The comment period for the proposed U.S. Securities and Exchange Commission (SEC) rule “Enhancement and Standardization of Climate-Related Disclosures for Investors” concluded on June 17, after collecting more than 10,000 responses that ran the full range of emotions from exhilarated applause to indignant outrage.
The authority of the SEC to propose a rule requiring climate-related disclosures at all has been much discussed, and it will likely face further challenges following the Supreme Court’s recent decision in West Virginia v. Environmental Protection Agency to limit the EPA’s authority to act to reduce GHG emissions. But outside of this fundamental question, the part of the proposed rule that has generated the most controversy is its intent to require disclosure of Scope 3 (indirect or value chain) GHG emissions for companies where they reflect a “material” component of overall emissions. On one hand, commenters who oppose the requirement point out that measuring Scope 3 emissions is a challenging and costly exercise that unduly burdens companies and their suppliers, and often the resulting information is not actionable for the reporting company anyway. On the other hand, commenters in favor of the requirement assert that climate-related risks have become, in many cases, a material risk to investors, and companies have an obligation to understand and attempt to quantify the extent to which they are contributing to these risks.
But developing this understanding of impact across the supply chain is critical to effective decision-making on solutions to the challenges presented by climate change – and this is the philosophy that underpins how ReFED has quantified the extent of the environmental problems stemming from food waste in the U.S. Our analysis starts at the farm and follows food to its end of life destinations, digging into where along the supply chain surplus food occurs, why it occurs, and what its environmental impact is. While the picture of ongoing environmental damage that our data paints is not pretty, our analysis of the supply chain also illuminates areas of opportunity for organizations that sit along the chain.
ReFED’s data has shown that 35% of all food produced in the United States goes unsold or uneaten, with the vast majority of this – 54 million tons – going to waste, along with all of the resources that were used to produce that food and get it to market. To put it into perspective, if all of our country’s surplus food were grown in one place, this “mega-farm” would cover roughly 80 million acres, over three-quarters of the state of California. Growing the food on this wasteful farm would consume all the water used in California and Idaho combined.
Indeed, we all need to become more thoughtful about our impact on the natural resources that we depend upon – 37% of total food surplus occurs in the home, generated by consumers, and that is the main reason why food is the largest component within U.S. landfills, which emitted 15% of U.S. methane emission in 2020, according to the EPA. However, ReFED’s data also show that once any given item of food reaches the consumer, it has already expended 96% of its lifetime GHG emissions through the process of growing, transporting, processing, packaging, storing, and selling that item – which means the practices of food producers, manufacturers, retailers, and foodservice businesses drive the enormous carbon footprint of wasted food.
This is the type of information that these businesses would be required to think about, understand, and disclose as a result of the proposed Scope 3 emissions reporting requirement, and we would expect the numbers reported from food businesses to be notable, given that indirect, supply chain emissions typically account for the majority of emissions in the food sector (The Investor Guide to Climate Transition Plans in the U.S. Food Sector). In fact, a 2019 Ceres analysis of 50 top U.S. and Canadian food and beverage companies found that of the 16 that report full Scope 3 emissions, Scope 3 made up 89% of total reported company emissions.
Why should the SEC/investors care about all this? Systems that waste large parts of their inputs, that accumulate GHG emissions that contribute to degrading the environment that they depend on for production, are by definition unsustainable. And systems that are unsustainable will falter at some point in the future. The investors who are pushing for this disclosure have decided that they would like to know which companies are adapting their practices to be able to meet the challenges of the future – and which are not.
The good news for reporting businesses and their investors is that in the process of better understanding their supply chains, they may uncover significant opportunities to improve their operations and reduce their negative impact on the environment. For example, ReFED’s data also show that there is a net financial benefit of $73B to be realized annually by implementing solutions to food waste. While we don’t minimize the labor involved in understanding impact across a supply chain, we believe that the effort is not only worth it but necessary, and we are encouraged by the SEC’s move to bring this discussion to the forefront.