Supply Chain Collaboration & Co-Creation

How Food Companies Are Incentivizing Suppliers to Rein in GHGs

A new report from WWF examines the efficacy of rewards for climate-smart on-farm practices in getting suppliers’ help in eliminating Scope 3 emissions.

Published 1 year ago | About a 6 minute read

Image: Tom Grove

Many food companies have begun looking to their supply chains for help in reaching their own emissions targets — offering incentives to their suppliers and, in particular, the farms with which they do business. A new study by the Markets Institute at World Wildlife Fund provides a landscape analysis of the types of incentive programs implemented by more than 20 companies across the industry.

With more than 70 percent of food-related GHG emissions stemming from agricultural practices, companies that have set ambitious climate targets are increasingly proposing programs designed to shift behavior on farms.

Incentives at the Farm: How Companies Are Moving from Setting Climate Targets to Delivering on Them draws from interviews with more than 90 experts from corporations, industry associations and civil society groups. The report describes the variety of tactics companies are employing to reach farm-relevant sustainability outcomes — including price premiums, financing, knowledge sharing, new products or markets, and contracting. The report does not endorse any specific tactics or companies, but rather provides a state-of-play analysis to guide others in similar efforts.

“Farmer-focused incentives are a necessary tool for shifting behavior at the source of most food-related greenhouse gas emissions,” said Dr. Emily Moberg, WWF’s Director of Scope 3 Carbon Measurement and Mitigation, and a co-author of the study. “With only seven harvests left in which to reach our 2030 climate goals, companies must deploy effective incentives and retire ineffective ones on a much broader, faster scale.”

The study highlights factors such as shareholder pressure and governments setting climate targets, which have increasingly incentivized companies to engage in more holistic climate-mitigation tactics. More than 110 national governments have set climate targets, for example, and shareholders have been putting forth proposals for environmental disclosures and progress by publicly traded companies.

The report examines supplier-engagement efforts by companies including:

General Mills — which is piloting regenerative-agriculture training in areas across the US.
Land O’Lakes — Land O’Lakes collaborated on a program to reward growers for sustainability improvements through a public-private partnership with Dubuque County in Iowa. The Truterra™ Insights Engine tool was used to make a baseline and predict the impact of beneficial practices. The program rewards Dubuque County farmers for improving soil health and water quality by leveraging the Truterra sustainability tool and sustainability score. The carbon program pays farmers based on the amount of carbon stored as calculated with the Truterra tool, verification with Colorado State, and soil testing.
McCormick & Co — in 2021, the company joined forces with Mars and PepsiCo to support Guidehouse in establishing the Supplier Leadership on Climate Transition collaborative. The program is designed to mobilize collective climate action by providing suppliers with resources, tools and knowledge to support their own climate journeys.
Straus Family Creamery — the company, which sources from 12 organic dairy farms in Marin and Sonoma counties in Northern California, aims to have all of its purchased milk be climate positive by 2030 via a collaborative, carbon-neutral dairy-farming model that deploys a combination of interventions that it has piloted and refined locally: red seaweed feed additives, biodigester use, electrification of on-farm vehicles, and regenerative soil management.
Tesco — The multinational retailer offers a preferential payment condition for suppliers who are willing to disclose their carbon data and set targets. Depending on the suppliers’ climate performance, they are distributed in three tiers: bronze, silver, and gold — with the latter being the most demanding from a sustainability perspective but also the most attractive financially. The gold tier demands suppliers to submit accurate carbon data, set reduction targets for their business, and then track these reductions on a yearly basis. Some of the largest suppliers have saved as much as €2-3 million a year with these rates, and several other smaller suppliers have been encouraged to join the race to net zero because of the ability to get liquidity and fast payment from this program.
Unilever — Unilever’s in-depth sourcing protocols are often cited when discussing how rigorous supplier vetting can be. The Unilever Sustainable Agriculture Code (SAC) is a mix of bright-line rules, expectations (including traceability of materials back to their origin), and leading practices that encourage suppliers toward continuous improvement. Suppliers complete certification audits on the farms they source from, and compliance is reassessed annually. As of 2022, over 80 percent of Unilever’s key ingredients were sourced sustainably according to this code. Once suppliers meet the terms in Unilever’s SAC, they may establish programs through the Unilever Regenerative Agriculture Principles, released in 2021, to address the continued sustainability challenges in the agricultural supply chain — from decline in soil health to biodiversity loss.

“McCormick & Company has committed to achieving net-zero emissions by 2050. In the near term, we have set goals aligned with the Paris Agreement and verified by the Science Based Targets initiative, which include a 42 percent reduction in our Scope 3 emissions by 2030,” says Michael Okoroafor, Chief Sustainability Officer at McCormick & Company. “Like many companies with a global supply chain, our greatest opportunity is Scope 3 emissions — which account for over 90 percent of our carbon footprint. Since these emissions are not under McCormick’s direct control, it is imperative for us, and other companies, to work in partnership with our suppliers to address this challenge. By incentivizing them to participate, we can drive impact at scale in a targeted and efficient manner, benefitting all stakeholders including the planet we all share.”

For companies in the food sector, a substantial amount – often more than 90 percent — of their emissions are Scope 3, which means they originate in their supply chains. For companies with ambitious climate targets, including limiting warming to 1.5°C by 2030, the big question is how those targets will be achieved.

As the report concludes, companies in the food industry and beyond that haven’t yet engaged in GHG-mitigation efforts with their supply chain need to act now by implementing these types of incentives for suppliers to do their part in the climate fight. And for those companies that have engaged with their suppliers, accelerated efforts to scale them across their entire supply chain — and better still, across their sector or commodity group — will be critical in meeting ambitious climate targets.

“Developing and deploying incentives to address Scope 3 GHG emissions is no small feat, especially for the food sector,” said Katherine Devine, Director of Business Case Development at the Markets Institute and a co-author of the study. “With regional differences, crop and farmer diversity, thousands of products in some supply chains, and other challenges, there is no one-size-fits-all solution. We need to learn faster to address climate change’s existing and growing impacts.”