Canada: Directors fiduciary duty in a pandemic: You need a protocol!
COVID-19 has had and will continue to have impacts on virtually every corporation in Canada and globally.
The recent Intergovernmental Panel on Climate Change (IPCC) Report on the Impacts of Global Warming warned that the world is already seeing the consequences of global warming of 1°C, with more frequent and extreme weather, rising sea levels, diminishing Arctic sea ice, ocean acidification, land degradation and desertification, among other changes.1 It also warned that to limit global warming to 1.5°C requires “rapid and far-reaching transitions in land, energy, industry, buildings, transport and cities”. Change of this nature will impact every commercial, public and private endeavour. In coming years, the entire food and agribusiness value chain will likely be disrupted – not just because land is vulnerable to the physical effects of climate change and other stressors, but also because the industry is interdependent with the other sectors identified above. There will be significant changes and challenges to navigate. But there will also be significant opportunities.
Land use and services are critical to human livelihoods, well-being and development. We are dependant on the land for our supply of food, clean water, construction materials (timber), energy, and many other ecosystem services (air purification, soil formation, climate management, pollination, to name but a few). However, it is already under pressure.
Global population has increased at a staggering rate – in the 20th century alone, it grew from 1.65 billion to 6 billion, and in just the last 50 years, it almost doubled. A 2017 United Nations report predicts global population will reach 9.8 billion in 2050.2 Global per capita consumption rates of food, feed, fibre, timber and energy are also higher than ever. Per capita supply of calories has increased by approximately one third, and per capita supply of vegetable oils and meat has more than doubled, with 25-30 percent of total food produced being lost or wasted.3
The food and agribusiness industry is unsurprisingly big business – it is a US $5 trillion industry, representing 10 percent of global consumer spending, and employing around 2 billion people.4 It has a very important role in the economies and societies of many nations. With current forecasts predicting overall calorific demand to increase by between 50-70 percent and crop demand for human consumption and animal feeds by at least 100 percent by 2050, the industry’s role will only become more essential.5
Meeting the demands of a larger and more resource hungry population has resulted in unprecedented rates of use of land and clean water. A dramatic increase in agricultural production has been enabled by rapid land use intensification and land use changes (expansion of areas under agriculture and forestry). Today, more than 70% of global ice-free land is directly affected by human use, and agriculture uses nearly 50 per cent of global vegetated land and 70 per cent of global freshwater use.6 Unfortunately the scale and intensity of land use has contributed to land degradation and desertification. Human-induced land degradation impacts about a quarter of global ice-free land. It has also contributed to loss of ecosystems and declining biodiversity.
This has had measurable effects on land-based industry. For example, pollinators are among those species impacted; a matter of significant concern to food and agribusinesses given three out of four of the leading crop types grown commercially rely on animal pollination for yield and quality.7 Insurers of the food and agribusiness sector are warning that a “global pollinator crisis” is “putting the global agriculture supply chain at risk”. 8
Human land use is also a major contributor to climate change, with significant drivers being agriculture, food production, and deforestation.9 According to the IPCC Special Report on Climate Change and Land, between 2007 and 2016 agriculture, forestry and other land use produced approximately 23 per cent of total human caused GHG emissions (N2O, CO2, CH4). This makes land use one of the leading emitters of GHG, with some commentators warning that it may eventually surpass even fossil fuels. Complicating the equation is that, in addition to being a source of GHGs, land is also a sink and sustainable land management practices can mitigate the impacts of stressors, including climate change.
However, the significance of the stressors described above cannot be ignored. The IPCC Special Report on Climate Change and Land warns that the level of climate change risk, depends not just on the extent of warming but also how population, consumption, production, technological development and land practices evolve.
The climate change risk profile of the food and agribusiness industry is complex. The industry is highly vulnerable to the effects of climate change, and yet also well-placed to mitigate those risks and also benefit from opportunities that the transition to a more sustainable future presents.
Land ecosystems and biodiversity are vulnerable to the physical effects of climate change. These include a warmer and more volatile climate with increased frequency, intensity and duration of extreme climactic and weather events – heat waves, droughts, periods of low rainfall, dust storms, permafrost thaws, rain storms, floods, severe wind and wave activity, coastal erosion, rising sea levels, amongst others. Although land-based industries are accustomed to dealing with difficult weather conditions, climate change has the potential to increase the number and duration of acute weather events and disasters with often immediate impacts on production and profitability. The IPCC Special Report on Climate Change and Land predicts with high confidence that the stability of global food supply will decrease as the magnitude and frequency of extreme weather events that disrupt food chains increase. In addition, climate change has the potential to cause more complex, longer term problems. It has led to shifts of climate zones in many regions, it exacerbates land degradation and desertification, soil erosion rates now vastly outpaces that of soil formation, costal erosion is intensifying, and sea levels are rising and becoming increasingly acidic.10 For land-based businesses in affected regions, these changes can seriously impact productivity and profitability (or even viability) over the mid-longer term.
It is important to also consider the cascading impacts (indirect and direct, short term and longer term) as other sectors with key roles in the food and agribusiness value chain, such as energy, infrastructure and transport, are affected by the physical effects of climate change. It is easy to envisage the impact on food and agribusinesses if, for example, essential utilities or infrastructure are damaged by flooding, or a hurricane disrupts transportation of soft commodities.
Food and agribusinesses must understand and anticipate these risks to their businesses and prepare accordingly. There will be costs of responding to physical events and disasters, as well as costs associated with mitigation, adaptive measures, and investment in infrastructure and resources to increase the resilience of operations and supply chains. However, the benefit is clear – if adaptive measures are taken, many risks may be mitigated and in some instances baseline productivity and profitability may also improve.
A recent climate scenario analysis of risks and opportunities in Australian agriculture undertaken by Commonwealth Bank of Australia, paints a clear picture of the need for assessment and adaptive measures.11 On the worst case scenario model basis, the CBA risk report anticipates significant (between 40 – 60 percent) loss of productivity and famer profitability by 2060 across all three sectors studied; grains, livestock and dairy cattle. Key risks for those sectors, respectively, include changes in predicted rainfall, deterioration of pasture growth and quality, and the incidence of consecutive days of significant heat stress (which causes cows to stop lactating, ceasing production). Yet, for each sector, the scenario models showed that adaptive measures could significantly preserve or even increase productivity and profitability. These included measures such as breeding (or genetically modifying) crops or livestock to better tolerate drought, heat and humidity, or advances in monitoring and management technology to maximise water and other resource efficiencies and to provide greater shade and cooling. However, adaptive measures are not a panacea – in some instances the costs of adaptive measures may outweigh the benefits or there may be undesirable side effects, or some trends (e.g. declining rainfall) may prove beyond current adaptive measures such that some regions will be significantly less viable for current agribusiness uses in the long term.
Food and agribusinesses will need to transition to mitigate, adapt and become more resilient to the physical effects of climate change. There will be other drivers of change, including risks of: changes in laws, policy and regulation (including in respect of reporting of emissions and/or climate-related financial risks); shifts in public perception leading to different consumer habits or customer behaviours; reputation risks or stigmatization of sectors; litigation or activism (see also our article on Climate change disputes – a food an agribusiness perspective); changes in investment or lending appetites and commercial strategies; new emerging competitors, markets and technologies; uncertain markets; and uncertain macroeconomic conditions. Some will lead to additional costs for businesses or reduce productivity or profitability, such as new tax regimes, loss of market share, difficulties obtaining finance or insurance at attractive rates (or at all). However, there will also be opportunities.
Some of the changes to the industry will lead to new resource efficiencies, technologies or management practices that increase production or profitability. New markets and customers will open up for those that develop low emission and sustainable products, as will access to new lines of green finance or subsidies. Investors are predicting gains in these areas; as an example, investment in agritech and foodtech start-ups has increased significantly in recent years, reaching over US$ 10 billion in 2017. Of course, implementing any new business practice or entering a new market carries risk, but those willing to invest strategically and carefully in new technologies may see significant efficiency gains and profits.
Better land management can help tackle climate change. As an added benefit, many land-based responses that adapt to or mitigate climate change also combat land degradation and desertification, and enhance food security, sustainable development and other societal goals. These include sustainable food production, sustainable forest management, soil organic carbon management, ecosystem conservation and land restoration, and reduced deforestation and degradation.12 Non-land based options in food and agriculture value chain management, include reducing post-harvest losses and food and water loss and waste, or different dietary choices which can lower emissions or reduce pressure on land.
Land-based options can also deliver carbon sequestration in soil or vegetation, though with varying degrees and duration of efficiency and effectiveness, and sequestered carbon is at risk of loss if disturbed (for example by flood, fire or pests) or managed poorly.
For land-based solutions to be effective, an integrated response across multiple sectors (agriculture, forest, water) and across local, regional and national levels will generally be needed. Successful implementation also depends on local environmental, ecological and socio-economic conditions. Similarly, barriers to adaptation and mitigation efforts, and risks of side effects are tied to the regional and local environs – in particular the environmental and cultural contexts.
It is also important to consider if and to what extent land-based options compete for available land. Many do not (such as improved management of crop and grazing lands, or sustainable forestry). However, some do (such as afforestation, reforestation, or use of land for biochar or bioenergy feedstock). Increased land demand can lead to land degradation and desertification. There will accordingly be limits to land-based options. It cannot be the only solution. It is essential to reduce GHGs and implement adaption, mitigation and resilience measures across all sectors.
Having briefly touched on innovative ways to mitigate the effect on the environment caused by agribusiness the following, feature article, discusses in more depth the innovative solutions being used throughout the agricultural production process.
Winston Churchill once said ”There is nothing wrong with change, if it is in the right direction.” One hundred years ago, transitions in industry, energy and transport led to fundamental societal change. The automobile, for example, allowed for faster and safer travel over larger distances, which transformed industry and trade, and reshaped our cities as well as our private lives. The modern transitions to adapt to or mitigate global warming, including in the food and agribusiness sector, call for an equally significant reorganisation of the way our societies, industries, businesses, and lives are ordered and run – even to the way we produce and consume food. Savvy food and agribusinesses will undertake early stage assessments of the risks posed by climate change (physical and transition), and implement resilience plans and adaptive measures. In doing so, they will be well-placed not only to ride out the coming changes to the sector and to society as a whole, but also to identify and exploit the opportunities that change presents.
COVID-19 has had and will continue to have impacts on virtually every corporation in Canada and globally.
As business resumes in the workplace and circumstances change, American companies must be ready.