Agbiz Report: Danone sets out a new way of doing business

In February this year, Danone chief executive Emmanuel Faber did something unusual. He unveiled to investors for the first time a “carbon-adjusted” earnings target for Danone to take into account the estimated financial cost of the absolute greenhouse gas (GHG) emissions within its entire value chain.

Making the announcement, Faber said Danone couldn’t “wait one moment longer” to build climate resilience into its business and that he was dedicating a €2bn climate acceleration fund to transform Danone’s agriculture, energy and operations, packaging and digital capabilities over the next three years.

Sustainability is a term that many pay lip service to, but here at last was a company putting its money where its mouth was. However, Danone has always been a leader in this area and was quick to identify how important the sustainability agenda would become.

Since 2015, the French dairy, nutrition and water giant has committed to becoming carbon-neutral within its full supply chain by 2050. And this is not just within its own manufacturing plants. Danone has committed to achieving carbon neutrality within its full supply chain, which includes all carbon emissions associated with its suppliers and primary producers like farmers.

In 2017, the full scope of Danone’s related greenhouse gas (GHG) emissions amounted to 21.6m tonnes. Of this, agriculture actually accounts for more than 60% of Danone’s total carbon footprint, with dairy farming alone accounting for the largest share of agriculture emissions by far.

Investment

Clearly, for Danone to achieve carbon neutrality within its full supply chain is going to take time. For Chris Hillman, head of social innovation and sustainability at Danone UK & Ireland, sustainability is a journey that doesn’t happen overnight.

“Back in 2015, Danone set its climate policy and made a commitment to be carbon-neutral by 2050. In order to achieve that goal, there’s a lot of investment that needs to happen and a lot of steps that need to be taken,” says Hillman.

“We’re able to control what we do with our factories. Those are within our remit. But we also need to look at where are biggest carbon emissions come from. And if you look at our scope 1, 2 and 3 emissions, the majority of our emissions are scope 3 like most brands,” he adds.

Scope 1 emissions are those directly associated with a company’s manufacturing sites such as the consumption of fuels and energy. Scope 2 emissions are indirect emissions arising mainly from the consumption of energy. And, finally, Scope 3 emissions are all indirect emissions linked to a company’s full supply chain such as supplier or consumer emissions.

“The vast majority of our emissions come from agriculture. Something in the order of 60% of Danone’s total emissions are related to agriculture. In order to start to address our carbon footprint, there’s a range of things we can do within our own scope. So that’s making sure our factories are as efficient as possible and using renewable electricity. But that will only go so far,” says Hillman.

“For me, working together with all stakeholders in our supply chain and building long-term relationships is key in empowering a new generation of farmers. To that end, Danone established long-term cost performance model (CPM) contracts, which makes it possible to guarantee stable income for farmers and long-term collaboration on sustainability issues. This, along with our regenerative agriculture programme, has resulted in a 9% improvement in carbon productivity in our farmers’ fields over the last two years.”

Hillman says Danone has recently signed up to RE100, a programme where businesses commit to using 100% renewable electricity. Across its global network of processing sites, Danone now has 50 plants using 100% renewable electricity.

Hillman says Danone UK & Ireland has also recently been awarded B Corp certification, which recognises the company’s ambition to achieve goals beyond profit.

Ireland

In Ireland, Danone operates two plants. One on the outskirts of Wexford town and the other in Macroom, Co Cork. Like the wider Danone group, these two facilities have been assigned targets to switch to renewable energy.

According to Donal Dennehy, supply chain director for Danone in Macroom, there’s been a huge focus on investing in sustainability in Danone for many years now. Normally, a plc such as Danone has a short time frame of one to three years for capital expenditure projects.

However, investing in the transition to renewable energy takes time and Dennehy says Danone is now signing off on medium-term capital expenditure projects so the company can meet its goals.

In Ireland, the Wexford and Macroom plants have already been converted to 100% renewable electricity.

“Switching to renewable electricity was really the low-hanging fruit for meeting our sustainability targets here in Ireland. The biggest challenge we now face is finding a renewable alternative to natural gas,” says Dennehy.

Danone’s Macroom facility in particular currently relies on natural gas for its energy needs and finding a renewable alternative is not straightforward. Yet there is one option that Dennehy feels holds the best chance for Danone to meet its goal of using 100% renewable energy in Ireland.

“Converting from natural gas to a renewable alternative is a big, big challenge. However, we see biomethane as the only route for Danone to achieve carbon-neutral processing in Ireland,” says Dennehy.

Biomethane

Right now, there is no biomethane industry in Ireland, although there has been increasing pressure on the Irish Government over the last two years to support the establishment of this new energy sector. Danone has been to the forefront of those calling for the establishment of a biomethane industry.

The company has played an active part as a leading member of Renewable Gas Forum Ireland (RGFI), which is calling on the Irish Government to support the establishment of 300 anaerobic digester (AD) plants on Irish farms by 2030.

These AD plants would produce biomethane, which is a renewable gas produced from grass and cattle slurry and would be injected into the national gas grid for companies such as Danone to use as a renewable alternative to natural gas.

The initial reaction from the Irish Government to the proposals put forward by RGFI was lukewarm at best. However, Dennehy says he can see opinions beginning to change among policymakers and there are green shoots for a possible biomethane industry being established in Ireland.

“There’s a market for biomethane here in Ireland. We have the means to produce it and the technology is there. All that’s missing is the Government policy needed to get the industry off the ground. France has developed a biomethane industry and they really got it right. We can learn from them,” says Dennehy.

“Biomethane is a little bit more expensive for me to buy but I’m willing to pay more for biomethane if it gives me carbon-neutral processing plants here in Ireland. I have to reach my carbon-neutral targets for our two Irish plants by 2025,” he adds.

In Ireland, we’ve a proud tradition of supporting foreign direct investment (FDI) in this country. Danone is one of the largest food and nutrition companies in the world and has been operating in Ireland since 2007.

Yet the company has now set itself a very ambitious target of achieving carbon neutrality by 2050. The implications of this ambition are twofold for Ireland.

Firstly, if Ireland wants to continue to attract and retain global giants like Danone in this country, then it needs to develop a credible and scaled renewable gas industry that will allow users of natural gas like Danone to transition to a renewable alternative. If we fail to establish a renewable energy industry then we could see multinationals scaling back operations in Ireland.

The second implication of Danone’s carbon-neutral target is that our dairy sector will need to change to meet climate targets. Danone is a large buyer of Irish dairy ingredients so it is dependent on the Irish dairy industry reducing its carbon footprint in order for it to meet its sustainability targets.

By helping Danone meet its carbon-neutral targets by 2050, Ireland has a lot to gain. Not only can we develop a world-class renewable energy industry to serve the needs of important multinationals like Danone, but our agriculture system can also benefit from improving its carbon footprint to ensure Danone remains a key buyer of Irish dairy for decades to come.