ifrs-s2-ibg-volume-25-processed-foods-part-b

Industry-based Guidance on implementing

Climate-related Disclosures

Volume 25—Processed Foods

June 2023

IFRS S2

IFRS

® Sustainability Disclosure Standard

International Sustainability Standards Board

This Industry-based Guidance accompanies IFRS S2 Climate related Disclosures (published

June 2023; see separate booklet) and is issued by the International Sustainability

Standards Board (ISSB).

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IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

Introduction

This volume is part of the Industry-based Guidance on Implementing IFRS S2 Climate-related

Disclosures. This guidance suggests possible ways to apply some of the disclosure requirements in

IFRS S2 but does not create additional requirements.

This volume suggests possible ways to identify, measure and disclose information about

climate-related risks and opportunities that are associated with particular business

models, economic activities and other common features that characterise participation in

this industry.

This industry-based guidance has been derived from Sustainability Accounting Standards

Board (SASB) Standards, which are maintained by the International Sustainability

Standards Board (ISSB). The metric codes used in SASB Standards have been included for

ease of reference. For additional context regarding the industry-based guidance contained

in this volume, including structure and terminology, application and illustrative

examples, refer to Section III of the Accompanying Guidance to IFRS S2.

IFRS S2 INDUSTRY-BASED GUIDANCE

Volume 25—Processed Foods

Industry Description

Processed Foods industry entities process and package foods such as bread, frozen foods,

snack foods, pet foods and condiments for retail consumer consumption. Typically, these

products are made ready to consume, are marketed for retail consumers and can be

found on food retailers’ shelves. The industry is characterised by large and complex

ingredient supply chains, because many entities source ingredients from around the

world. Large entities operate globally, and international opportunities are driving growth.

Sustainability Disclosure Topics & Metrics

Table 1. Sustainability Disclosure Topics & Metrics

TOPIC

METRIC

CATEGORY

UNIT OF

MEASURE

CODE

Weight of products sold

Quantitative

Metric tons (t)

FB-PF-000.A

Number of production facilities

Quantitative

Number

FB-PF-000.B

Energy Management

Topic Summary

The Processed Foods industry is reliant on energy and fuel as primary inputs for value

creation in manufacturing food products. Energy is needed to operate large

manufacturing facilities for cooking, refrigeration and packaging. Energy production and

consumption contributes to significant environmental impacts, including climate change

and pollution, which have the potential indirectly, yet materially, to affect processed

food entity operations. Energy efficiency in production and distribution can mitigate

exposure to volatile energy costs and limit an entity’s contribution to direct and indirect

greenhouse gas (GHG) emissions. Producers may be able to reduce the risk posed by

volatile fossil fuel energy costs—particularly natural gas, which the industry uses heavily

—by diversifying their energy portfolio across a range of sources. Decisions regarding

alternative fuels use, renewable energy and on-site generation of electricity versus

purchasing from the grid, may influence both the costs and reliability of the energy

supply.

Metrics

FB-PF-130a.1. (1) Total energy consumed, (2) percentage grid electricity and

(3) percentage renewable

The entity shall disclose (1) the total amount of energy it consumed as an

aggregate figure, in gigajoules (GJ).

1.1

The scope of energy consumption includes energy from all sources,

including energy purchased from external sources and energy produced by

the entity itself (self-generated). For example, direct fuel usage, purchased

electricity, and heating, cooling and steam energy all are included within

the scope of energy consumption.

1.2

The scope of energy consumption includes only energy directly consumed

by the entity during the reporting period.

1.3

In calculating energy consumption from fuels and biofuels, the entity shall

use higher heating values (HHV), also known as gross calorific values

(GCV), which are measured directly or taken from the Intergovernmental

Panel on Climate Change (IPCC).

The entity shall disclose (2) the percentage of energy it consumed that was

supplied from grid electricity.

2.1

The percentage shall be calculated as purchased grid electricity

consumption divided by total energy consumption.

IFRS S2 INDUSTRY-BASED GUIDANCE

The entity shall disclose (3) the percentage of energy it consumed that was

renewable energy.

3.1

Renewable energy is defined as energy from sources that are replenished

at a rate greater than or equal to their rate of depletion, such as

geothermal, wind, solar, hydro and biomass.

3.2

The percentage shall be calculated as renewable energy consumption

divided by total energy consumption.

3.3

The scope of renewable energy includes renewable fuel the entity

consumed, renewable energy the entity directly produced and renewable

energy the entity purchased, if purchased through a renewable power

purchase agreement (PPA) that explicitly includes renewable energy

certificates (RECs) or Guarantees of Origin (GOs), a Green‐e Energy

Certified utility or supplier programme, or other green power products

that explicitly include RECs or GOs, or for which Green‐e Energy Certified

RECs are paired with grid electricity.

3.3.1

For any renewable electricity generated on-site, any RECs and GOs

shall be retained (not sold) and retired or cancelled on behalf of the

entity for the entity to claim them as renewable energy.

3.3.2

For renewable PPAs and green power products, the agreement shall

explicitly include and convey that RECs and GOs be retained or

replaced and retired or cancelled on behalf of the entity for the

entity to claim them as renewable energy.

3.3.3

The renewable portion of the electricity grid mix outside of the

control or influence of the entity is excluded from the scope of

renewable energy.

3.4

For the purposes of this disclosure, the scope of renewable energy from

biomass sources is limited to materials certified to a third-party standard

(for example, Forest Stewardship Council, Sustainable Forest Initiative,

Programme for the Endorsement of Forest Certification or American Tree

Farm System), materials considered eligible sources of supply according to

the Green-e Framework for Renewable Energy Certification, Version 1.0 (2017) or

Green-e regional standards or materials eligible for an applicable

jurisdictional renewable portfolio standard.

The entity shall apply conversion factors consistently for all data reported under

this disclosure, such as the use of HHVs for fuel use (including biofuels) and

conversion of kilowatt hours (kWh) to GJ (for energy data including electricity

from solar or wind energy).

Water Management

Topic Summary

Processed Foods entities rely on a reliable water supply for cooking, processing and

cleaning finished goods. Additionally, entities in the industry generate and must manage

the wastewater discharge from processing activities. As water scarcity becomes an issue

of increasing importance, processed foods entities—operating in water-stressed regions—

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

may face increasing operational risks. Entities in the industry may face higher

operational costs as well as water shortages because of the physical availability or more

stringent regulations. Entities can manage water-related risks and opportunities through

capital investments and assessment of facility locations relative to water scarcity risks,

improvements to operational efficiency, and partnerships with regulators and

communities on issues related to water access and effluent.

Metrics

FB-PF-140a.1. (1) Total water withdrawn, (2) total water consumed; percentage of

each in regions with High or Extremely High Baseline Water Stress

The entity shall disclose the amount of water, in thousands of cubic metres,

withdrawn from all sources.

1.1

Water sources include surface water (including water from wetlands,

rivers, lakes and oceans), groundwater, rainwater collected directly and

stored by the entity, and water and wastewater obtained from municipal

water supplies, water utilities or other entities.

The entity may disclose portions of its supply by source if, for example, significant

portions of withdrawals are from non-freshwater sources.

2.1

Fresh water may be defined according to the local laws and regulations

where the entity operates. If no legal definition exists, fresh water shall be

considered to be water that has less than 1,000 parts per million of

dissolved solids.

2.2

Water obtained from a water utility in compliance with jurisdictional

drinking water regulations can be assumed to meet the definition of fresh

water.

The entity shall disclose the amount of water, in thousands of cubic metres,

consumed in its operations.

3.1

Water consumption is defined as:

3.1.1

Water that evaporates during withdrawal, use and discharge

3.1.2

Water that is directly or indirectly incorporated into the entity’s

product or service

3.1.3

Water that does not otherwise return to the same catchment area

from which it was withdrawn, such as water returned to another

catchment area or the sea

The entity shall analyse all its operations for water risks and identify activities

that withdraw and consume water in locations with High (40–80%) or Extremely

High (>80%) Baseline Water Stress as classified by the World Resources Institute’s

(WRI) Water Risk Atlas tool, Aqueduct.

The entity shall disclose its water withdrawn in locations with High or Extremely

High Baseline Water Stress as a percentage of the total water withdrawn.

The entity shall disclose water consumed in locations with High or Extremely

High Baseline Water Stress as a percentage of the total water consumed.

IFRS S2 INDUSTRY-BASED GUIDANCE

FB-PF-140a.2. Number of incidents of non-compliance associated with water

quality permits, standards and regulations

The entity shall disclose the total number of incidents of non-compliance,

including violations of a technology-based standard and exceedances of quantity

or quality-based standards.

The scope of disclosure includes incidents governed by applicable jurisdictional

statutory permits and regulations, which include the discharge of a hazardous

substance, violation of pre-treatment requirements or total maximum daily load

(TMDL) exceedances.

The scope of disclosure shall only include incidents of non-compliance that

resulted in a formal enforcement action(s).

3.1

Formal enforcement actions are defined as governmental recognised

actions that address a violation or threatened violation of water quantity

or quality laws, regulations, policies or orders, and can result in

administrative penalty orders, administrative orders and judicial actions,

among others.

Violations shall be disclosed, regardless of their measurement methodology or

frequency. These include violations for:

4.1

Continuous discharges, limitations, standards and prohibitions that are

generally expressed as maximum daily, weekly and monthly averages; and

4.2

Non-continuous discharges or limitations that are generally expressed in

terms of frequency, total mass, maximum rate of discharge and mass or

concentration of specified pollutants.

FB-PF-140a.3. Description of water management risks and discussion of

strategies and practices to mitigate those risks

The entity shall describe its water management risks associated with water

withdrawals, water consumption and discharge of water or wastewater.

1.1

Risks associated with water withdrawals and water consumption include

risks to the availability of adequate, clean water resources, which include:

1.1.1

Environmental constraints—such as operating in water-stressed

regions,

drought,

concerns

aquatic

impingement

entrainment, interannual or seasonal variability, and risks from

the impact of climate change

1.1.2

Regulatory and financial constraints—such as volatility in water

costs, stakeholder perceptions and concerns related to water

withdrawals (for example, those from local communities, non-

governmental organisations and regulatory agencies), direct

competition with and impact from the actions of other users (for

example, commercial and municipal users), restrictions to

withdrawals because of regulations, and constraints on the entity’s

ability to obtain and retain water rights or permits

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

1.2

Risks associated with the discharge of water or wastewater include the

ability to obtain rights or permits related to discharges, regulatory

compliance related to discharges, restrictions to discharges, the ability to

maintain control over the temperature of water discharges, liabilities,

reputational risks and increased operating costs because of regulation,

stakeholder perceptions and concerns related to water discharges (for

example, those from local communities, non-governmental organisations

and regulatory agencies).

The entity may describe water management risks in the context of:

2.1

How risks may vary by withdrawal source, including surface water

(including water from wetlands, rivers, lakes and oceans), groundwater,

rainwater collected directly and stored by the entity, and water and

wastewater obtained from municipal water supplies, water utilities or

other entities; and

2.2

How risks may vary by discharge destinations, including surface water,

groundwater or wastewater utilities.

The entity may discuss the potential effects that water management risks may

have on its operations and the time line over which such risks are expected to

manifest.

3.1

Effects include those associated with costs, revenue, liabilities, continuity

of operations and reputation.

The entity shall discuss its short- and long-term strategies or plans to mitigate

water management risks, which include:

4.1

The scope of its strategy, plans, goals or targets, such as how they relate to

various business units, geographies or water-consuming operational

processes.

4.2

Any water management goals or targets it has prioritised, and an analysis

of performance against those goals or targets.

4.2.1

Goals and targets include those associated with reducing water

withdrawals,

reducing

water

consumption,

reducing

water

discharges, reducing aquatic impingements, improving the quality

of water discharges and regulatory compliance.

4.3

The activities and investments required to achieve the plans, goals or

targets, and any risks or limiting factors that might affect achievement of

the plans or targets.

4.4

Disclosure of strategies, plans, goals or targets shall be limited to activities

that were ongoing (active) or reached completion during the reporting

period.

For water management targets, the entity shall additionally disclose:

5.1

Whether the target is absolute or intensity-based, and the metric

denominator if it is an intensity-based target.

IFRS S2 INDUSTRY-BASED GUIDANCE

5.2

The time lines for the water management activities, including the start

year, the target year and the base year.

5.3

The mechanism(s) for achieving the target, including:

5.3.1

Efficiency efforts, such as the use of water recycling or closed-loop

systems;

5.3.2

Product innovations, such as redesigning products or services to

require less water;

5.3.3

Process and equipment innovations, such as those that enable the

reduction of aquatic impingements or entrainments;

5.3.4

Use of tools and technologies (for example, the World Wildlife

Fund Water Risk Filter, the Global Water Tool and Water Footprint

Network Footprint Assessment Tool) to analyse water use, risks and

opportunities; and

5.3.5

Collaborations or programmes in place with the community or

other organisations.

5.4

The percentage reduction or improvement from the base year, in which

the base year is the first year against which water management targets are

evaluated towards the achievement of the target.

The entity shall discuss whether its water management practices result in any

additional lifecycle impacts or trade-offs in its organisation, including trade-offs

in land use, energy production and greenhouse gas (GHG) emissions, and why the

entity chose these practices despite lifecycle trade-offs.

Environmental & Social Impacts of Ingredient Supply Chain

Topic Summary

Entities in the Processed Foods industry manage global supply chains to source a wide

range of ingredient inputs. How entities screen, monitor and engage with suppliers on

environmental and social topics affects the ability of entities to maintain steady supplies

and manage price fluctuations. Supply chain management issues related to labour and

environmental practices, ethics or corruption also may result in regulatory fines or

increased long-term operational costs for entities. The consumer-facing nature of the

industry increases the reputational risks associated with supplier performance. Entities

can engage with important suppliers to manage environmental and social risks to

improve supply chain resiliency, mitigate reputational risks, potentially increase

consumer demand, or capture new market opportunities.

Metrics

FB-PF-430a.1. Percentage of food ingredients sourced that are certified to third-

party environmental or social standards, and percentages by standard

The entity shall disclose the percentage of food ingredients sourced that are

certified to a third-party environmental or social standard.

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

1.1

Environmental standards are defined as standards that address

environmental impacts related to the production of food ingredients, such

as protection of primary forests, maintenance of surface water and

groundwater quality, and implementation of integrated pest management

solutions or an Organic System Plan.

1.2

Social standards are defined as standards that address social impacts

related to the production of food ingredients, such as compensation of

workforce, training and continual monitoring of health and safety risks

associated with the application of agrochemicals and child-labour

practices.

1.3

The percentage shall be calculated as the cost of food ingredients

purchased from Tier 1 suppliers certified to a third-party environmental or

social standard divided by the total cost of food ingredients purchased

from Tier 1 suppliers.

1.4

Examples of certifications to third-party environmental and social

standards include:

1.4.1

Bonsucro

1.4.2

Fairtrade International

1.4.3

Fair Trade USA

1.4.4

Roundtable on Sustainable Palm Oil (RSPO)

1.4.5

Roundtable on Responsible Soy (RTRS)

1.4.6

Rainforest Alliance

1.4.7

SA8000

1.4.8

U.S. Department of Agriculture (USDA) Organic

1.4.9

UTZ Certified

The entity shall disclose the percentage of food ingredients it sourced that are

certified to a third-party environmental or social standard, by standard.

2.1

The entity shall calculate the percentage as the cost of food ingredients

purchased from Tier 1 suppliers certified to each respective third-party

environmental or social standard divided by the total cost of agricultural

products purchased from Tier 1 suppliers.

2.1.1

For Bonsucro certification, the entity shall disclose whether the

food ingredients are certified to the Bonsucro Production Standard

or the Bonsucro Chain of Custody Standard.

2.1.2

For Fairtrade International and Fair Trade USA, the entity shall

disclose whether the food ingredients are certified to the standards

for

small

producer

organisations,

hired

labour,

contract

production, traders, independent small holders or capture

fisheries.

IFRS S2 INDUSTRY-BASED GUIDANCE

2.1.3

For RSPO certification, the entity shall disclose which of the RSPO

supply chain models the food ingredients are certified to: Identity

Preserved (IP); Segregated (SG); Mass Balance (MB); or Book & Claim

(B&C).

2.1.4

For RTRS certification, the entity shall disclose whether the food

ingredients are certified to the RTRS Production standard or the

RTRS Chain of Custody Standard and whether traceability in the

chain of custody standard is kept through segregation or mass

balance.

2.1.5

For other third-party certifications, the entity may specify the type

of certification if there is more than one type.

2.2

The entity may aggregate the percentages of numerous third-party

certifications into one aggregate percentage, if the certifications are for

the same food ingredient and deliver similar environmental or social

criteria.

The disclosure scope includes food ingredients purchased from Tier 1 suppliers.

3.1

Tier 1 suppliers are defined as suppliers that transact directly with the

entity for food ingredients.

FB-PF-430a.2. Suppliers’ social and environmental responsibility audit (1) non-

conformance rate and (2) associated corrective action rate for (a) major and (b)

minor non-conformances

The entity shall disclose its supplier facilities’ (1) non-conformance rate with

external social and environmental audit standard(s) or internally developed

supplier code(s) of conduct for (a) major non-conformances, and separately, (b)

minor non-conformances.

1.1

A major non-conformance is defined as the highest severity of non-

conformance and requires escalation by auditors. Major non-conformances

confirm the presence of underage child workers (below the legal age for

work or apprenticeship), forced labour, health and safety issues that can

cause immediate danger to life or serious injury, or environmental

practices that can cause serious and immediate harm to the community.

Major non-conformance includes material breach or systemic breaking of

code requirement or law. Major non-conformances may also be referred to

as critical or priority non-conformances.

1.2

A minor non-conformance is defined as a non-conformance that, by itself,

is not indicative of a systemic problem with the management system.

Minor non-conformances are typically isolated or random incidents and

represent a low risk to workers or the environment.

1.3

The entity shall calculate the non-conformance rates as the total number

of non-conformances identified (in each respective category) among its

supplier facilities divided by the number of supplier facilities audited.

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

The entity shall disclose the (2) corrective action rates associated with its supplier

facilities’ (a) major non-conformances, and separately, (b) minor non-

conformances.

2.1

A corrective action is defined as the completion of an action (generally

identified in a corrective action plan) within 90 days, designed to eliminate

the cause of a detected non-conformance, including the implementation of

practices or systems to eliminate any non-conformance and ensure no

reoccurrence of the non-conformance, as well as verification that the

action has taken place.

2.2

The entity shall calculate the corrective action rates as the number of

corrective actions that address non-conformances (in each respective

category) divided by the total number of non-conformances identified (in

each respective category).

The entity shall disclose the standards or code(s) of conduct to which it has

measured social and environmental responsibility audit compliance.

3.1

For internally developed supplier code(s) of conduct, the entity shall

disclose the public location where such code(s) can be viewed.

Ingredient Sourcing

Topic Summary

Entities in the Processed Foods industry source a wide range of ingredients, largely

agricultural inputs, from global suppliers. The industry’s ability to source ingredients,

and at some price points, fluctuates with supply availability, which may be affected by

climate change, water scarcity, land management and other resource scarcity

considerations. This exposure may cause price volatility which may affect entity

profitability. Climate change, water scarcity and land-use restrictions present risks to an

entity’s long-term ability to source essential materials and ingredients. Entities that

source ingredients which are more productive and less resource-intensive, or coordinate

with suppliers to increase their adaptability to climate change and other resource

scarcity risks, may reduce price volatility and supply disruptions.

Metrics

FB-PF-440a.1. Percentage of food ingredients sourced from regions with High or

Extremely High Baseline Water Stress

The entity shall disclose the percentage of food ingredients sourced from regions

with High or Extremely High Baseline Water Stress.

The percentage shall be calculated as the cost of food ingredients purchased from

Tier 1 suppliers that withdraw and consume water in regions with High or

Extremely High Baseline Water Stress to produce the agricultural products,

divided by the total cost of food ingredients purchased from Tier 1 suppliers.

2.1

Tier 1 suppliers are defined as suppliers that transact directly with the

entity for food ingredients.

IFRS S2 INDUSTRY-BASED GUIDANCE

2.2

The entity shall identify Tier 1 suppliers that withdraw and consume

water in locations with High (40–80%) or Extremely High (>80%) Baseline

Water Stress as classified by the World Resources Institute’s (WRI) Water

Risk Atlas tool, Aqueduct.

If the entity is unable to identify or collect data pertaining to all Tier 1 suppliers,

the entity shall disclose the percentage of agricultural products for which the

source region and water risks are unknown.

FB-PF-440a.2. List of priority food ingredients and discussion of sourcing risks

related to environmental and social considerations

The entity shall identify the highest priority food ingredients to its business.

1.1

Priority food ingredients are defined as ingredients (excluding water) that

constitute the largest food ingredient expense, or those ingredients

identified by the entity as essential to its products or as having significant

environmental or social risks.

1.2

The scope of disclosure includes priority food ingredients sourced by the

entity, which may include those sourced directly from contract growers

and from producer supply agreements.

The entity shall discuss its strategic approach to managing the environmental and

social risks that arise from its highest priority food ingredients.

2.1

Environmental risks may include effects of drought and climate change on

ingredient prices, reputational damage because of deforestation and other

risks resulting from the environmental impacts associated with the

entity’s supply chain.

2.2

Social risks may include the effects of workers’ rights on productivity,

reputational damage because of human rights issues and other risks

resulting from the social impacts associated with the entity’s supply chain.

The entity may identify which food ingredients present risks to its operations, the

risks represented and the strategies the entity uses to mitigate such risks.

3.1

For environmental risks, relevant strategies to discuss may include the

diversification

suppliers,

supplier

training

programmes

environmental best management practices, expenditures on research and

development for alternative and substitute crops, and audits or

certifications of suppliers’ environmental practices.

3.2

For social risks, relevant strategies to discuss may include supplier training

programmes on agrochemical application, engagement with suppliers on

labour and human rights issues and maintenance of a supply chain code of

conduct.

IFRS S2 CLIMATE-RELATED DISCLOSURES–JUNE 2023

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