive for the planet, which involves reduced climate impact through reduced food waste and improved packaging.

Woolworths sources over 85% of its raw materials from South African farmers.

The retailer recognizes that agriculture is responsible for much of the degradation of the environment and therefore sees farmers as the most important stewards of future sustainability.

To this end, Woolworths offers a Farming for the Future program to support farmers in their ESG efforts.

“We need to approach ESG as a system and not as compartments. It may require less short term profit to survive longer term. All actors in the value chain must take ownership of it.

“Good ESG is essential for the survival of Woolworths and our planet,” Pienaar concluded.

About Lucille Thompson

Check Also

Medical serial killer movie focuses on ‘A good nurse’ who helped catch him – Reuters

FILM REVIEW BY CARROLL MCCUNE ‘THE GOOD NURSE‘ Adapted from the book “A Good Nurse: …