Developing forward-thinking business practices and initiatives are priorities across manufacturing sectors, and dairy processors are implementing responsible frameworks that will guide the industry into the future.

Environmental, social and governance (ESG) considerations and policies driven by the investment community have become commonplace in the dairy industry to demonstrate assessment, reporting and mitigation of environmental and social risks when considering financial analysis, said Eric Hassel, director of sustainability, measurement and reporting at the Innovation Center for US Dairy, Rosemont, Ill.

Hassel said this has caused dairy processors to shift their thinking from considering how they can maximize profits in the short term to focusing on what they can do to ensure long-term resilience and mitigate risks.

Managing against a broad set of ESG-related goals and risks reflects the mainstreaming of the idea that businesses can create value for stakeholder groups beyond shareholders. Mike Aquino, director of ESG for the International Dairy Foods Association (IDFA), Washington, said dairy processors are striving to meet the expectations of customers, employees, consumers, non-governmental organizations and others, as well as investors. Additionally, he said regulators are showing increased interest in corporate sustainability management, in part to drive standardization.

“If your customers are not already … asking you to manage things and share data in a transparent way, it’s very probable that at least some jurisdiction will be regulating and demanding that sort of data and transparency in the future,” Aquino said.

Formalizing existing practices

For many processors, approaching business with a mindset of resilience isn’t new.

“It’s about long-term risk management,” said Paul Snyder, executive vice president of stewardship for Tillamook County Creamery Association, Tillamook, Ore. “That’s something that is not only necessary for processors, but it’s part of who we have been … it’s really part and parcel of how we have done business and how we need to do business. These long-term risks are ones that, if they are managed properly, can create value for all the stakeholders, and if they’re managed poorly, they will destroy value.”

Snyder said Tillamook takes seriously its duty to help maximize the performance of the farmer owners that are a part of its business.

“Our farmers, like all farmers, always think beyond the borders of their farm when they think about their business,” Snyder said. “‘How am I taking care of the local community that supports me? How am I managing the ecosystem and the environment around me so that we’ve got a healthy bit of land with good quality water?’”

He said while the company’s ESG framework has always existed, it has become formalized in recent years. In 2017, the company voted a stewardship charter into effect that directs management to prioritize the needs, stresses and pressures of six stakeholders — thriving farms, healthful cows, enduring ecosystems, fulfilled employees, enriched communities and inspired consumers.

“We don’t work on behalf of shareholders,” Snyder said. “We work on behalf of stakeholders … It’s been part of how we’ve acted since the beginning.”

In terms of specific initiatives, Tillamook donates 4% of its profit to local nonprofits that focus on alleviating food insecurity. Additionally, the company has a goal to reduce its carbon footprint by 30% by the year 2030. The company’s climate action plan aims to improve its performance at facilities, in its fleet and on farms. To this end, the company has transitioned its entire fleet to renewable diesel.

The company also recently received a $4 million federal grant for manure management interventions on farms and has various insetting partnerships. Employee benefits and wellness are another area of focus for the company.

Tillamook not long ago achieved B Corp recertification, and Snyder said its B Corp distinction (first gained in 2020) helped with its national expansion into markets where consumers were originally unfamiliar with the brand. B Corp Certification gives the company a quick and efficient way to communicate company values to consumers, making new consumers more likely to try their products for the first time.

When it comes to how initiatives have resulted in improved profits and products, Snyder said healthier cows naturally produce higher-quality milk, and employees care about working for a company that values and respects them. When employees feel connected with a company culture, Snyder said it will attract higher levels of talent and reduce turnover, leading to better products.

Photo: Leprino Foods

Industry-wide efforts

Tillamook’s work is representative of other efforts in the industry.

Hassel said various farmer-owned cooperatives, including Dairy Farmers of America, California Dairies Inc., Land O’ Lakes, Foremost Farms, Michigan Milk Producers Association and United Dairymen of Arizona, as well as a number of processors, such as Leprino Foods and Grande Cheese, publish materiality assessments and sustainability reports that prioritize risks and opportunities, and establish strategies. 

The alignment of sustainability metrics and reporting and the formation of partnerships to advance research and test practices and new technologies are common in the industry, Hassel said.

The US Dairy Stewardship Committee was developed through the Innovation Center for US Dairy in 2018 as a pledge to measure and report greenhouse gas (GHG) emissions, water, waste, animal care and community impact. The industry also developed 2050 environmental goals, such as achieving GHG neutrality, optimizing water use while maximizing recycling, and improving water quality by optimizing utilization of manure and nutrients.

“These goals and the progress made as an industry against them helps to build trust with buyers and other stakeholders, and supports US dairy’s competitive edge, providing a distinguishing factor by demonstrating how the US industry is well poised to meet the growing global demand for sustainably produced, high-quality nutrition,” Hassel said. “A critical part of achieving the 2050 goals is ensuring that all farms, regardless of size, location and type of operation, have access to economically viable opportunities for reducing environmental impact through market-based opportunities, cost-share and other incentives.”

The dairy industry also has 23 Partnership for Climate-Smart Commodity Projects that are receiving $853 million in federal funding, and the US Department of Agriculture’s Regional Conservation Partnership Program is investing more than $1 billion to advance solutions on agriculture land, with 10 dairy projects totaling $96.4 million.

Reducing methane emissions is also a large goal for the industry, as it represents about 60% of overall GHG emissions from dairy supply chains, said Vrashabh Kapate, dairy industry manager for Environmental Defense Fund. Six companies — the Bel Group, Danone, General Mills, Kraft Heinz, Lactalis USA and Nestle — have teamed with EDF to introduce the Dairy Methane Action Alliance to help reduce emissions in the dairy supply chain. The companies will disclose the total methane emissions in their supply chains and create methane action plans by the end of the year. 

“By publicly committing on methane, these companies are also sending out crucial market signals that there is a need for greater innovation, research and funding to come to these solutions,” Kapate said.

While there are currently some solutions for herd management and manure management coming to the market, Kapate said there is a need for more. He said companies have the scale to reach a wider range of farmers and the ability to deploy finance, capital and innovation to drive research and expand methane solutions.

In other efforts, Great Lakes Cheese, Hiram, Ohio, is one of several Walmart suppliers purchasing renewable energy from a wind farm in Kansas and participating in Walmart’s renewable energy accelerator called Gigaton PPA. Additionally, California Dairies Inc. teamed with Skyven Technologies to eliminate more than 3,500 metric tons (MT) of carbon dioxide emissions through renewable heat systems, with a smart steam trap solution and a boiler heat recovery system that boosts efficiency of boilers by 10%.

Preparing for future regulation

Staying the course on commitments the industry has already established and continuing to build partnerships along the value chain are two important efforts the industry can take to improve its ESG outcomes. Aquino said processors will need to continue to develop leaders that engage the value chain, both downstream with retail customers and end users, as well as upstream at intermediate processing plants and farms, to drive influence and encourage best practices for managing social and environmental impacts.

This will all become increasingly important as more ESG-related disclosures become mandated. Global companies will be required to disclose environmental, social and governance impacts and risks under the European Union’s Corporate Sustainability Reporting Directive. Plus, California is leading domestically in terms of jurisdictions looking to make similar requirements.

IDFA recommends processors participate in coalitions to ensure the industry is ready for that shift, Aquino said.

“On top of any consumer pressure that is out there and on top of any customer pressure … there is more formal policy on the horizon that may require some of the things that corporations have been doing in a voluntary space so far,” he said.