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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a senior writer on the Sustainable1 leadership team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast where Esther and I take you inside the environmental, social, and governance issues that are shaping the rapidly evolving sustainability landscape.

Esther Whieldon: It's December and we're in the middle of the winter holiday season here in the U.S. and in many other parts of the world. This is the time when friends and family gather around the dinner table, full of incredible dishes. For me, that usually means turkey, stuffing, mashed potatoes and homemade cranberry sauce and my absolute favorite is a slice of my mom's pecan pie. What about you, Lindsey? What are your favorite holiday dishes?

Lindsey Hall: I'm actually on pie duty and I always have to make apple pies, to share at the big family gathering and then another one just for my kids to eat for breakfast.

Esther Whieldon: That sounds both clever and delicious. With these holiday dishes on our mind, in today's episode, we're exploring how to make food systems more sustainable with Alexander Gillett, Co-Founder and CEO of HowGood. That's an independent research and data company focused on food sustainability. Food systems are a major driver of both climate change and biodiversity loss. About 1/3 of annual global greenhouse gas emissions comes from our food systems.

That's including from land use, agricultural production, the processing, transport and storage of food as well as food waste. Alexander talks about data challenges. He describes how factors like climate change and regulation are driving changes in the food sector, and he talks about what companies can do to make it easier for consumers to make sustainable purchasing decisions at the grocery store. But first, here's Alexander, who starts off by describing what his company does.

Alexander Gillett: HowGood has the largest data set on food sustainability in the world. And what I mean by that is we are evaluating 90,000 emissions factors globally. We've evaluated over 3.9 million food products for their product carbon footprints as well as their biodiversity impacts, their water impacts, their labor impacts. The idea here is to take a holistic look at the food system and then be able to compare that to the best-case examples or the medium-case examples and what can we do to slowly shift towards those better outcomes.

And we do this for the largest players in the world. So the knowns of the CPG World, the grocers like Ahold Delhaize, working with groups like Whole Foods, working with the largest distributors in the world like Sysco Foods. And we're evaluating their not just what they produce, but their entire supply chains production. So that means going all the way up to that farm level to understand what's happening.

And why that's important is because food represents 30% of global carbon. It's also one of our best opportunities to sequester carbon, meaning to like sink it into the ground. And we have this massive delta of the ability to make this a carbon sinking industry rather than one of the single largest carbon-producing industries.

Esther Whieldon: And real quick, what does CPG stand for?

Alexander Gillett: Consumer packaged goods. So that is the Krafts of the world, the Unilevers of the world, any of the big food brands that you know, Pepsi, Coke, they're all considered CPGs.

Esther Whieldon: So then what is the current landscape for food sustainability? Where is everybody at on their journey?

Alexander Gillett: Well, we think about the food landscape in terms of starting off at degenerative, meaning it has a negative impact. You are clearing the rainforest to plant and would be an example. And that's happened throughout human history, where we have done things across the world to try and grow food. But typically, it's having a negative impact on nature, on carbon. We're using higher levels of pesticides.

All of these different factors are going in to have this negative impact. And when I say negative, what I mean is our soil health is degrading, meaning that the quality of the soil that we're growing our food in is going down every year. And at a certain point, we won't be able to produce food anymore in the manner that we are because of this issue, right? And so how do you switch that? How do you start to improve the soil health?

How do you start to improve biodiversity while still producing the yields that we need for the growing population that we have on this planet? And so this initial idea that a lot of people had is, okay, from degenerative, let's go to sustainable. And that's that like midway point of do no harm, right? We want to not cause more deforestation. But the new paradigm shift is actually we need a lot of leaders who are being regenerative.

So if you think of it as scale, degenerative is negative, sustainable is that midway point and regenerative is actually improving the system. So can we sequester carbon? Can we improve biodiversity? Can we improve water impacts? Can we improve people's livelihoods? And so now you have all these big leaders who are saying, "We want to commit to regenerative agriculture." And there's enough science behind it where you can say, "Hey, we can feed the world this way. We can actually -- we can have higher crop yields for most of our major crops.

We just need to transition." And there's a 5-year transition for your average crop where you produce less. But by the end of that 5 years, for most crops, you're producing more. And so can we support the system making this change where we can end up with these better outcomes? And we're seeing leaders across the food space stepping in to say yes.

And now it's starting to become more and more mainstream, where it's not just one big player saying, "Hey, let's take this on," but where we're leading a lot of these different groups and coalitions like the Sustainable Markets has the Agribusiness Task Force, which has the CEOs of Bayer and Mars and McDonald's and all coming together to try and increase the use of regenerative ag, right?

And so that is a group where we can sit there and help them with the metrics and the understanding of what's happening globally and what the options are. How do you map out how to actually do this? So not just set a goal, but what are you going to do product by product, ingredient by ingredient, what standards, what locations are you going to change to get those better outcomes?

Esther Whieldon: Let's talk a little bit about disclosure. Where are companies at in understanding those factors, those data points that you're gathering and sort of where are some of the biggest gaps?

Alexander Gillett: So the biggest gaps are actually people using the wrong data sets. An example of this is a lot of people are using very simple heuristics. So I'll give you an example. One of the -- a Fortune 500 food company was producing a report on what their Scope 3 carbon was, Scope 3, meaning their suppliers. And when we evaluated the data for a company that has over 2,000 products, all of those were being averaged from a total of 12 emission factors.

And so they have more than 12 brands, let alone the number of ingredients. So ingredients are getting grouped together and giving an average emissions factor. And that's really -- that's harmful both in terms of reporting, so people actually understand what's happening on the ground, but also when they want to try and fix things because then they're being pointed in the wrong direction.

And so we demonstrated that, okay, so for the same data set that you've shared with us, we'd be pulling from 30,000 emission factors because of the complexity of your supply chain. And why that matters is because if you're using a global average for an emission factor for palm oil, it's very unlikely that the practices that are happening on the ground and the location that you're pulling from are the same as that emissions factor.

And so when you're working with HowGood, you might have 200 emissions factors from Thailand and another 150 from Indonesia, right? And so you actually start to say, "Okay, well, not just like what's the location, but who's your supplier?" "Oh, that supplier, we know they enforce these practices." With those practices, these are accurate emissions factors for you, right? So I guess what we're trying to say is heuristics are really good if you're using good data for them and it's complex enough data. Heuristics are really bad if you oversimplify them.

So the main concern with the disclosure landscape is some people are using what are often described as global average, but that actually sounds better than what it is because it's normally a global average and an ingredient average, right? So all sweeteners are one bucket, right? And that's really problematic because there's over a 900% delta between the highest producing sweetener for carbon and the lowest producing, right?

And so it matters what, it matters where and it matters how and you have to be willing to dive into those details. Now companies are both starting -- for a long time, there's been these kind of voluntary disclosures that people have started signing up for. But now it's shifting into regulatory, whether that's the California climate law, whether that's via the EU's disclosure regulations around Scope 3.

And those are hitting the biggest companies first, those mandates, and then it's rolling out to smaller and smaller companies going forward. But we definitely see this as this will be the new norm. And we're expecting that over the next 5 years within the food system, the regulatory landscape to tighten up in the same amount that it did over the last 25 to 30.

It makes sense during this time because there's a recognition that actually the food system is one of the 2 largest levers in the world that we have for tackling climate change. So if we're not addressing it, both regulatory, both incentive-wise, both in terms of consumers, we're missing one of the key opportunities we have to mitigate the worst effects.

Esther Whieldon: So on our podcast, we often talk about sort of the intersection of different areas and how you can't really consider one without the other, right, and nature and climate change certainly go hand in hand. How do you approach thinking about both reducing like carbon emissions and also how that fits in with biodiversity needs?

Alexander Gillett: Yes. I mean I think to your point, there's massive correlation between these but correlation doesn't mean causation. And so it's being able to understand when you can support both. We get worried about carbon tunnel vision and this idea that if we solve that, everything will be okay, right? If we create a collapse within the food system because of loss of biodiversity or soil health, but we've solved carbon, we're still going to have massive problems feeding the planet and taking care of the planet.

And so it's -- within our platform, our approach is even if someone is looking at their carbon and solving for carbon, you're still going to display what the changes they're making, whether that be a standard they're imposing or switching to a different supplier. We're going to show them the other outcomes that happen along with that. And so whilst there's rarely a perfect solution, a lot of these solutions are focused on taking a more holistic approach.

And I think one of the harder things about regenerative ag is that it's so focused on that, that people sometimes have a harder time defining it. I'd like to simplify it for people and say like regenerative ag just means better ag, right? It means ag that's improving the systems it's a part of. And that's a holistic approach. So if you're thinking for people, if you're thinking for biodiversity, for soil health or if you're thinking along carbon, but it needs to be looking at all of those. You can't just hold one piece.

Esther Whieldon: And you mentioned at the top part of this holistic view is also the farmers, the people who produce these products. How are companies thinking about factoring this in and sort of where can there be improvements made?

Alexander Gillett: Yes. For the longest time, especially if we're looking at, right, ESG reporting, it was focused on Scope 1 and Scope 2. And that really meant that the only person responsible for most of the emissions within the food system was the farmer. And so people just left it for them to solve. But it makes sense that the companies that are buying and incentivizing and purchasing those are actually the ones who create the environment that allows for it.

And so we're seeing a whole mix of approaches to how do we support the farmers in making this transition. And I think that is largely driven because Scope 3 means that everyone is responsible for that, everyone down the supply river. And so when we look at a farmer now, we're saying, "Okay, how do we help you make this transition?"

And the reality is there's no one answer. It's companies that are willing to commit to once they've transitioned or even during the transition to paying more for the crops because they know they'll get those higher-quality crops at the end. It's regulatory supporting those changes in a lot of different countries. Those regulatory needs are also really important for things like insurance, right?

So a lot of these farmers are scared because if they switch over and become a regenerative farm, but then their crop gets wiped out, they'll get paid by the insurance agency at the conventional rates rather than at the regen ag rates. And so then their costs are slightly higher and their yields would be higher, but they're not actually able to recoup that from insurance agencies.

And then the same thing with the banks want to be able to give out the loans, right, for these -- there's a lot of money put aside right now for this transition, but a lot of them won't write the checks because of things like the insurance agency won't cover it. So if they write the check for the transition and then the farm doesn't get paid out in full and the farm goes under, they're left holding the bill.

So there's this -- everyone trying to figure out how we get all those pieces across the line, you can add into that carbon credits, pieces like that, that can help these farmers where they're earning that for those transitions, right? And what we like to call is filling the dip, right? So if you think of that dip in production, can you fill that dip with those promises from the buyers, from those promises from regulatory bodies that create incentives from the insurance agencies and from the banks?

And if you can bring all of them together, then it can work. But as you can tell from this answer, just like the food system is complex, each of these pieces are complex. And how you define them, how you justify them, how you have enough data that these big players are willing to do them at scale, it's challenging, and that's what we're fighting for.

Esther Whieldon: What would be reasons that insurance wouldn't cover it? Is it just that the products haven't been created for those options? Or is there some kind of risk factor that's a concern?

Alexander Gillett: It's typically that there isn't. Either there's regulatory barriers that restrict what they can pay out in either direction. So they're following kind of the regulations of that country. Two is that they don't have enough data for that crop. So like a farmer coming and saying, "Hey, my wheat, which now there's a lot of data on is regenerative and here I can demonstrate that and this is what I was getting paid out, and this is what the market would pay.

They have a much better chance of being paid out at that higher rate than someone who's coming along with monk fruit being grown in China and there isn't the scale of it being done in a regenerative ag way where there's enough data where the insurance agency might say like, "Yes, this is actually what we are able to ensure you for and then therefore, pay you out, right?" And so those are the pieces where it gets tied up, if that makes sense.

And when I talk with the insurance providers and they're willing -- they're coming to the table. They're sending their CSOs and their CEOs are coming to the table to say, "Hey, we want this, we want to help support this. We need XYZ in the regulatory, XYZ data points so that we can start to establish the price differentiation at scale and what the variables are in terms of the standards, right?" So it's nice to see that they are willing to make that jump, but it is going to be a process to get there.

Esther Whieldon: So we've heard how the shift from voluntary to mandatory disclosures is driving some of this change. What are some other factors that are driving companies to pay attention to this?

Alexander Gillett: I mean their supply chains are getting impacted. We are seeing the champagne families of France buying land in England because the science is showing that in 10 to 20 years, there's going to be a lot more similar environmental climate situation in that region than what they're currently able to do in champagne.

And they're, for the first time, changing their variety of grapes, which haven't been changed in 400 years to try and have more resilient grapes that can survive these harsher conditions. And so I give that one example, but company after company are seeing this, right? We had one of the biggest droughts in 500 years in Europe, followed by some of the biggest flooding we've seen in 500 years, right?

And so those massively affect our food system and supply chain, and these companies are already starting to feel that pressure, and that will only grow. I think the other thing that's happening is for the last 10 years, everyone is talking about, "Oh, millennial's spending power, right?" And they'll spend more on environmental, they'll spend more and they care about these issues.

I think one of the pieces that was missed is it's not just that they'll spend more. It's also now they're the leaders in a lot of these companies, right? They are the CSO in a lot of these companies. And so they care deeply about these issues, and they're willing to tackle them and take them on even given their deep complexities.

Esther Whieldon: Alexander also suggested that current food labeling practices make it really hard for consumers to know which options are sustainable. Here he is again.

Alexander Gillett: Customers deeply care about these issues, right? When you survey them, you really see this. And there's this funny thing where people say, yes, well, you survey them, but then when they go to the shelf, they don't necessarily spend the money, right? And I think it's kind of a lazy answer. I think it's a very popular answer. I think the reality is we're doing customers a disservice. We've created an environment that's very confusing and so is distrust.

So an example would be if you're in the egg aisle, right, and you're looking at the egg section and you see there's cage free range, free roaming, certified, USDA organic and then conventional eggs. And you ask any customer like what's the difference between any of these, right? They don't know the difference, right? And so that makes all of those feel slightly meaningless to the customer, right?

They know some of them must be better, but they know some of them are probably greenwashing or misleading, and they don't know which is which, right? And this isn't just customers, by the way. You can talk to like food experts, and unless they specifically focus on chickens or eggs, they probably don't know the answer. And that's a disservice, right? That is us making a very complex system and then asking the customer at a point where they're trying to make a decision, maybe like when I go to the grocery store, I bring my 2 kids.

I'm not going to try and research which one means what in that moment with a 3-year-old and a 6-year-old hanging off me. And so the reality is that we need to make a better system and what we've seen is that when grocers do this, you do see radical shifts. So here in the U.S., in a conventional grocery store, we switched everything in the store to a scale of like good, better, best, right? Best-rated products had a 230% lift in sales, right?

So you're not selling more eggs, you're selling more of your best, most sustainable eggs, right? In some places, like baby food, you had over 1,000% lift for a best-rated product, right? And so I think there's often like those customers always wanted to make those purchases. They didn't -- the customers didn't change, just the way we presented information.

And by no means do I think that was the best way. I'm sure if you gave another 10 years of developing the science of how we clearly and honestly communicate this information, we would have bigger and bigger impacts. And so I think it's on us as industry players to help develop honest and clear ways to communicate to customers so they can shop with their values.

Esther Whieldon: Yes. And there's just -- there's so much distrust around food in general, right, about the products and the ingredients and all of that, right?

Alexander Gillett: Well, and also one of the really interesting things is that customers distrust the brands, but they trust the grocer. Like if you look at survey data, like some of the most trusted companies in America are grocers. But interestingly, ingredients and food producers are not.

And so grocers have a certain, maybe a bigger role than they are aware that they can play here of creating transparency. And it's hard to do well, and it's a complex environment, right, because you don't want to drive prices up. You know there's a lot of different factors that they need to take into account, but they can also have a very impactful role.

Esther Whieldon: And this push for more transparency across the supply chain, what kind of steps need to be taken to ensure the smaller farmers, the ones who may not have the capacity to do all this data management and all of this work aren't left behind?

Alexander Gillett: It's a good question. Typically, a lot of the time, we're seeing them being the ones who are the first movers. And so there is a lot of support for the smaller ones. And most of the regulations that are coming through recognize that the transition can happen faster for them, and we need a lot of early movers. Again, the other piece to hold is like the average transition takes 5 years. So if you're a CPG and you've got a target of net zero by 2030, which would be ambitious.

But even if you have a 50% reduction by 2030, right, that actually means the farmers that you're going to have to buy from, they need to start transitioning by next year, right? Or they won't have hit that goal because it's going to take them 5 years to make the transition. And so the smaller players are often, it's a little bit -- there's a lot of support for them out there because it's easier to make that transition.

The question becomes once you get into the remote areas where it's harder for the education to happen around like what practices work and making sure that they achieve the right outcomes because the last thing you want is someone to try and make one of these transitions and it to mean they have these lower yields, but they're not getting the actual -- that increase as well because they're missing a core component or 2. And so there is -- the trainings and tools can be challenging.

Again, it's hard to give a blanket answer on this because it depends what environment you're talking about, right, a small-scale farmer in, let's say, Holland, where there's a robust infrastructure and available Internet is very different than someone who is in a very remote location where they don't have access to Internet and the trainings that are available via that as well as the infrastructure to bring certain things on to the farm.

So it really does depend, and there are great groups that we try to partner with that are taking those on based on the specifics regionality and challenges of those regions. And again, that's where those regulatory pieces really come into mind as well, where each of the government is looking at like what their farming conditions are and what will best support that transition.

Esther Whieldon: Great. Well, is there anything we didn't get to talk about that you wanted to discuss or mention?

Alexander Gillett: No. I mean I think the thing for everyone to hold is the this is not a time where we are saying, can we do this, right? Like we have the data. We know what needs to be done. We know the transitions that need to happen. We know the outcomes that we can achieve based on the practices that have been studied at scale. And so this really comes down to now a question of will we, right?

Will we commit to doing this transition fast enough that the outcomes aren't too harsh on our food system. And the pressure of that falls on to a select number of companies that are shaping the food system, but also their customers in supporting that and their investors in supporting that. And so when I'm talking to CSOs, I'm often saying, your job is to push this to the very line of how fast you can force your company and your supply chains to transition without you getting let go, right? And you might get the pushback that this is too risky.

This is too much. But we have to do the opposite and remind people that what are the risks if we don't take the appropriate action? We know the outcomes on our food system. We know the collapse of the food system that will come if we don't make these changes, right? And so owning that pressure and finding the balance is the job of everyone who is involved in this transition.

Esther Whieldon: Today, we heard how efforts to make the food supply chain more sustainable are becoming mainstream, but there are some big hurdles remain. Alexander also highlighted the challenges companies face in accurately measuring the emissions associated with the products.

For example, how this will differ depending on location and specific variety of a crop. And he emphasized the role of companies in supporting farmers and improving transparency to help consumers make informed choices.

Lindsey Hall: Please stay tuned as we turn our attention next to another topic on many listeners' minds this holiday season. That's travel. We'll be talking to a nonprofit that's convening stakeholders from across industries to make travel more sustainable.

Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast.

Esther Whieldon:: And a special thanks to our agency partner, The 199. See you next time.

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