In an era of growing environmental and social consciousness, consumers, investors, corporate buyers, and regulators are increasingly demanding products that are environmentally and socially responsible. The clock is now ticking for Australia’s agriculture sector, who need to meet rising demand for data transparency to prove the ESG credentials of farms and products.

In brief

• Australian agriculture is facing growing demand for transparency and ESG data from regulators
• Globally, regulation is on the increase and will impact exports and investment opportunities
• The EU is dramatically ramping up regulation, inspections and fines for their importers, putting pressure on exporters
• Digital Product Passports are emerging global standard for transporting ESG claims in supply chains

Leading the charge against greenwashing is the EU’s new Corporate Sustainability Due Diligence legislation that may see fines as large at 4% of a corporation’s total global turnover for failing to “identify, and where necessary prevent, end or mitigate the negative impact of their activities, including that of their business partners, on human rights and the environment.” This is a potential bombshell for global agriculture, with only the best performing and most transparent firms granted access to the EU.

International compliance regimes are complex and overlapping, difficult and time consuming to meet, reducing the competitiveness of products with poor ESG performance. This trend will put agribusiness companies under increasing pressure over the next decade if they do not invest now in effective supply chain data management. Thankfully, modern technologies and data standards are set to make regulatory compliance across multiple markets significantly easier for producers over the next few years, if they act now.

ESG compliance pressures are rising, bringing risk, cost, and complexity to Australian farmers

While Australian agriculture exports to the EU do not represent a sizeable portion of our total $79bn output, the strong emerging EU ESG regulations signal a growing global trend that will have significant impact on Australian farmers, curbing exports, and investment if agricultural producers are not able to prove that their products meet these standards. While the list of impacted products is still limited to cattle, cocoa, coffee, oil palm, rubber, soya, and wood, we expect this to spread rapidly to other primary products such as textiles and grains. Competing global schemes may eventually become proxies for protectionism, raising the bar to exclude some nations and products from lucrative markets.

“In the US, 68% of executives now admit their companies are involved in greenwashing, accelerating government action.”*

These key ESG trends are likely to impact Australian agriculture:

• Emissions reduction targets: Governments are setting ambitious emissions reduction targets to combat climate change. Australian agriculture will be subject to increasing pressure to reduce its emissions footprint. ESG requirements are being flagged as a significant part of the Australian Climate-related financial disclosure regulations and the EU is beginning to introduce Carbon Border Adjustment Mechanisms (CBAMs) that will see high-emissions products hit with carbon tariffs or completely excluded. Offsets that producers might buy to satisfy local regulations will not be accepted by foreign regulators, particularly the EU, forcing producers to materially meet emissions standards without offsets. While not yet implemented, the US Inflation Reduction Act includes provisions for a potential CBAM, which could significantly increase the cost of high-emission imports, making them less competitive with US-made goods.
• ESG investments: ESG investments are roughly one third of all investments globally and rising. Institutions and analysts are demanding better, more trustworthy sources of data to ensure assets maintain their value. If Australian agriculture is to reach the National Farmers’ Federation’s goals of $100bn by 2030, then significant investment capital will be required – attracting that capital will depend heavily on a producer’s demonstrated ESG performance. In a recent SMH article, The National Australian Bank signalled a move towards significant interest differentials based on company ESG credentials, a trend that will inevitably hit heavy emitters hard.
• Deforestation laws: Foreign governments are beginning to impose anti-deforestation controls on imports that Australian farmers will be required to demonstrate compliance with. The European Commission’s Common Agricultural Policy (CAP) is the EU’s method for driving sustainability goals as part of the European Green Deal and will have a significant impact on producers who cannot meet these compliance demands.
• Animal and human welfare standards: Consumer demand for ethically produced food is growing, and governments are responding by strengthening animal and human welfare standards. Australian agriculture will need to meet these standards to remain competitive in the global market. This could include regulations on the use of antibiotics and hormones in livestock production, requirements for humane slaughter practices, and the demonstration of compliance with labour standards such as the Modern Slavery Act.
• Algorithmic due diligence: Investors, regulators, and consumers are increasingly demanding transparent and standards-compliant data from companies to prove their ESG performance, backed by trusted actors in the supply chain. The only way for this to scale to global levels is through ‘algorithmic due diligence,’ where trusted, verifiable, machine-readable credentials and claims data can be assessed at scale by regulators. Australian mining will need to adopt robust ESG reporting practices to meet these demands and maintain investor confidence. These needs create a significant tension between transparency and commercial privacy, something many traditional paper-based compliance schemes have failed to address.

The backdrop to all these pressures is the increasing rate of greenwashing which is now reaching an industrial scale and threatening to undermine trust in ESG claims. In the US, 68% of executives now admit their companies are involved in greenwashing, accelerating government action. We may see a global sustainability arms race where nations continually increase the thresholds on imports as a form of protectionism. The only solution for Australian Agriculture is to lower emissions and increase transparency.

B2B Digital Product Passports: a solution to the growing demand

Fortunately, new capabilities in on-farm data management are becoming accessible to producers and this data can but used to drive a wide range of compliance and supply chain reporting activities using B2B Digital Product Passports (DPPs).

B2B Digital Product Passports are a simple and promising open-source solution to the growing demand for ESG-compliant agricultural products. They are being promoted by GS1 and the United Nations Centre for Trade Facilitation and Electronic Business (UNCEFACT) as a global standard for product conformance.

DPPs are simple digital records that track the lifecycle of a product, providing detailed information about its origin, production methods, and environmental and social impact. Compliance and conformance claims attached to DPPs can be issued by regulators, allowing agricultural producers to demonstrate their commitment to ESG principles through their entire supply chain and provide buyers and regulators with the transparency they demand. In the next few years, DPPs are set to be a ubiquitous standard that producers, materials accounting and production management platforms can all easily integrate as a seamless way of transferring product information.

About the Author

Steve Capell is recognised as a global thought leader in digital trust and digital trade and a co-founder of GoSource, an ICT service provider specialising in digital transformation for government and enterprise customers. Steve has been a key contributor to the United Nations Centre for Trade Facilitation and Electronic Business (UNCEFACT) to develop guidelines and standards to accelerate the global transformation of digital trade using verifiable credentials. He is currently the project leader for UNCEFACT Recommendation 49 on Digital Product Passports.