April 28, 2023

What Makes Energy More Bankable Than Food?

April 28, 2023

What Makes Energy More Bankable Than Food?

April 28, 2023

What Makes Energy More Bankable Than Food?

April 2023

What Makes Energy More Bankable Than Food?

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Sustainability has always been topical, but within the last 2 years it has started to both attract and create significant value. Data from the Climate Policy Initiative indicates close to a trillion dollars a year is already moving into climate-focused investments (and growing at well over 10% per annum). These numbers were entirely unexpected by most sustainability practitioners as recently as five years ago. However, this climate finance is asymmetric. While carbon emissions from the energy sector contribute 40% of the global total, the energy sector receives over 60% of global climate finance. Contrast this with agriculture and land use, where a contribution of close to 20% of global carbon emissions is matched by only around 1% of global climate finance.

Why does energy attract the lion's share whilst food gets left with the scraps?

Most agricultural interventions are just as technically and operationally reliable as many of the energy projects receiving climate finance today (especially when accounting for the significant uncertainties in alternative fuels and carbon capture technologies). However, what energy projects do have is predictability of investment return, more certainty of offtake, and the consequent ability to absorb larger amounts of capital per project. Predictability and certainty require better data infrastructure and greater transparency than the average food and agriculture value chain is able to depend on today. From a sustainability perspective, most sustainability teams operating within food businesses today agree that their emissions calculations are broad estimates with an unpredictable level of uncertainty (that is, it is difficult to estimate just how inaccurate they may be). This makes food and agriculture interventions much less bankable – for the corporation’s own balance sheet as much as for any third-party investor.

So what can we do about this? There are two ways to respond. We can either focus on the basic requirements of compliance, work through our sustainability reports, and keep our heads above water. This will still come with fairly significant costs, matched with very little positive impact for the business. Or we can focus on the transformative potential that subsidies and incentives, discounted financing rates, and digital product passporting infrastructure offer. This will require going further, and incurring greater upfront expense, initially on upgrading digital systems and workforce training and later on the strengthening of core supplier partnerships. However, these investments should be seen as capital investment in creating sustainability-agnostic business value. And this is the clever secret that all energy investors know – what’s really worked for renewable energy projects in the last 3 years is not just their sustainability profile, but the clear business case. Sustainability is just a bonus.

Saif Hameed, CEO of Altruistiq

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Industry Insight

How can suppliers collaborate with customers on sustainability in a way that generates value?

Think of sustainability and emissions reduction as a new service line for your business, which helps customers drive emission reductions in their Scope 3. Look at sustainability as you would consider any service proposition.

3 ways to do this:

  • Price: competitively price your sustainability initiative as a service offering, which competes with other emission reduction interventions e.g., product refinements (much like you would be competing on a core product in a competitive environment).

Top tip: provide an estimated price by tonne of carbon that is competitive vs what you assume to be the price per tonne of the customers emissions reduction plan to provide the best sustainable alternative for your customer.

  • Quality: emphasise the quality and uniqueness of the emission reduction intervention that you are selling.

Top tip: consider your customer’s brand narrative and make visible how your intervention will add value and be a powerful communication tool for them with their customers.

  • Relationship building: showcase the collaborative aspect of the relationship you are building with this customer. Demonstrate how they can use this as a relationship they can replicate elsewhere in their supply chain or as a punchy co-branding exercise.

Top tip: Use this as a way of shifting the narrative away from elements of business that you have less negotiating leverage e.g., pricing.

Policy Pulse | The Latest Sustainability Developments

A breakdown of the key policy updates that you and your company need to know about from the last fortnight.

  1. EU Approves Draft of Legislation for ‘Fit for 55’ - This week, the EU Parliament passed several key policies as part of the ‘Fit for 55’ initiative to cut emissions by 55% by 2030. The focus of this was increasing the impact of carbon pricing. In particular, by reforming the flagship EU’s Emission Trading System (ETS), which so far has driven 35% emissions reductions since 2005 in the energy and manufacturing sectors it covers.

The key policy changes were:

  • Increasing ambition of the ETS to drive 62% emissions reductions by 2030
  • Introducing a carbon border tax to prevent leakages
  • Creating a Social Climate Fund to protect households
  • Promote the supply and demand of Sustainable Aviation Fuels (SAF)

2. EU passes historic law fighting deforestation: Last week, the EU Commission finally banned the sale of goods from deforested land (provisionally approved in December 2022). Any company selling to EU markets has to prove that they did not produce certain foods on land that has been deforested since 31st December 2020. The law, officially called the European Deforestation Regulation (EUDR), targets cattle, cocoa, coffee, palm oil, rubber, soy and wood, and any products derived from these. The rules focus on preventing sales of commodities and products that were produced on land that has been deforested or degraded land after 2021.

3. G7 countries agree on phase-out of fossil fuels - Meeting in Japan last week, the G7 group of wealthy countries agreed on a move away from fossil fuels. This follows a shift from these countries prioritising energy security in the past year, and the failure of last years COP27 to include an agreement on phasing down from fossil fuels.

Their joint statement agreed - "to accelerate the phase-out of unabated fossil fuels so as to achieve net zero in energy systems by 2050 at the latest”.

Despite this positive step, the agreement lacked a firm commitment on timeframe. Further, the key issue of finance was missing, particularly for developing countries where it will be especially important to securing commitments ahead of COP28.

Prefer to listen? Tune in here.

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Sustainability Trailblazers: How Tilda Maximises the Velocity on their Sustainability Program…

Focus on less.

  • Tilda builds their sustainability strategy around 3 primary metrics (methane, water, biodiversity).
  • These metrics are what most consumers would readily associate with their product (imported rice).

Design one core initiative.

  • Tilda aims at the biggest contributor to methane emissions and water use in rice cultivation: flood irrigation.
  • Tilda’s approach deploys Alternate Wet Drying, using pipes to irrigate below the soil surface. The initiative reduces both methane and water use at the same time.

Adapt for context.

  • Alternate Wet Drying has been trialled in different locations for >20 years, but Tilda also ran a local experiment across ~50 of their own farmers to pilot AWD with the intention of scaling up progressively to ~7000 farmers.
  • Tilda adopted local suggestions, such as incorporating a spider bundle for controlling pests (to minimise pesticides and negative impact on biodiversity).
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Read Tilda’s latest impact report here.

Other news

Events on the agenda - May 2023

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