The Impact of Methane Transparency on the Dairy Industry
The European Union's Corporate Sustainability Reporting Directive (CSRD) is being implemented to demand greater transparency in climate impact reporting from large companies. This includes a detailed disclosure of methane emissions, which is particularly challenging for dairy and meat companies. Methane accounts for a significant portion of their greenhouse gas emissions. Companies such as Danone and Nestlé have already started to address this requirement by demonstrating that detailed methane tracking is feasible.
The CSRD applies a 'double materiality' test, assessing emissions both on their environmental impact and the financial risk they pose to businesses. This effectively makes methane disclosure unavoidable for companies affected by the directive. The dairy industry, in particular, faces scrutiny as methane emissions are a substantial part of their environmental impact.
International standards like the GHG Protocol further reinforce this need by requiring methane to be accounted for within scope 1 and 2 emissions. This means that even companies not trading within the EU need to consider methane disclosure in their broader corporate reports.
Currently, only a few companies like Danone, General Mills, and Bel Group have put methane action plans in place. Others, including FrieslandCampina, are engaging through broader climate targets without specific methane plans. Some, such as Lactalis and Dairy Farmers of America, have yet to meaningfully engage with methane disclosure or mitigation.
Nusa Urbancic, CEO at Changing Markets, notes that increased transparency could result in more pressure from investors and policymakers for companies to implement methane mitigation plans. However, the CSRD and CSDDD do not mandate emission reductions, leaving dairy companies under compliance pressure without immediate requirements to cut emissions.
Despite this, market forces may drive changes as investors increasingly expect companies to address methane risks. Sustainability is becoming a baseline requirement for investors, as shown by Nestlé's recent loss of a major backer over ESG issues. Some investment firms, including Norges Bank Investment Management, JP Morgan, and State Street, have already adopted methane-specific policies.
Methane mitigation presents an opportunity for the dairy sector, as reducing methane emissions is seen as an effective way to slow global warming. Failure to address methane emissions could exacerbate the climate crisis and impact crop productivity and human health.
