Understanding the impact of Sustainability disclosures on Agriculture in Canada: What to do and how to embrace it

Farmers, ranchers, and all agriculture producers alike have always been stewards of the land. As the agriculture industry continues to evolve, today’s producers will soon be required to make sustainability disclosures across the agriculture value chain. With this change comes many questions about what information is needed, and how producers can embrace the change to build upon their existing agriculture operations.

Why is sustainability disclosure becoming a necessity in agriculture?

In Canada, 10% of greenhouse gas (GHG) emissions are from crop and animal production in agriculture — excluding emissions from the use of fossil fuels or from fertilizer production. The main gases emitted by agricultural activities include carbon dioxide, methane, and nitrous oxide.

• Nitrous oxide emissions can originate directly from field-applied organic and inorganic fertilizers, crop residue decomposition, cultivation of organic soils, and the storage of manure.
• Indirect nitrous oxide emissions can originate from nitrogen moved offsite such as from the volatilization and re-deposition of ammonia, and from nitrogen leaching and run-off.
• Methane emissions from agricultural sources in Canada are mainly a result of enteric fermentation in ruminant animals and from the anaerobic decomposition of stored manure. When organic matter in feed or manure decomposes under anaerobic conditions, a portion is released as methane.

Agricultural activities inevitably result in multiple GHG emissions. As governments, financial institutions, and customers become more environmentally conscious and demanding, sustainability regulations will be developed that require agriculture producers to disclose sustainability-related information.

Measuring and disclosing the right information

Sustainability practices will soon be a seamless feature of the agriculture industry. Knowing the requirements is one step closer to complying with the growing demand for sustainability information and disclosures. The next critical step comes in quantifying and providing meaningful information — working with the baseline of existing information to provide additional insight for sustainability-related priorities and decisions. Properly measuring and disclosing this information will become a feature of prosperous agriculture operations across the country.

Many agriculture producers still have questions about what this new normal will look like. MNP has answers to ten common questions about sustainability topics and how to measure, disclose, and continue to embrace them in agriculture. Knowing where to start is essential to taking the next steps. A starting point – known as a baseline – is essential to creating a path forward.

1. What is ESG?

ESG stands for Environmental, Social, and Governance. These are criteria that help measure the sustainability and ethical impact of a business. Incorporating ESG, or sustainability practices can help agriculture producers manage risks and opportunities related to natural resources, community relations, and regulatory compliance. The new ESG disclosures will impact businesses across Canada. Review MNP’s keys to disclosure requirements to learn more about what the new normal will mean for you.

2. Why should agriculture producers understand ESG practices?

Adopting ESG practices can help producers improve operational efficiency, enhance their reputation, meet buyer and consumer expectations, secure financing, and address regulatory requirements. It can also open up new markets and attract investment by demonstrating commitment to sustainable practices. And why is this important? A key driver for ESG adoption is access to capital. And capital is coming with more strings attached as financial institutions look to finance agricultural businesses with sound ESG practices. Additionally, more and more customers increasingly demand to see sustainable practices in the agricultural businesses with whom they transact. These ESG practices are now becoming table stakes for existing business relationships. Understanding what is required is needed to maintain those relationships if not build upon new opportunities.

3. What are Scope 1 and Scope 2 greenhouse gas emissions?

Climate requirements have become a priority topic globally. The global focus, including here in Canada, is on those industries and sectors that are larger emitters. Agriculture ranks within the top emitting sectors of the Canadian economy which is drawing focus for ways to reduce environmental impact while still servicing the food needs of the global economy. There has been increasing demand from various stakeholders for agriculture producers to provide insight into the GHG emissions from their operations and supply chains. Most of the requests to date have been for the GHG emissions from owned and/or controlled operations, with some requests for the GHG emissions from their supply chains. The demand for GHG emissions from supply chains is expected to increase as more industry partners demand to understand the representative picture of their total GHG emissions profile. It is therefore important to begin with understanding and measuring GHG emissions from owned and/or controlled operations as an initial baseline. What is meant by Scope 1 & 2 GHG emissions? Here are definitions to help your understanding:

• Scope 1 emissions are direct emissions from owned or controlled sources, such as fuel combustion in farm machinery and farm animal methane emissions.
• Scope 2 emissions are indirect emissions from the consumption of purchased electricity, steam, heating, and cooling consumed by the agriculture operations.

4. How can agriculture producers measure Scope 1 and 2 emissions?

It’s one thing to know the definition of owned and/or controlled GHG emissions. It is equally important to know how those GHG emissions are measured. Including what information you need to collect in order to conduct this quantification. GHG carbon emissions are measured by:

• Scope 1: Tracking fuel consumption (liters) in agricultural equipment.
• Scope 2: Tracking electricity (kWh), natural gas (GJ), and/or propane (BTU) consumption in operations for heating and cooling available in utility bills or meter readings.

Reviewing data gathered from an agriculture operation’s bills or receipts, the ability to make the necessary calculations, and evaluating agricultural GHG emissions can assist in accurate measurement of an agriculture operator’s decision-making. This additional information gathering will greatly assist in answering questions that may come from your financial institutions and customers.

5. What are some environmental practices agriculture producers can adopt?

As agriculture producers adopt and implement sustainable practices, having a defined starting point, that is well-measured and understood, will greatly improve the ability to communicate how strategic action is “moving the dial” through these environmental practices. Not knowing where you are starting will make it hard to communicate the value of what you have adopted and implemented. Examples of environmental practices that agriculture producers are currently evaluating include:

• Sustainable water management
• Biodigesters;
• Feed additives to reduce methane in cattle;
• Integrated pest management;
• Soil health programs;
• Conservation tillage and cover cropping; and
• Renewable energy installations and precision agriculture technologies also improve sustainability.

6. How can ESG practices benefit agriculture workers and the community?

Not all critical sustainability-related topics of priority are environmental. There are social aspects of ESG which focus on improving labour conditions, health and safety, community engagement, and supporting local economies. Agriculture producers can build goodwill and enhance social capital by adopting fair labour practices and engaging in community activities. In addition, new laws in Canada such as Bill S-211, an Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act,was signed into law May 2023 and came into effect January 2024. This law requires entities to review and understand their operations and supply chain to engender transparency around global issues of forced and child labour. And many agriculture producers meet the minimum criteria for compliance which requires annual reporting to the federal government. Social issues are becoming top of mind globally, and sound ESG practices will support good disclosures.

7. What governance practices are important for agriculture producers?

Good governance involves having clear policies for agriculture operation management, transparency in operations, compliance with local and national regulations, and engaging collaborators effectively. Implementing robust financial management and record-keeping practices is also crucial. Building rigor into the process will help bring integrity to data which is required to meet a growing need for sustainability-related information.

8. How can sustainability practices impact financing options?

Many financial institutions now consider sustainability and ESG criteria when assessing risk and making investment decisions. Agriculture operations with strong ESG practices may access better loan terms, government grants, and investment from funds focused on sustainability. Without the right data to communicate with your financial institution you will meet increasing headwinds in accessing capital.

9. What are the first steps to implement ESG practices in an agriculture operation?

Implementing and maintaining sustainability practices in an agriculture operation will be an ongoing and evolving process. These are tangible steps an agriculture producer can take to get started:

• Understand what is being asked;
• Assess current practices (baseline);
• Measure Scope 1 and Scope 2 GHG emissions;
• Get educated on ESG benefits such as lending and interest rates, preferred vendor status, participation in supply chains, as well as certain customers, tax credits, grant funding, and other opportunities;
• Gradually integrate ESG into daily operations; and
• Seek advice from ESG consultants like MNP who are already your trusted advisor.

10. Where can agriculture producers find more resources or help with ESG?

As has always been the case in agriculture, collaboration, networking, and benchmarking with other agriculture producers will provide valuable insight. Experts and partners like MNP have resources available to support agriculture operators through our data, tools, and templates to support sustainability disclosures for GHG emissions, deciding upon a prudent ESG strategy, addressing questions from financial institutions and/or customers, ESG-related disclosures, compliance with laws and regulations (including Bill S-211), as well as training and awareness.