Charting Your Sustainability Journey

Implementing a sustainability strategy is no longer a ‘nice to have’ for companies; investors and other key stakeholders expect it, said John Uhren, Managing Director of Sustainable Finance at BMO Capital Markets, at the opening of the Navigating Your Sustainability Journey panel at BMO’s Growth & ESG Conference. “There is a lot of money at stake,” said Uhren, noting that more than US$5 trillion of capital expenditure is needed in the United States alone to align with the country’s net zero 2050 commitments.

Although skeptics remain, the message about the importance of sustainability is getting through. According to a recent PwC survey, there is broad investor consensus around the importance of ESG, with 70% responding that it should be embedded in corporate strategy.¹ Three-quarters of investors also say sustainability metrics are material to their investment decisions.

The real challenge is for companies to figure out the best way to build out their sustainability advantage without materially disrupting the business or cutting into the bottom line. To unpack that challenge, Uhren was joined on the panel by Ethan Carter, Director, Sustainability, Darling Ingredients, and Rori Cowan Director, Sustainability Advisory, Global Markets, BMO Radicle. 

Overcoming Challenges 

Operating sustainably is a challenge Darling’s Ethan Carter is very familiar with. Since its founding 142 years ago, the company has been processing animal by-products from the meat production industry to ensure every part of the animal gets used rather than ending up in a landfill. Like many companies, Carter said Darling feels pressure from its customers to evaluate its carbon footprint. “We all recognize the need to get there,” he said. “The hard part is how you execute on that.” 

As Carter explains, Darling’s operations are spread over 150 remote areas, which often lack the clean energy sources needed to produce the heat for its process. Solar power isn’t a viable solution and natural gas often isn’t available. The cost of retrofitting plants is another hurdle, he explains. Typically, the equipment used in these operations only gets replaced every 30 or 40 years. When you move that schedule up, he said it becomes less of a technology issue and more of a capital allocation discussion.

Rather than try to affect every part of the business, Darling focused on areas where it could make the greatest influence and tried to turn that into an opportunity. “We balance what we can control with where we really feel like we can make an impact,” he said.  

Working to Remove Emissions from the Supply Chain

Uhren said that businesses will commonly accelerate their supplier’s sustainability actions by using their clout to embed sustainability considerations into buying decisions.  

Companies across the agricultural sector supply chain, for instance, are feeling this pressure.

Darling has a lot of experience working with other companies to help think about ways to reduce their emissions across the supply chain, from on-the-ground farmers and packing houses, said Carter. “If you have big purchasing power, that’s where you can influence those scope 3 emissions,” he said. “Working through the supply chain is a pain, but that's what they're doing.” 

Still, this approach is encouraging businesses higher up in the supply chain, like Darling, to set up monitoring, reporting and verification systems to be able to track those emissions and then find ways to lower them. “We really view our business as providing that sustainability service to the animal agriculture industry,” said Carter. 

Carter also mentioned how their customers want to be able to look at their portfolio, and the products they’re getting through their supply chains, to better understand their scope 3 emissions and which suppliers to use. That’s an opportunity not only for those suppliers, but also for investors, explained Carter.  

The company is currently producing about 1.3 billion gallons of renewable diesel a year and plans to produce somewhere around 250 million gallons of sustainable aviation fuel as early as the end of 2024. “Too often, we focus on the risks of sustainability, and we completely miss the opportunities that exist around sustainability,” he said. “There’s so many people looking for those solutions, and if you can be a solution provider in that space, then you can unlock value.” 

Supporting Change 

Between the rapidly changing regulatory environment, with a shift from voluntary to mandatory reporting of sustainability metrics, and the reputational risk companies can be exposed to if they mishandle the transition, companies need support, said Rori Cowan. Often, she finds companies don’t spend enough time laying the groundwork for their sustainability strategy, noting consumers and investors are much more sophisticated today and are looking for companies to provide more details about their plans.  

Building on that idea, Uhren said that you need to be pragmatic when trying to develop a solution that can lead to revenue generation or risk mitigation. “Make sure it’s grounded in science and with a team that has a deep understanding of how carbon markets work, how the regulations work, and how project development works in this space,” he said.  

For more information on how BMO is supporting our client’s sustainability journeys, please reach out to John.Uhren@bmo.com.  

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