Saputo Inc

Saputo continues to ignore the climate mitigation potential associated with alternative proteins, placing it below competitors who use protein diversification as a carbon abatement tool. The company’s plant-based expansion is largely driven by consumer demand, as it has not been incorporated into its climate strategy. As a leader in the global dairy industry, Saputo has the influence and resources needed to drive a successful protein transition. Unfortunately, the company’s passive approach to protein diversification potentially leaves it vulnerable to a growing consumer transition away from dairy, as identified in the 2018 risk assessment. Saputo does not acknowledge high animal protein exposure as a material risk; the company does not recognise the need to transition to sustainable protein sources and its role to enable this. Saputo acknowledges the business risks of high exposure to animal-derived products, such as dairy. In its 2021 Annual Report, the company recognised the reputational risks of ignoring the environmental impact of animal agriculture and its vulnerability to climate change. Despite this, Saputo remains committed to dairy as its core business and believes that the development of future technologies will play a key role in helping the company achieve its environmental goals. The company has not yet published its TCFD-aligned climate-related scenarios up to 2050 but believes it is on track to share its findings in FY22. Regardless, Saputo is not considering publishing an action plan linked to a low-carbon transition within the next two years.

Saputo has not set any goals or targets to shift to more diversified protein sources and it provided no indication that it intends to in the future. The company has not begun executing its 2025 supply chain pledges; moreover, the supply chain pledges as they currently stand do not robustly assess the environmental impacts of the dairy supply chain, and there is no clear outline for how the strategy will be effectively executed. Given the scale of its operations and the company’s dependence on dairy (94% of total revenue), Saputo has been slow in adopting robust sustainable sourcing policies for dairy. Nevertheless, the company is in the final stage of development for its Sustainable Agriculture Policy, an outcome of internal consultations. The long-awaited roadmap will be published in September 2022 and will consist of a sustainable agriculture policy asking farmers to set decarbonisation plans. The company’s neutral score is dependent upon this decarbonisation roadmap, which we would expect to include a robust sourcing strategy that provides details on tracing systems, consequences for non-compliance and KPIs to measure improvement. The policy should address the environmental impacts (i.e. biodiversity loss, water usage, waste & pollution, and manure management) of Saputo’s animal agriculture supply chains and disclose at the farm level across all operations. We would also expect to see supply chain initiatives to mitigate the environmental impacts of animal protein supply chains that extend beyond animal welfare. Delay on publishing this report, or only partial coverage of its sourcing operations, could be a cause of concern for investors. During the company dialogue, Saputo highlighted the challenges it anticipates around enforcing these self-set standards throughout its global operations due to each country's unique supplier relationships and regulatory models. Saputo does not have a Scope 3 emissions reduction target; this is a crucial area of engagement where the company is passive and has moved extremely slowly relative to other companies in the engagement. In the discussion with investors, Saputo shared that it is not ready to make a quantitative commitment in the near future and that its 2025 targets are intentionally qualitative. However, it might consider setting a quantitative target in 2025, leaving a restricted headroom to significantly align to global sustainability interim targets such as the 2030 Sustainable Development Goals.

In June 2021, Saputo released its new global strategic plan for the next four years and identified alternative dairy products as one of the business's five key growth areas. The company claimed that this expansion would occur through inorganic and organic growth and investment in manufacturing, sales, and distribution to support its co-packaging efforts. Saputo does not have specific growth or integration targets for its recent dairy-alternative acquisition (Bute Island 2021), and it has not developed a comprehensive plan to promote or develop the brand. Saputo shared that future acquisitions, including dairy-alternative brands, are not a priority given that the company is focusing on organic growth. Saputo reported positive progress on its Vitalite mozzarella alternative becoming a key player in big-name pizza chains. The company is working together with large pizza partners to develop a customised dairy alternative mozzarella recipe. This development will allow it to become a ‘one-stop shop’ where foodservice companies can purchase both their dairy and non-dairy alternatives from Saputo. In the company dialogue, Saputo reaffirmed its decision to stay out of the crowded plant-based milk market. According to company representatives, Saputo only sees a future with plant-based milk in co-packaging agreements. Saputo does not believe that its plant-based cheese products are nutritionally comparable to its dairy cheeses and the company shared that its nutrition profiling model will be used to assess possible product reformulation to improve the nutritional content of its dairy-alternative items.

Saputo has made little-to-no progress on its plant-based consumer engagement strategy. Specifically, the company believes itself to be at the passive end of the spectrum regarding encouraging consumers to increase their consumption of plant-based alternatives. The company considers dairy to be part of a healthy and sustainable food system and does not foresee moving away from its core dairy business in the medium-to-long term. Saputo does not engage with specific dialogue around the promotion of plant-based products despite its acquisition of Bute Islands and its plant-based line, Sheese. Company discussion revealed the challenges associated with addressing the consumer demand for plant-based products include optimising recipes, incorporating nutritional considerations, and educating the market. Saputo is conscious of not wanting to contribute to the decline of dairy by encouraging plant-based alternatives; however, directing consumers towards the company's own plant-based brands could turn this material risk into a growth opportunity.

Saputo positively increased its disclosure around revenue and emissions associated with dairy production. In its June 2022 Corporate Presentation, the company shared that 94% of its revenue is dependent on dairy. In its 2021 CDP report, Saputo disclosed its carbon output associated with cow milk as Scope 3 purchased goods and services. Cow milk represents the company’s most significant purchased good, making up 85% of its total costs; it also represents its biggest Scope 3 emissions contributor. According to the report, Saputo has an increase in both its absolute Scope 3 emissions (0.5% increase) and its Scope 3 emissions carbon intensity (5.0% increase) from purchased goods and services from 2020 to 2021. The company accredited this increase in emission to updates in the variables it uses to calculate them, including outdated FAO emission factors. Unfortunately, Saputo still does not have a Scope 3 emissions reduction target, placing it behind peers such as Fonterra and Kerry Group. Considering that 94% of the company's revenue is reliant on dairy, and dairy is its most significant carbon contributor, it is exceptionally important that Saputo set an ambitious Scope 3 target as soon as possible. Currently, the company does not intend to discuss setting a Scope 3 target until 2025. In its June 2022 Corporate Presentation, Saputo reported that alternative proteins account for 6% of its total revenue. The company confirmed that it will report this figure on an annual basis, which will provide investors with a clear metric to track Saputo’s alternative protein growth over time.

The company was unable to attend the roundtable, but it met with FAIRR and the investors, was receptive to feedback, and responded to questions to the best of its ability. The company was transparent about the challenges it faces; in the future, it will bring more specialised experts to company dialogues. In lieu of a written response to follow-up questions, Saputo met with FAIRR for a second time and answered questions verbally. The company reviewed the assessment and provided feedback.