In line with the Government’s net zero emissions by 2050 goal, it has never been more crucial for food manufacturers to reduce their carbon footprint. Some businesses in the sector may have some concerns about the cost of carbon reduction strategies. However, effective investments in sustainability can enable business to realise significant commercial rewards.
Some food and drink manufacturers have already started moving towards net zero by investing in the following:
- Eco-friendly products
- Green packaging solutions
- Waste minimisation strategies
- Energy-efficiency initiatives
Other companies are only just getting started and there is a lack of limited sector-specific support or guidance.
Are manufacturers investing in sustainability?
When considering environmental and social governance (ESG) strategies, Make UK, the manufacturers’ organization, have found that many manufacturers still have significant changes to make. 30% of manufacturers have yet to appoint a responsible individual to lead the project, whilst half do not yet measure their sustainability.
Support in developing ESG plans
‘Achieving Net Zero,’ the Food and Drink Federation’s new handbook, is designed to help these businesses get their sustainability strategy off the ground. The handbook provides valuable guidance, alongside highlighting the objectives set by some leading food and drink businesses to help them to achieve net zero by 2040. It incorporates areas such as ingredients, packaging, manufacturing, distribution and storage and customers and consumers.
An initiative to standardise the metrics used to measure the environmental performance of the food and drink sector is being led by the Environment Agency. This initiative aims to broaden knowledge of environmental performance in areas such as carbon reduction and resource efficiency.
Strong ESG has become more critical than ever before in consumer, customer, employee and investor decision making.
Benefits of a net zero strategy
It is already evident that food and drink manufacturers who are committed to reducing carbon emissions and having a positive impact on society can realise a competitive advantage. As consumers opt for goods that reflect a strong sustainable approach and ethical code, manufacturers can strengthen their appeal by developing carbon reduction strategies proactively.
Having an effective sustainability plan can also help owners looking to sell or seeking funding to support their growth plans. Intertwining these plans with their growth strategy can open up opportunities to enhance business value.
What is required to develop an effective sustainability strategy?
Planning thoroughly
Through careful planning, businesses investing in sustainability can start to work towards meeting their ESG goals, without compromising profitability. A key initial step is to implement a bespoke plan and then test it thoroughly, ensuring it is achievable and will allow long-term value to be delivered. The plan should be reinforced by robust metrics, allowing the business to monitor progress as it reduces its carbon footprint.
Forecasting cashflow
Having accurate cashflow forecasts in place is fundamental. This will enable owners and managers to assess the effect of any potential investments or changes to process. Effective cash management is also essential, allowing the business to react quickly to market opportunities as their plan progresses.
Considering the right timing
Timing is key. When investing in new plant and machinery, it may be worth fast tracking investment plans to take advantage of the 130% ‘super-deduction’ that applies to investments in plant and machinery ). Alternatively, there is now a £1 million limit for the Annual Investment Allowance, where assets do not qualify for the 130% super-deduction. Both of these are available until 31 March 2023.
Developing an accurate financial model
Having access to an accurate financial model is another necessary element. This allows businesses to calculate the payback period of any planned investment in carbon reduction, waste minimisation or other sustainability initiatives. It is also beneficial in interpreting the cashflow impact of any planned investment, to ascertain how business value could be impacted.
Understanding cost-cutting opportunities
To ensure that processes are operating efficiently from the start, exploring cost-cutting opportunities is important. Manufacturers should seek employees’ input in identifying areas to reduce costs, as this can deliver rewards relatively swiftly.
Demonstrating initial ROI
Benefitting financially from an early stage is key. This helps demonstrate the potential of making a healthy return on investment and is often required to secure buy-in at Board-level. Obtaining these financial results might involve exploring ways to monetise waste, e.g. selling unwanted by-products to another company. Manufacturers may also be in a position to boost revenues and profits through diversification.
Maximising available tax reliefs
To optimise value from investments in sustainability, food and drink manufacturers should make the most of available tax reliefs and grants. When considering what investments may qualify for R&D relief, businesses should remember that the definition of R&D is fairly broad. Innovative manufacturers may qualify for an enhanced deduction of 130% – equating to tax relief of up to c.33% of the R&D spend. Obtaining advice at an early stage can help businesses drive maximum value from the scheme.
Planning for plastics packaging tax
Due to be introduced in April 2022, the impact of the plastics packaging tax should be considered now. Business owners They should understand how the new tax will affect their business model and make any required adjustments. This tax will apply at a rate of £200 per metric tonne for UK businesses that manufacture or import 10 tonnes of plastic packaging per year. It will apply to packaging that contains more plastic by weight than any other single material. The definition of plastic includes biodegradable and compostable plastics. Packaging that contains 30% or more recycled plastic is exempt.
Summary
Producers and manufacturers should view sustainability-related changes as an opportunity to strengthen their employer brand and attract and retain skilled employees. People management strategies to boost employer brands could involve increasing employee involvement and honing communication strategies to provide workers with a greater sense of purpose.
It is worth keeping in mind that grant funding is available to support manufacturers, specifically around making investments in sustainability. Whilst this tends to be focused geographically, industry bodies can provide valuable sources of information regarding the options available to manufacturing businesses.
With a carefully scoped plan, investing in sustainability and enhancing profitability can go hand in hand. By seeking the right professional support, food and drink processors and manufacturers can unlock hidden value on the road to net zero.
Contact Caroline Milton our Food and Drink manufacturing specialist to help you unlock the value on the road to net zero below:
