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CSRD: Opportunities for alternative protein leaders in the food & beverage industry
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Published June 5th, 2024

CSRD: Opportunities for alternative protein leaders in the food & beverage industry

As leaders in the corporate world, particularly in the food & beverage sector, staying ahead of regulatory changes is crucial. The new Corporate Sustainability Reporting Directive (CSRD) is a significant regulatory framework that demands attention. Set to reshape sustainability reporting across Europe, the CSRD expands the scope of reporting obligations to include non-financial metrics, crucial for assessing a company’s sustainability practices. In this evolving landscape, the role of alternative proteins becomes increasingly significant as these products not only align with emerging consumer preferences for sustainable options but also help companies meet stringent sustainability criteria outlined in such regulations.

Understanding CSRD: A directive with broad implications

Starting in 2024, companies will need to report on sustainability metrics if they meet at least two of the following criteria:

  • A net turnover of €40 million or more.
  • A balance sheet total exceeding €20 million.
  • Employment of 250 or more people.

This directive will be rolled out starting with large public companies but will eventually cover all listed SMEs and even non-EU parent companies. (See CSRD timeline below) Initial phase is expected to impact approximately 50,000 companies across Europe, encompassing a wide range of industries, including large traditional Food & Beverage companies as well as Alternative Proteins leaders and retailers. The directive emphasizes not only the direct operations of a company but also the extended environmental footprint of its supply chain—from raw material sourcing (upstream) to product disposal by consumers (downstream). Creating the urgency to act for all European businesses.

Source: CSRD

Emission scopes and their impact on reporting

The Corporate Sustainability Reporting Directive (CSRD) categorizes emissions into three scopes to help organizations assess and report their environmental impact comprehensively. Scope 1 covers direct emissions from sources owned or controlled by the company, such as emissions from manufacturing facilities. Scope 2 includes indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company. Scope 3, often the most significant for many businesses, encompasses all other indirect emissions that occur in a company’s value chain, including those associated with both upstream and downstream activities.

Thus, the new directive will not only impact companies with direct emissions, for example related to the production of Food & Beverage products, but also retailers with limited direct emissions. The focus of retailers is predominantly on reducing their Scope 3 emissions. This, in turn, places pressure on their suppliers to enhance the sustainability of their operations and products to align with the retailers’ sustainability goals. As a result, suppliers find themselves compelled to reduce their Scope 1 emissions and improve overall environmental practices to meet the demands of their retail partners.

To effectively reduce Scope 1 emissions, alternative proteins are emerging as a critical solution. Substituting traditional animal-based ingredients with alternative proteins can lead to significant reductions in direct greenhouse gas emissions. For instance, animal agriculture is a major source of methane and other emissions from direct operations such as livestock management and manure handling. By replacing these ingredients with plant-based, fermentation-derived, or cultivated protein alternatives, companies can significantly lessen their environmental footprint.

"Adopting alternative proteins under the CSRD is a business imperative, reducing Scope 3 emissions and driving our evolution towards sustainable business models."
Floor Buitelaar
Managing Partner

This dynamic is crucial in the retail sector, where sustainability credentials increasingly influence brand reputation and consumer choice. By pushing for stricter Scope 3 reporting, retailers not only ensure their own compliance with the CSRD but also drive broader environmental improvements across their supply chains.

The specific challenges and opportunities for food & beverage companies

For the Food & Beverage industry, the CSRD presents both unique challenges and opportunities.

Challenges

Supply chain transparency: Companies must evaluate and report the environmental impact of their suppliers. This includes the sustainability practices of the growers and producers of raw materials. Such scrutiny means that companies need a thorough understanding of their supply chain's environmental footprint, often requiring comprehensive Life Cycle Assessments.

Business model alignment: There's a requirement to demonstrate how business strategies align with a climate-neutral economy. This involves outlining policies that minimize climate-related risks and enhance sustainability performance, directly linking these efforts to the core business operations.

Emission reporting complexity: Reporting greenhouse gas emissions extends beyond direct operations to include those of suppliers, who may significantly contribute to the company's overall environmental impact. This aspect can be particularly challenging as it involves tracking and influencing practices beyond direct control.

Pressure from retailers: The selection of Alternative Proteins by food industry stakeholders, particularly retailers, is strategically driven by the need to improve their sustainability metrics, notably within Scope 3 emissions, which encompass all indirect emissions not covered in Scope 2. These include emissions from purchased goods and services, which is where Alternative Proteins play a significant role.

Embracing the CSRD can lead to significant long-term benefits. Companies are positioned as responsible and forward-thinking entities, appealing to investors, customers, and stakeholders.

Opportunities

Focus on alternative proteins and sustainable ingredients: As sustainability becomes a central element of corporate reporting and decision-making, we can expect a significant shift towards alternative proteins and other sustainable food ingredients. Moving the decision-making when choosing an ingredient from pure cost play to considering the sustainability impacts. For example, replacing animal-derived pork with plant-based (p-b) pork alternatives can lead to major improvements in Scope 3 emissions. Research indicates that plant-based meats can reduce greenhouse gas emissions by up to 90% compared to conventional meat, depending on the product and production methods used. Moreover, swapping out animal-based ingredients for plant-based or fermentation derived alternatives provides labelling benefits. As consumers and governments are increasingly demanding more sustainable and ethical products, using plant-based ingredients can help companies comply with these regulations and market their products as environmentally friendly and ethical, which can enhance brand image and loyalty.

Alternative proteins are often associated with lower environmental impacts than traditional animal-based proteins, but the benefits reach far beyond that. Diversifying into Alternative Proteins can reduce dependency on traditional agricultural supply chains, which are often vulnerable to climate change impacts and geopolitical tensions. This shift can enhance supply chain resilience.

Byproduct valorization: Valorizing byproduct streams through methods like 2nd generation feedstock fermentation can significantly enhance environmental performance. This approach lowers GHG emissions compared to 1st generation processes (i.e., using sucrose, glucose) and improves resource efficiency by reducing water and energy usage per unit of production. Companies can highlight these circular economy principles in CSRD reports, showcasing reduced environmental impact as a plan to meet sustainability targets.

Future outlook

Consequences of low CSRD scores: Companies that fail to meet the CSRD standards may face reputational damage, potentially increased regulatory scrutiny, and penalties for reporting failures. The brands that fail to provide transparent data on the environmental impacts or underscore in their efforts risk losing their place on the supermarket shelves, as retailers must also evaluate their footprint incl. that of their suppliers. This is an especially pressing issue for easily replaceable products. Which creates an opportunity for those brands that can excel in their sustainability efforts to secure even larger spaces on the supermarket shelves. This could also impact on their ability to attract investments, as more investors are basing their decisions on robust ESG criteria.

Impact by 2030

By the end of this decade, the CSRD is expected to lead to more transparent, comparable, and reliable sustainability information in the public domain and to facilitate a shift toward sustainable food ingredients. This will not only help investors and consumers make more informed decisions but also drive industries towards more sustainable practices, potentially setting a global benchmark for sustainability reporting. As companies adapt, we anticipate seeing shifts towards the incorporation of sustainable ingredients, the adoption of more eco-friendly production practices, and the redesign of packaging to minimize environmental impact. These changes will play a critical role in shaping a more sustainable and transparent global market landscape.

The CSRD is more than just a regulatory requirement; it is a call to action for companies in the Food & Beverage industry to reevaluate their operations, supply chains, and business strategies through the lens of sustainability. The decisions made today will define the sustainability leaders of tomorrow, underscoring the urgency to act now and adapt to this new reality.

Conclusion

As the Corporate Sustainability Reporting Directive (CSRD) reshapes sustainability standards, now is the pivotal moment for Food & Beverage companies to enhance their environmental stewardship. Bright Green Partners stands at the forefront, ready to assist your company in integrating plant-based, fermentation-derived, cultivated meat and molecular farming ingredients, which hold profound sustainability benefits compared to traditional animal-based options. Leveraging expertise in alternative proteins space and our 2,500+ topic experts, we can help you navigate the complexities of CSRD compliance, transform your supply chain, and position your brand as a leader in sustainability. Schedule a call with our Managing Partner, Floor Buitelaar, to discuss how we can assist.

Ready to discover what alt protein strategies could mean for your business? Discuss it in a 30 minute call with our Managing Partner, Floor.
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