Nestlé

There has been no change in the approach to protein diversification, and we expect no major changes in the next 12-18 months. Nestlé acknowledges that animal-derived products, particularly dairy, comprise a large proportion of its GHG emissions – estimated at around half of its Scope 3 emissions. The company prioritised dairy in its TCFD scenario analysis as a most-at-risk area and the results have informed its sustainable sourcing strategy and Net Zero roadmap. However, Nestlé has no intention to shift away from dairy in the current settings and continues to see strong demand from consumers. Further, the company does not want to jeopardise its relationships with its farmers and so will not be reducing its dairy purchasing volumes in the short-term. Therefore, the company is focused on improving the sustainability of its dairy supply chain rather than reducing its exposure. Nestlé’s climate strategy is outlined in its forward-looking Net Zero roadmap that outlines planned interventions to reach its required emissions reductions, and this includes both dairy and plant-based products as two of the seven target areas. Whilst the inclusion of protein diversification is very positive, the company has not been ambitious in its estimation of the mitigation potential of plant-based products at 1.4 MtCO2e. However, this year in the discussion with investors, the company acknowledged that this figure is a conservative estimate of the carbon abatement potential of plant-based solutions, and the reason for this is that it does not want to over-promise. Nestlé views the transition to plant-based as heavily reliant on the consumer and whilst confident the company can influence consumer demand; the mitigation potential depends on how quickly consumers will shift their diets. Given Nestlé’s hesitancy to reduce its exposure to dairy in the short-term, competing priorities may have also impacted the company’s emphasis on the role of protein diversification in reaching Net Zero. Despite this, it is clear that the company sees the financial and climate potential of plant-based alternatives. Revenue from its plant-based business grew 16.8% and it has continued to develop its product portfolio launching plant-based versions of its Milo and a plant-based egg and shrimp product. In 2021, the company announced a new plant-based factory in Malaysia and disclosed that it believes the plant-based opportunity in Asia is strong, expanding its geographic beyond Europe and North America. Further, the company is publicly promoting sustainable diets as a lever to mitigate emissions, in 2022 it commissioned a report in conjunction with Footprint called the ‘Footprint Sustainability Index 2022’, outlining the climate and financial opportunities for the UK food service sector of shifting menus to include more plant-based options. In its 2021 CDP Climate report, the company also states that it has a role to play in supporting the increased uptake of plant-based and sustainable food options.

Nestlé’s sustainability strategy is shaped around developing a product portfolio that is healthier for people and the planet, and this includes offering more plant-based food and beverage options so the company will be consumers’ first choice as they diversify their diets. There has been no significant change in the company’s strategy, which signals it is on track to continue its trajectory in the next 12-18 months. The company is well-prepared to tackle a pathway to decarbonisation using portfolio diversification as a climate mitigation tool. The company is clearly supporting its commitment to mitigating 1.4 MtCO2e by increasing sales of plant-based products with internal resourcing (see product portfolio section for more details). However, Nestlé still has no specific targets for protein diversification. This would include, for example, a sales-based target to increase sales of plant-based products or a target to displace animal-derived products. On sustainable sourcing, Nestlé has two main strategies to reduce the impact of its supply chains: the Forest Positive Initiative and regenerative agriculture. There is a much greater focus on regenerative agriculture this year than in previous years, with the company stating that regenerative agriculture is ‘the most impactful commitment’ to progress towards net zero and that one of its main objectives for 2022 is to place regenerative agriculture at the centre of the agenda for COP27 in Egypt. To support regenerative agriculture at scale, Nestlé is supporting the Landscape Enterprise Network model (LENs), which is an investment model that incentivises investment in regenerative agriculture and landscape restoration. LENs co-fund farmer and land manager partnership; there are seven in the UK, with Nestlé collaborating on five and supporting the development of programmes in Italy and Hungary. At a brand level, one of its plant-based brands, Garden Gourmet, alongside Persona and Garden of Life (some plant-based products) are leading the way in building regenerative practices into the company’s supply chain. Further, the company is working to implement regenerative practices in its dairy supply chain. Dairy is at the heart of its climate strategy given that it accounts for approximately half of its Scope 3 emissions. Nestlé has a goal to reduce emissions from dairy by 21.3 MtCO2e by 2030, this equates to 23% of the company’s carbon footprint in-scope from its baseline of 2018. The company also committed to making all its dairy farms net-zero by the same year. The company has a number of programs and pilot schemes in place to improve dairy sustainability. For example, Nestlé is working with the Sustainability in Business Lab at ETH Zurich to develop a simulation tool that evaluates actions and costs to improve sustainability on dairy farms such as introducing feed additives and better herd management. Additionally, the company released the results of its net zero dairy farm pilot study in South Africa demonstrating emissions reductions of 40% on farms from switching to solar energy and a 45% increase in carbon in the soil. The study established 30 reference farms to test climate-friendly and regenerative agriculture farming practices. From the initial findings, Nestlé has said that its dairy farms could potentially remove more carbon than they emit. However, Nestlé cannot share specific details on the impact of its dairy programmes on overall emissions and therefore whether its planned reductions might be achievable using these planned interventions. The last available data for an exact figure for Scope 3 emissions linked to animal agriculture is from 2018. Given the company’s much lower exposure to meat, it has a smaller focus on sustainable sourcing for this commodity. However, the company does disclose that 98% of its meat supply is deforestation-free (excluding meat by-products which account for the majority of meat exposure). On health and nutrition, Nestlé has made a new commitment to reduce sodium in frequently consumed products by 2025 and 2030. The company also has a commitment to make whole grains the number one ingredient in ‘as many cereals as possible’. In 2021, the company met its target to reduce added sugar by 5% from 2017 to 2020, a year late. The target was achieved through the reformulation of Milo, Nesquik and Nescau. Nestlé also increased the number of products sold with micronutrient fortification, 207.4 billion products in 2021 vs 205.3 billion in 2020. Nestlé did disclose progress towards its Net Zero Roadmap commitments at the business level, a reduction of 4.0 MTCO2e in 2021. It is on track to meet its 2025 commitment to reduce emissions by 20%. There has been no update on the company’s progress towards setting its SBTi-approved net zero target.

Nestlé demonstrated positive progress this year. Revenue from plant-based alternatives increased as a share of overall revenue from 0.8% to 0.92%, demonstrating the displacement of animal-based products. It also made acquisitions in the plant-based protein space and provided evidence of dedicating internal resources to the development of plant-based and fermentation-enabled products. This indicates the company is positioning itself to take on the opportunity presented by alternative proteins in the next 12-18 months. The company made a number of investments in companies with exposure to plant-based products. In February 2022, the company agreed to purchase majority stake in Orgain, a leader in plant-based nutrition; the company produces plant-based protein powder and shakes and fits into Nestle's Health Science portfolio. In May 2022, the company acquired Brazilian company Puravida who also produce and sell plant-based nutritional products such as protein powder (although they also sell animal-derived products too). These two investments fit into the company’s strategy to grow its Health Science Unit. Under the Garden of Life Dr Formulated MD Protein brand launched in 2021 there is a plant-based protein powder manufactured using ancient sprouted barley protein that is completely upcycled from beer brewing. There is a strong focus on R&D at Nestlé in general, 30% of sales in 2021 came from products innovated or renovated in the last three years. The company also disclosed that they have a regular renovation cycle that allows for items to be reformulated and currently the company is exploring the reformulation of high-carbon products to reduce their footprint. It acknowledged that substituting dairy for plant-based alternatives would be an efficient way to reduce emissions. In September 2022, the company announced it would be launching a new animal-free dairy protein in the US later this year in collaboration with Perfect Day who produce fermentation-enabled dairy products. 10% of its R&D resources go towards the development of plant-based products and the company continues to launch new products, including those in underserved categories such as seafood and pet food. For example, Nestlé launched plant-based egg and shrimp products. It also launched almond and soy-based versions of its popular Milo brand and a DiGorno pizza with Sweet Earth Awesome Grounds. In August 2022, the company also announced that it would be expanding its vegan KitKat product in 15 countries across Europe after positive reception in the UK in 2021. Further, in the past 12 months Nestlé has invested capex to scale-up plant-based production with a $675 million plant announced in Phoenix, Arizona to produce plant-based coffee creamers under the Coffee Mate brand and a new facility opened in Malaysia with the capacity to manufacture 8,000 tonnes of plant-based food a year. Nestlé is targeting products at the flexitarian consumer, hence prioritises the hybridisation of dairy with plant-based items. Nutrition and health feature clearly in product development for plant-based foods and Nestlé produced a document this year that outlined what nutrient standards for plant-based beverages should look like – specifically focused on milk. The company states that plant-based milk should have a similar nutritional profile to cow’s milk with 3.3g/100g of protein and 0.95/100g of fat.

Nestlé’s approach to consumer engagement has not changed significantly since last year. The company sees three consumer drivers for plant-based products: sustainability, animal welfare, and personal health – and advertises products using these characteristics depending on the market. Nestlé wants to appeal to flexitarian consumers. The company prioritises its products’ taste and texture but also recognised there is a market opportunity for clean labels on food, appealing to the health-conscious consumer. It disclosed in the meeting that its plant-based tuna (seven ingredients) and its plant-based egg (five ingredients) have been popular with consumers. Nestlé continues to engage its corporate customers on the benefits of plant-based foods, publishing a consumer insights report in collaboration with Footprint – the Footprint Sustainability Index. The report encourages the foodservice industry in the UK to adopt more sustainability measures, including increasing the proportion of plant-based options on menus, pointing to Burger King’s target of 50% meat-free menu by 2030 and research showing 64% of UK consumers are trying to reduce their meat consumption. There is also evidence that Nestlé is tracking some consumer engagement metrics internally as it states on its website that 61% of vegans preferred its pea-based Wunda milk, over other plant-based milks, in a blind taste test. More generally, the company disclosed that it has internal metrics to assess the success of new products which include sales data, test and learn responses and consumer adoption of new products. Its approach to consumer engagement varies by region depending on what resonates most with consumers and it uses digital analytics to assess the success of advertisement campaigns. Nestlé is also looking for more impactful ways to communicate the sustainability of products to consumers and has been investigating carbon labelling. It is working with Foundation Earth to support industry alignment behind one scoring method that will drive company innovation and appeal to consumer interest. Through its own research, it has found that consumers are driven more by a narrative rather than scientific carbon labels. The company is looking for figures for labels that will demonstrate positive progress over time and incorporate environmental impacts beyond carbon.

The company discloses plant-based sales in annual reporting but has not updated its emissions from animal agriculture, restricting the possibility to track progress. Nestlé publicly reported sales data for its plant-based business in its Annual report. In 2021, plant-based sales reached approximately $820 million USD (800 million CHF), with 16.8% growth y-o-y for the segment. This equates to 0.92% of total company revenue compared to 0.8% in 2020. Whilst still less than 1% it demonstrates that growth in the company’s plant-based portfolio is equating to growth in share of company revenue. The company does not currently disclose a procurement or revenue breakdown for animal-based products and ingredients. However, in its response to FAIRR’s assessment stated that its ‘most material meat element would be “so called” waste, i.e. by-products, generated for human consumption for our petfood business.’ On Scope 3 emissions, Nestlé reduced its emissions by 4 MtCO2e in 2021, keeping the company on track to meet its science-based targets. However, the company has not updated its emissions accounting for dairy and livestock since 2018, stating that these categories make up ‘approximately half’ of total Scope 3 emissions. As figures are partially based on estimations Nestlé is not able to share figures with investors. The company acknowledged that investors are looking for quantitative figures and that as reporting systems evolve, data will become more accessible. The company showed openness to disaggregate emission disclosure in the future but did not provide a timeline or detail on how frequently it is likely to report this information. In the meeting with investors, Nestlé was frank about the challenges it faces with tracking and reporting progress listing the following: lack of nationally-defined transparent reporting practices for the food system; dynamic sourcing programmes as a result of climate change; burden for farmers; need for a level playing field and harmonisation across the industry; and resource constraints. data to assess the performance of its interventions particularly in its dairy supply chain is concerning. Many of the approaches being taken, especially for regenerative agriculture, are novel and untested at scale. Understanding whether these interventions are successful at driving the required emissions reductions is critical in the short-term, so climate strategies can be adapted as soon as possible.

The company agreed to a dialogue with investors and met with the coalition as it did last year. The company provided detailed responses to the coalition’s questions on the call, answered the coalition’s follow-up questions, and provided high-level feedback on the assessment.