Sustainability and ESG Certification: What Does It Mean for Your Farm?
What does sustainability mean for a farm?
In recent years, sustainability has become a hot topic, especially in the agricultural sector. But what does it really mean for someone running a farm? Being sustainable doesn’t just mean protecting the environment; it also means adopting practices that can improve your farm's efficiency and keep it competitive in the long run. The ESG (Environmental, Social, Governance) certification is one tool that allows businesses to demonstrate their commitment to a sustainable future.
If you're considering whether this certification is worth it for your farm, here we’ll explore the advantages and disadvantages, with a special focus on how the demands from your buyers—especially those supplying large retail chains (GDO)—might influence your decision.
What is ESG certification?
The ESG certification evaluates three fundamental aspects of a business:
- E for "Environmental": Refers to your farm's impact on the environment, such as resource management (water, energy, soil) and waste reduction.
- S for "Social": This focuses on how you treat your workers and interact with the local community. It includes safety at work, employee rights, and the social impact of your activities.
- G for "Governance": It refers to the transparency and ethical management of your business, including anti-corruption policies and the use of a corporate code of ethics.
Obtaining an ESG certification means your farm is evaluated and recognized as responsible in these three areas. But what does this mean, practically, for your agricultural business?
The advantages of ESG certification for your farm
- Access to new markets and customers
Sustainability is becoming increasingly important for consumers and, especially, for retailers supplying large retail chains (GDO). Supermarkets and retail chains are adopting stricter policies regarding sustainability and social responsibility. This means that the retailers you work with may increasingly require their suppliers to be ESG certified.
Why? GDO chains must comply with new regulations and meet consumer demands for more sustainable products. This drives retailers to look for suppliers who meet high environmental, social, and governance standards. If your farm doesn’t obtain this certification, you could lose supply opportunities to competitors who have already adapted.
GDO and retailers are increasingly bound by European regulations, such as the circular economy package and climate-related standards, which mandate the reduction of carbon emissions and responsible resource management. These requirements are also passed down to suppliers, who must ensure a sustainable supply chain. As a result, ESG certification can become an essential requirement for continuing to work with certain retailers. - Better access to financing Banks and investors are increasingly favoring businesses that meet sustainability criteria. Being ESG certified can make it easier to access favorable financing terms or obtain better loan conditions. In addition, many institutions offer tax incentives and benefits for adopting sustainable practices, making it easier to invest in modernizing your farm.
- Long-term savings Running your business sustainably isn’t just an investment for the future—it can also lead to immediate savings. Implementing practices that reduce water waste, improve energy efficiency, or optimize soil use can lower operational costs. In the long run, these strategies can reduce business expenses while also boosting your competitiveness.
The disadvantages of ESG certification for your farm
- Initial costs Achieving ESG certification requires investments in both money and time. You may need to review your business processes, purchase more efficient equipment, or introduce new sustainable practices. However, these initial costs may be recovered over time through operational savings and new business opportunities.
- Increased bureaucratic commitment Certification requires gathering and processing data on your business practices, from resource management to the social impact of your activities. This can add significant administrative work, especially for a small farm that may not have a department dedicated to managing sustainability processes.
- Long-term return on investment While ESG certification can improve your reputation and open new doors, the financial benefits may not be immediate. Implementing sustainable practices is a gradual process, and the return on investment may take time to materialize.
The future of GDO: why retailers choose only sustainable suppliers
As mentioned earlier, retailers that supply large retail chains are increasingly choosing to work only with suppliers who meet sustainability criteria. This happens for several reasons:
- Regulatory pressures GDO companies must comply with increasingly stringent European and national regulations on environmental sustainability. European directives, such as the circular economy package and greenhouse gas emission standards, require companies to show a concrete commitment to reducing their environmental impact. Retailers, therefore, need to ensure that their entire supply chain is sustainable, choosing suppliers that meet ESG standards.
- Consumer demand Consumers are becoming more aware of the origin and environmental impact of the products they buy. Supermarkets, to stay competitive, respond to this demand by offering products from companies certified as sustainable. If your farm is unable to demonstrate a commitment to sustainability, you may be excluded from the supply chain.
- Brand reputation Retailers, especially those in the GDO sector, are very conscious of their public image. Partnering with suppliers that adopt unsustainable practices could damage their reputation. As a result, agricultural businesses that achieve ESG certification offer retailers additional assurance that their brand will remain credible to customers and regulators.
How to get ESG certification for your farm
If you’re interested in obtaining ESG certification for your farm, here are the key steps to follow:
- Initial assessment Start by assessing your current business practices. This will help you understand where improvements can be made in terms of sustainability. You may find that some changes are simpler and less costly than you thought.
- Planning interventions Once you’ve identified weak areas, plan the necessary actions to improve. For example, you may want to invest in water-saving technologies or implement regenerative farming practices that improve soil health.
- Apply for certification After making the necessary changes, you can officially apply for ESG certification. The entire process requires the involvement of a certification body, which will assess whether your business meets the required standards.
Is ESG certification the right choice for your farm?
For a small agricultural business, obtaining ESG certification might seem like a demanding and costly process. However, if you want to continue working with retailers that supply large retail chains, this certification may become essential. Market trends clearly show that sustainability is becoming a key criterion for suppliers. Being among the first to get certified will put you in a competitive advantage over others.
Conclusion
ESG certification can offer significant opportunities for your agricultural business, especially if you work with retailers supplying GDO. While it requires initial investments and bureaucratic commitments, the long-term benefits—such as access to new markets, easier financing, and greater efficiency—make this step an option worth considering. The agricultural market is changing, and the decisions you make today could be crucial to the future success of your business.
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FAQ
1. What does obtaining ESG certification mean for a farm?
ESG certification evaluates a business's sustainability in three key areas: environmental impact (Environmental), respect for social rights (Social), and business transparency (Governance). For a farm, this means proving that you adopt farming practices that respect the environment, treat workers fairly, and manage your business ethically.
2. Is it mandatory for a farm to obtain ESG certification?
No, ESG certification is not mandatory for all farms, but it may become necessary if you want to continue supplying your products to retailers working with large distribution chains (GDO). More and more often, retailers require their suppliers to adopt sustainable practices to comply with regulations and meet consumer expectations.
3. What are the benefits for a farm in obtaining ESG certification?
The main benefits include improved access to new markets, as many retailers prefer to source from sustainable businesses, the possibility of obtaining favorable financing terms from banks and sustainability-conscious investors, and potential long-term savings through more efficient management of resources like water, energy, and soil.
4. What are the costs associated with ESG certification?
Costs can vary depending on the size of the farm and the actions needed to meet ESG criteria. They may include investments in new equipment, consulting fees for preparing sustainability reports, and fees for certification from an accredited body. However, these costs can be offset over time through the commercial and operational advantages certification can provide.
5. How can I start the ESG certification process for my farm?
The first step is conducting an internal assessment of your current farming practices, evaluating aspects such as resource management, environmental impact, and worker well-being. Next, you should plan the necessary actions to improve sustainability, such as investing in more efficient technologies or adopting more environmentally friendly farming methods. Finally, you can apply for certification through a qualified body.