In June at Charles Krug Winery, Napa Green held its annual symposium, Napa Thrives—now called Napa Rise. Talks covered regenerative agriculture, greenhouse gas inventories, diversity, equity, and inclusion, and other topics pertinent to sustainability in the wine industry.
The culminating panel, “Navigating the Evolving Financial Landscape,” dealt with ESG reporting. Standing for environmental, social, and governance, ESG is the financial and investment sectors’ term for sustainability in business. According to experts, it is becoming a global standard to which the wine industry will need to comply.
Given proposed European and American regulations, “every public company in the world as of 2024 will have to account for all of their suppliers’ ESG scores,” declared panelist Elisa Turner, the founder and CEO of the consultancy Impakt IQ. “My guess is 90 percent of you aren’t going to escape this.”
The panel left attendees—many of which are already working on the environmental, social, and governance issues that make their businesses sustainable—scratching their heads, reports Napa Green cofounder Anna Brittain. “There were expressions of, ‘What, seriously? This is happening?’” she recalls. “There was reluctance to move into it.”
Though few industry members, including those at the symposium, work for publicly held wine companies, ESG is indeed poised to impact wine businesses in the coming years—both public and private. New regulations mean that ESG scores could impact large retailers’ stocking decisions or a winery’s ability to secure bank loans. SevenFifty Daily spoke to experts in the ESG space to learn what this means for wine businesses going forward.
Setting sustainability standards
“ESG is a term used primarily by the financial sector for what we broadly call sustainability,” explains James Streeter, the chairman of the advisory board for the global coalition Sustainable Wine Roundtable (SWR). According to several accounts, the acronym ESG first appeared in the 2004 United Nations Global Compact report “Who Cares Wins: Connecting Financial Markets to a Changing World,” meant to guide investors on environmental, social, and governance considerations in investment decisions. The paper connected a company’s performance in areas like human rights, emissions, and anti-corruption to its bottom line.
“Companies that perform better with regard to these issues can increase shareholder value by, for example, properly managing risks, anticipating regulatory action, or accessing new markets, while at the same time contributing to the sustainable development of the societies in which they operate. Moreover, these issues can have a strong impact on reputation and brands, an increasingly important part of company value,” read the executive summary.
The argument was that sustainability is good for such businesses, and thus good for those who invest in and finance them. Companies that address ESG concerns “tend to outperform those in the underlying market,” SWR’s head of research Peter Stanbury, Ph.D. explains. “These are companies who are proactively managing challenges as they emerge rather than reacting. And that’s probably indicative of a management team that is better quality and lower risk as an investment.”
In establishing the UN’s Principles of Responsible Investment (PRI), the world’s largest firms pledged to embrace ESG in 2006. Today, well over 5,000 financial entities have signed onto the principles. A 2022 study by the Harvard Law School Forum on Corporate Governance found that the proportion of global investors adopting ESG is now at 89 percent, concluding that “investors largely agree that investment returns and sustainable impact go hand in hand.”
With the spread of ESG investing have come accusations of greenwashing, lack of accountability, unfairness, and a “woke” war on fossil fuels. One problem has been disagreement on what ESG encompasses and how to report it. But global standardization is gaining fast, a trend that Julien Gervreau, the director of sustainability implementation and climate action planning for the accounting firm Sensiba San Filippo and the former VP of sustainability for Jackson Family Wines, calls “heartening.” In 2011, the nonprofit Sustainability Accounting Standards Board (SASB) “established sustainability standards for 77 different industries, building out a suite of ESG metrics that, depending on the industry you’re in, meet a materiality threshold,” explains Gervreau.
In 2022, SASB was folded into the International Sustainability Standards Board (ISSB), whose stated mission is “to develop a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.”
With all this activity around codification of ESG, “I’ve been noting it’s not the Wild West anymore,” says Brittain. “Even people who have had to report ESG have up until now been able to interpret it as they want, but now this needs to meet the international standards.”
How ESG impacts the wine world
When Gervreau talks about “materiality,” he means the ESG information most likely to impact the financial performance of a typical company within a particular industry. According to the SASB breakdown, says Gervreau, there are five industry sectors that most wine companies fall under: alcoholic beverages, agricultural products, retailers and distributors, ecommerce, and advertising and marketing. SASB has given each a different set of disclosure standards for such ESG topics as water use, greenhouse gas emissions, and social issues.
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