Global impact of EU sustainability legislation for the poultry sector and beyond
Even for European companies it is still a shadowy thing, the new Corporate Sustainability Reporting Directive (CSRD) arising from the European Green Deal and its accompanying Financing Sustainable Growth action plan. However, this legislation – which stipulates that an external accountant must provide ‘assurance’ on sustainability reporting – will have major consequences for Europe and beyond.
The European Commission presented the road map for a climate-neutral Europe, called the Green Deal, in December 2019. For large listed companies, the CSRD will come into effect this year, fiscal year 2024. In 2025, it will also apply to many companies that are not included in the current non-financial reporting directive. These are companies and organisations that meet 2 of the 3 following conditions: a turnover of more than €50 million a year, a balance sheet total of more than €25 million, or more than 250 employees (average over one year).
One of the European companies in the second category is Dutch compound feed company ABZ De Samenwerking. It is the fifth-largest compound feed company in the Netherlands. ABZ De Samenwerking director, Marcel Roordink, explains: “Because we fall into this second category, we spend a lot of time and energy on ensuring that we will comply with the CSRD in time. Along with us, we see many firms taking the initiative as this legislation applies to all European companies in the European poultry sector, including the entire periphery.”
Major effort
The CSRD plans are intended to transform the EU into a modern, competitive and sustainable economy that provides stability, jobs, growth and investment. The EU aims to become the first economic block in the world that emits no greenhouse gases by 2050.
Roordink: “Globally speaking, the CSRD is a control instrument intended to check whether the objectives of the Green Deal (and other legislation) will be achieved.”
When reporting, the companies concerned are required to report on 5 themes, which are the environment, corporate social responsibility, human rights, anti-corruption, and diversity. “Moving forward, the reporting of non-financial information in the EU will become just as important as traditional financial reporting and must be of the same quality,” said Roordink. “The new rules are being introduced quickly and the requirements are also comprehensive and specific. It will therefore require a significant amount of effort on the part of most of the European companies that have to implement the legislation, to comply with it.”
The EU directive requires that companies collect, process and publish enormous volumes of data. In principle, no fewer than 1,144 possible data points can be reported. Roordink: “The CSRD stipulates that an external accountant must provide assurance on sustainability reporting, initially with a limited degree of assurance, later with a reasonable degree. I hear from various sources that accounting firms in Europe are recruiting people en masse to be able to prepare these reports in accordance with the rules.”
Global impact
In preparation for the CSRD, a stakeholder analysis must be carried out to determine who is covered by the reporting. Roordink: “In our case, this covers our own staff, neighbouring companies and private individuals, the members of our cooperative, suppliers such as arable farmers, NGOs, all types of international traders and suppliers – including raw materials – and the consumer, too. So as far as the poultry sector is concerned, this means our affiliated poultry farmers, the poultry slaughterhouses we work with and egg traders, to name but a few.”
As Roordink sees it, reporting regarding the environment has to be the most extensive and, in his opinion, this goes very far. “Firstly, we have to look at what emissions our company itself emits, called scope 1. Then we also have to report on indirect emissions, called scope 2. Suppose a Polish coal-fired power station supplies our electricity, then that must also be reported.”
Furthermore, under scope 3, all purchases must be reported, such as new trucks and factory equipment, including office furniture. “The CSRD also states that you must do an assessment based on scopes 1 to 3, so not just reporting but assessments, too,” noted Roordink.
The CSRD reporting records the sustainability of the entire chain, including all the preliminary links and their sustainability score. “As a result I expect CSRD to have a global impact,” says the ABZ De Samenwerking director. “As retail will also have to comply with this EU legislation, it will have consequences for the import of South American chicken fillet and table eggs from Ukraine, to name but a few.”
Critical look at suppliers
Roordink says it is clear that the EU is advocating a stakeholder-oriented sustainability strategy: “That is the starting point. As a company, you assess the impact of an area and then see whether you can influence it favourably and how much that will cost. I see this new legislation as the start of a new journey. We know where we want to go but we don’t know exactly in which direction to go and how quickly we can do that.”
The new EU legislation is already having implications because the Dutch compound feed company is looking more critically at its suppliers and what impact these suppliers have on the themes that play a role under the CSRD. Roordink: “If, in the long term, legislation is linked to the CSRD that states what is allowed and what is not in terms of bandwidths, then suppliers may have to be dropped.”
The feed producer notes that the legislation will play a huge role in the EU for compound feed companies and the entire food chain.
Shift in raw materials market
Roordink believes it is very important that European retailers work together with the agricultural food chain. “Because from this year on, Ahold Delhaize, for example, already has to comply with the CSRD. This global retail company must ask laying hen farmers where the eggs come from, whether they produce in accordance with the CSRD. It will aim to source eggs that are produced with the lowest possible carbon footprint. If the laying hen’s ration includes as many raw materials as possible that are non-human edible, that is a plus.”
Roordink also thinks there will be a shift in the raw materials market. Products such as beer brush, pressed pulp and whey from within the region will become more popular because they are non-human edible and also have a low carbon footprint. “I already see that a reduction in the carbon footprint is highly appreciated worldwide and I expect that this will only become a stronger driver in the long term. This will therefore also have an effect on the price of agricultural products,” he says.
For this reason, the combined Dutch poultry industry started with the reintroduction of animal protein in compound feed in the form of PAPs (processed animal protein) in March 2022. These are residual products from pigs that are processed into poultry feed. “The carbon footprint of these proteins is many times lower than soy from South America and these residual products contain more than 60% animal protein, compared to 48% protein in soy,” said Roordink, adding, “To show the impact of this measure, the carbon footprint of soy from South America is 8 times higher than that of pig residual products, in our case.”
Focus on residual flows and co-products
Roordink sees that countries such as the US, Canada and South American countries mainly base their poultry rations on corn and soy, which are widely available in those countries. “They will adjust their carbon footprint accordingly. We as the Dutch compound feed industry have decided to focus more strongly on residual flows and co-products from the regional food industry. As the fifth-largest compound feed company in the Netherlands, we are fully engaged in this.”
Compound feed does not necessarily have to become more expensive, if cheaper raw materials can be found, says Roordink. Some trade flows may come under pressure as a result of the CSRD. “To give an example, in our case, of how far the CSRD extends, we purchase South American soya in bulk through a Dutch trader. In the long term, this trader will have to ensure that all soy meets the conditions set in the CSRD, including sustainability and social indicators in South America itself. In the long term, European agricultural products will be labelled, showcasing their CSRD score. I do not expect that by 2025 all 1,144 data points we have to deliver will be found on packaging but I do believe the most important ones will be shown.”
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