Isobel Wild [00:00:00]:
Some of the best measures to build resilience into your supply chain as a business or as a sustainability professional is supply contracts building in a bigger margin and insurance programs.
Saif Hameed [00:00:10]:
So if you look at like, regenerative agriculture and all the stuff that many sustainability leaders are thinking about in terms of making farms more resilient in themselves, that's trying to like, help adapt the environment towards climate change risk. I'm Sef Hamid. Welcome to the State of Sustainability podcast, a show for professionals transforming corporate sustainability strategies, brought to you by Altruistiq.
Isobel Wild [00:00:45]:
Hi, everyone. Today we're going to talk about the massive underappreciation of risk exposure in agricultural supply chains. We're going to explore how climate change is reshaping supply chains and uncover some of the emerging risks, discuss mitigation strategies and examine what all these changes will mean for your environmental data. But before we get going. Hello, sir, how are you?
Saif Hameed [00:01:08]:
Hey, Izzy. I'm good, thanks. I'm good. I am enjoying the weather volatility in the UK, which right now is tilted in our favor. But what I find just a bit crazy is how you go out in the morning and it's freezing cold and then suddenly in the afternoon it's boiling hot, so you're always poorly dressed for whatever you're going out for, which is very different to what I had growing up in Pakistan, where it was consistently hot or consistently cold. It might be a location thing, it might just be a time of this cycle thing.
Isobel Wild [00:01:38]:
You know, when I was scoping out the brief for this podcast, I was like, I really hope Saif brings up the weather in our intro spiel because I was like, the likelihood is he probably will because he's got that english tendency, but it's all to play for. But I did want to talk about the weather because I think that is a big underlier for all the risk that's going on. So I think, I mean, even now the weather is delaying crop planting, it's impacting yields. There's big news around farmland in Russia, China, India, parts of the US, which are experiencing either really hot conditions or a lot of rainfall. And I think we've seen it not just this summer, but around the whole world, around the whole year. So even in autumn of last year, there were rumours of beer and cake production in the UK flooring because of the wet weather. And it means that the breweries and beer prices are going to rise and everyone was up in arms. But Saif, what's your take on all of these kind of climatic issues and how they're feeding into crop yields and also like supply and demand of different types of foods.
Saif Hameed [00:02:51]:
Yeah, I actually, Izzy, I want to take a parallel from a market that understands risk very well and maybe just talk a bit about how that plays out versus the sustainability space, where I think we don't understand it half as well, and frankly, even procurement, where I think we could have a much better understanding. And the market I'd look at, which is quite topical right now, is if you look at financial markets, anyone who's been following anything related to financial markets knows that about a week and a half, two weeks ago, you started to see this massive change in stock prices across the world. Really. But I think starting, or most prominently in the US, and there were two things that happened. One is that you saw the share prices start to fall, and the other thing was that you started to see volatility, as measured by the VIX index, start to rise. And anyone who plays in financial markets keeps a close eye on the VIX index as an indicator of expected current or expected volatility in the market. And as you see volatility start to rise, you tend to get more bearish. What goes into that is a whole range of different indicators, like what goes into a market assessment of financial risk is everything from inflation, employment, interest rates, et cetera, et cetera.
Saif Hameed [00:04:03]:
And so financial markets are reasonably well calibrated to understand and act on risk, but still get it wrong. Famously wrong in many instances. On the other hand, what we're seeing now in the climate space is an undeniable increase in volatility. I would actually even say whether or not you believe human beings are responsible for climate change. And I realize that sounds like a stupid question to even be asking for many of our listeners, and certainly in the UK and Europe. But let's acknowledge that there is a pool of people that believes human beings are not responsible for climate change. But it's undeniable that you're seeing more volatility in the climate. And there is an impact that that has on global supply chains, and there's an impact that that has on actors in supply chains.
Saif Hameed [00:04:47]:
And so I would actually say we have a very, very poor understanding of that volatility and the impact it has because we've never really experienced it.
Isobel Wild [00:04:55]:
So what are the emerging risks then? What is feeding into that volatility?
Saif Hameed [00:05:01]:
So there are, I think, a few big feeders. One is, let's say, macro, and the other is micro. And what I mean by macro is agro climatic zones are changing. Certain crops were best grown in certain agro climatic zones. And a sign of a crop being grown really well, is that you can grow it at high yield for a long period of time. A great example, let's say, roses in Ethiopia. Ethiopia is one of the best countries in the world to grow roses. You can grow roses for most of the year, I don't know if it's seven or eight or nine months, but most of the year.
Saif Hameed [00:05:36]:
And you can grow them at a high yield, which means you get the lowest possible marginal cost, because your infrastructure for growing and transporting it is spread over a really long period of time. And a really high yield over that period of time. That is like a perfect match of agroclimatic zone to crop type. And one of the this big macro shift is that those agroclimatic zones are changing. You are seeing it already in the wine market in the UK versus France, for example, where it's getting harder to achieve similar yields for similar periods of time in France and easier in the UK. And you're going to see that play out across multiple crop types around the world, I would argue potentially faster than we expect, because if you just look at global warming, it's happening faster than we expect. And so that's the macro shift. The micro shift is actually within the, at the level of individual operators, practices are having to change week by week.
Saif Hameed [00:06:33]:
And one, the most prominent example of that is in certain parts of the world, at certain times of the year, it is just too hot to go out and pick the crop, and it is just too hot to go out and do anything. Frankly, on the farm where I'm from, Pakistan, there are parts of the agricultural heartland that are hitting 50 degrees celsius at certain times of the year and crossing 50 degrees celsius at certain times of the year, which is just physically too hot to actually go out without lethal exposure, without actual death. And I think that is going to profoundly change the practices of individual operators, let alone all the other kind of micro risks, which is what does heat wave and flooding and all this stuff do to your farm?
Isobel Wild [00:07:16]:
And are there any like, big commodity trends that you're seeing as a result? Maybe on a macro level and a micro level. So are there any like, specific crop types that are particularly vulnerable to these risks?
Saif Hameed [00:07:31]:
I would argue that the crop types that are least vulnerable are actually crop market combinations or variety market combinations. And so if I take, let's say, salad tomatoes as an example, salad tomatoes are effectively within the tomato space, their premium versus tomatoes that you would use for ketchup, because they're going to be seen. They need a certain optical characteristic. They need to look good, frankly. And maybe the supply chain is also shorter, so the margin tends to be higher, which means that you can afford to produce those in a greenhouse where you are producing them in a controlled environment where you can control heating and cooling. And so the Netherlands, for example, has a dominant share, and the salad tomato market, and most of that production happens in greenhouses in the Netherlands, run on natural gas. And so that is more or less insulated versus climate change as compared to tomatoes for ketchup, for example, most of which will be grown in places like China, Pakistan, maybe Spain, and parts where in peak production season, the marginal price of the tomato will just plummet. Like if you think of those festivals in Spain where everyone is kind of throwing the tomatoes around, that comes from just an abundance that you have in season, and you have the same in Pakistan, again, where I'm from.
Saif Hameed [00:08:51]:
And so that side will suffer much more from this volatility versus the premium end or the end with the higher margin where you can justify controlled agriculture.
Isobel Wild [00:09:02]:
And what about crop types that are very specific to certain regions which perhaps you can't shift or supply chain or.
Saif Hameed [00:09:11]:
Yeah, yeah, this gets really interesting. And so I would maybe split. I'd make a distinction, as you think about supply chain disruption, Izzy, which is what we're really looking at here. I would say there's a distinction between where you have agricultural produce with a short supply chain, where that produce is moving maybe directly into a branded processing. And let's take the tomatoes for ketchup as an example. Very often those tomatoes will kind of move. Maybe there'll be one or two tiers from the brand, one or two tiers of supplier away from the brand. Let's take a contrast.
Saif Hameed [00:09:44]:
And so sorry, in that case, I actually think that you're going to get some relatively immediate disruption that the brand is going to have to start thinking about, and have to start thinking about where do they source from differently or how do they start building up a supply chain in other regions, because they're going to start to get this disruption. If you look at the coffee market and the cocoa market, the buyers there are already thinking about this because cocoa and coffee and vanilla and a bunch of these specialties are super centralized in really four or five countries which dominate the, have the lion's share of this market. Cocoa and coffee, for example, you're looking at Ghana, Cote d'Ivoire, a few other countries being the lion's share. And if the agro climatic zone shifts from those regions, those countries to others, you suddenly have to spin up a whole different supply chain. I think there's another world where you say, well, let's look at Cotton where you have maybe multiple tiers of supplier in between the grower and the brand. And therefore you've had a whole complex manufacturing ecosystem develop around the location of production. And so let's take, for example, you know, again, Pakistan is a good example with cotton. Not to keep coming back to Pakistan, but I feel like I should do my duty and reference it in this podcast.
Saif Hameed [00:10:57]:
But if you look at cotton, Pakistan has been a top five grower of cotton, and based on that, you have a whole ecosystem of manufacture around that. So the mills and so on. But many tiers of suppliers have all kind of grown up in Pakistan and established in Pakistan. As the zone starts shifting, as yields start becoming harder and more volatile, along with other geopolitical risks and exposures, those manufacturers have, the larger ones have vertically integrated and become kind of larger players, owning more of the supply chain stack and also multi geography, whatever the right term is. They've started sourcing from multiple locations to hedge their exposure to one country. And actually, if you look at most of the big textile manufacturing partners, so if you take like a uniqlo or an H and M or an inditex Zara, for instance, you'll see that there are probably like somewhere between 51 hundred major apparel manufacturing partners that they work with. And often those 50 to 100, a majority of them might be owned by a few dozen conglomerates, basically. And those conglomerates are just operating across Vietnam, Sri Lanka, Bangladesh, Pakistan, China, India, all together.
Saif Hameed [00:12:13]:
And they're flexibly sourcing the agricultural input from any location that makes sense. And they're manufacturing in whatever location makes sense for different brand partners.
Isobel Wild [00:12:22]:
I think when you were speaking about that, another example which popped to mind was olives and olive oil, because I think recently there's been a huge global shortfall of olive oil. I remember seeing headlines that olive oil is the most shoplifted product in Spain at the moment. I think that was back in April or something, because it was just such a. At such a high cost point. And I think that's been a result of, like, extreme drought conditions for the last three years. And Spain in particular grows about 60% of all the olive oil. But as I said, like, wildfires and really hot temperatures have basically completely floored the production. And I was speaking to someone from Bella Zoo Ruby, and she was saying, and I was like, oh, what's up? Olive oil production must be really tough at the moment, has that impacted your prices? And she was like, well, actually, we have really good relationships with olive growers, and because their Bella zoo, their olive oils come out at maybe a higher premium cost point, they've actually been able to invest much more into those farmers to make sure it's good agricultural practices, better soil, so they're more resilient to this change.
Isobel Wild [00:13:27]:
They've also said that they actually have now moved some of their olive groves to Essex, because their groves actually benefit really well from the coastal conditions and also the warmer weathers. Like what you were saying around production moving, like wine production moving from France to the UK. And it slightly just got me thinking that whether, and correct me if I'm wrong, but is risk, is the supply chain risk much more felt by mass market brands versus these luxury, higher premium brands? Is that punt kind of right to you?
Saif Hameed [00:14:02]:
Yeah, I would say let's look at risk as a ledger. You have pluses and minuses. You have elements adding risk and elements removing risk. And so let's acknowledge that climate change is one big risk addition, and it's out of our control. It has come into play and it's added a huge element of risk, which is volatility. You have certain other elements of risk that are intrinsic to the nature of the product or the supply chain. So in olives, for example, you have a lot of capex. Like the tree that you have grown is a capex investment someone has made.
Saif Hameed [00:14:35]:
It has taken some time, years, really, to reach maximum productivity. And so that is a sunk cost. That's like a capex investment I've made, which is different to planting wheat or potatoes. If I have a bad year with potatoes, I can exit potatoes and go and plant something else. I don't have a sunk cost that I've lost. I just have that one year's crop, which is different to anything where you're planting a tree or a bush. And so that capex element is another risk component. Margin also has an impact on risk.
Saif Hameed [00:15:01]:
And so if I have a thin margin, I am more at risk of going bust because I have very little cushion or very little insulation. If I have a larger margin, I have less risk exposure in some ways, because I can cushion myself against volatility. You'll have other elements as well. Like, if I'm a supplier, how long duration is the contract of what I'm selling into? If I'm supplying into Bella Zoo, do I have a ten year contract, or do I have a six month or one year contract that also has a calibration on risk and then concurrently you can also say, what are the interventions I could put into play to remove risk from the system? And so I think the best way to look at this is there are things adding risk and there are things you can do to remove risk. Quantitatively, making contract duration longer will remove risk for my supplier if that's what I want to do. Making margin larger will remove risk for my supplier if that's what I want to do. Having insurance in play for my suppliers and pushing my suppliers to get insured and helping my suppliers get insurance will act as a cushion where there isn't a margin to provide that cushion for the supplier. It's almost like if you're a high income person, you don't need insurance as much as a lower income person because you have cushion.
Saif Hameed [00:16:08]:
You can have savings that will cushion you in bad times. Whereas actually the people who are most vulnerable to an absence of good insurance are those on lower incomes. And so I think a lot of the same principles. What adds risk, and the corollary is what can I use to subtract risk is a good mindset to take here.
Isobel Wild [00:16:25]:
Okay, so just summarizing a little bit what you just said there. So some of the best measures to build resilience into your supply chain as a business or as a sustainability professional is supply contracts building in a bigger margin and maybe insurance programs. Would you add any more to that?
Saif Hameed [00:16:43]:
To that, I would say there's a bunch, and I think some of these will be more or less palatable. So I think there is a level of focus right now on how do I actually remove climate change associated risk more directly. And so if you look at like regenerative agriculture and all the stuff that sustainability leaders are thinking about in terms of making farms more resilient in themselves, I would say that's trying to help adapt the environment towards climate change risk, and that's removing an element of risk in itself. And then the other bits that you've listed, I would say, are other levers. Now, most procurement teams will be allergic to the idea of expanding the margin for their suppliers because that's just diametrically opposed to their incentive structure. And so I would say that you need to make sure that there's a playbook. I'm thinking from the perspective of a sustainability leader, let's say in a brand, if you want your procurement team to work with you on taking risk out of this, you need to do two things. One is explain to them that long term their KPI's are going to suffer if together you don't solve this problem.
Saif Hameed [00:17:48]:
And that's because changing suppliers can often be disruptive and have a cost. And having a supplier suffer a shortfall in yield versus expectation and not be able to provide output when expected will have an impact on the brand in terms of its economics. And also that you can actually provide the procurement team with a range of levers to think about and they will work with you on this to help remove risk in a way that is maybe more palatable for the financial incentives of your business. And those could be longer duration contracts, for example.
Isobel Wild [00:18:19]:
Okay, I love that playbook. I'm definitely going to steal that and throw it into a newsletter somewhere. But I think another bit that you mentioned was like regenerative agriculture, maybe like innovative practices. And I think, well, you had a previous discussion with Audrey Leduc from McCain's and I think they do an awesome piece where they have recently launched maybe their third farms for the future. So they've got one in Canada and one in Africa. They are set up to test new varieties of potato crop because obviously potatoes, they are mister and misses potato like they want to own the potato. So they're working in these different locations. So they're different kind of big climatic areas to reimagine growing practices and to be able to account for the climate and stressed growing areas.
Isobel Wild [00:19:03]:
And their goal is to have largely replaced their standard varieties of potatoes by 2030, whilst also gaining full customer approvals for those options. And potatoes, for reference, actually take quite a bit longer. Their seed pipeline takes longer to develop than other crop types just because it's a slow growing crop. But they've been evaluating traits like disease resistance, nitrogen use efficiency, yield quality, different kind of climatic growing conditions. And this slightly just got me thinking about this customer approval piece and how that fits into risk. So like how can you communicate as a brand that, okay, my product might be changing, my quality might be changing, my look might be changing because im sorting my potatoes from here or there. Is that any advice that you would have to make that point clear and get the consumer or your customer if you were b two b behind you?
Saif Hameed [00:20:01]:
Yeah, this is an interesting one. And I think this goes well beyond what were thinking about with risk, which is if the nature of my product is going to be different, it is going to look different, feel different, taste different as a result of what I am doing from a sustainability lens, whether that's mitigating risk or whether it's reducing, for example, the emissions intensity of my product, how do I bring my customer along with me. And so you've got a good example there with potatoes, Izzy. Another one that I think about is like with bottled beverages, for example, if you increase the share of recycled content or cullet in the bottle, it'll turn greener. And that actually has an impact on how the consumer might perceive the product and also how they might use the product in the case of using the stem to hold a beer bottle, for example. And I think that the best way to deal with this is actually to make it feel premium. If you think of, let's say, take a bottle of whiskey, right? Like if most bottles of whiskey are flint colored, and you say, we have a super dark green whiskey bottle and it is as dark as a wine bottle, but it's whiskey and it's actually premium, by the way, and here are all its credentials to be premium. Here's its license to be premium, and we're going to charge extra for it.
Saif Hameed [00:21:15]:
I think that's the best way to start to get consumers to be happy with those changes. If you think about, let's say, bottled water, when you kind of. I forget what the brand is. It's like a tube rather than a standard kind of. I think it's Vos, right? Vos has a premium feel to it. And I think that that's the look and feel that you want to get with your sustainability interventions, where it feels premium and it feels expensive rather than cheaper and worse off.
Isobel Wild [00:21:42]:
I want to get on to environmental data and what these supply chain disruptions can mean for your data and what it means for collection and what it means for management. Have you seen any trends, firstly of, like, how companies are mitigating for risk and how they're managing data differently to account for it?
Saif Hameed [00:22:03]:
Yes. So let's maybe start with the concept of double materiality, which if you look at, like, european regulation and CSRD framing, we're thinking about the impact that you have on the world and the impact that the world has on you. So the impact you have on the world is like your emissions footprint. The impact the world has on you is the impact or risk of climate change disruption on your supply chain, for instance. And I think that right now we are largely treating those two things in silos, and they come together a bit for reporting, but we're largely dealing with those two things separately. There are certain parts of the market that are getting to be very deep on one or the other. And so insurance companies and banks are, I would hope, much more forward leaning on the risk assessment side. Infrastructure companies tend to be much more forward leaning on the risk assessment side because they have so much at stake from getting this right or wrong and let's say food and Bev apparel.
Saif Hameed [00:23:01]:
Personal care companies buying from agricultural value chains, which are also inherently like, emissions intensive in some shape or form and have some risk exposure, are trying to figure out both. And then there's a category of companies that are probably not really thinking about risk at all and just focused on the emissions of the business. And I would say probably a lot of like tech companies, which have a big emissions footprint from the cloud, are thinking about their emissions footprint, but really the risk side is hard for them to get their head around and not so important compared to others. I think that we're going to see a trend where the companies that have exposure, or elements of both, start treating the problem as a joint problem and thinking about data in a joined up way. Which means that if you're having to use data for activities, locations, weights in your emissions calculation, you may as well also get value out of that data from your risk assessment. Because if you know that you're buying, let's say, cotton from Pakistan and certain geographies, and you have a really good sense of what activities go into that, and you have a really good sort of capability around what types of farms is that cotton coming from. You can actually get a lot of value from that sort of data and a really good risk assessment, and you can start to put into play a lot of risk mitigation levers that can be very specific as well. That's a trend I don't yet see playing out, but I think it will happen in the next few years.
Isobel Wild [00:24:21]:
Really interesting. And in terms of being able to make sure that your data can be transferable into that risk box, are there any tips or tricks that you would say that maybe sustainability professionals at the early stage now who haven't started thinking of it like that can actually get ahead of the curve?
Saif Hameed [00:24:39]:
Yeah, I think it goes back, Izzy, to something that we talk about often, which is before you dive into data gathering and data manipulation, let's start with what is the problem that you want to solve and why? So if you say, look, I want to really get a good handle on my emissions and there are some materials that are most important for me in my emissions calculation because they are intrinsically associated with my brand, my production, etcetera, I am a chocolate business and this is cocoa for me, or I am a sort of dairy business. And this is like the, I'm a dairy intensive business and this is the actual dairy production for me. Great. That'll help you get a good handle on what data you need to go deep on for emissions calculations purposes and what data maybe is less important. There is likely also to be a big risk aspect to that. And so I think it's helpful for you to also say, well, if I was also solving for a great risk assessment and trying to manage interventions that minimize disruption, is it the same types of data that I need, or are there a few additional elements that would help me get the most value from my data gathering process? And I think you'll find that the answer is yes. And actually it's not a lot of additional data. And whatever additional data it is might also make the emissions calculation more granular, more specific, more accurate.
Isobel Wild [00:25:54]:
Okay. And from another lens on the data point is when one of the kind of mitigation measures to your supply chain risk is also diversifying your supply chain, how should we look at that in a sense that you're going out to maybe new suppliers, you're starting afresh. Are there any bits of advice that you would actually say, okay, this is a great opportunity for supply chain engagement, or setting up the supplier to be able to be a reliable, sustainable supplier. What's your take on that?
Saif Hameed [00:26:25]:
Yes, it's a good question, Izzy. I would actually think in a more joined up way about what is the purpose here? The purpose is taking risk out of the system, and there can be multiple ways to take risk out of the system, and there might be a trade off. Like the beautiful thing with risk is risk should be fungible to some extent. Like if you can quantify this properly, then I can take risk out using lever a or lever b. And there should be an ability for me to, in a straightforward way, compare lever a and lever B. Because the target, the thing I'm optimizing, is the same, which is risk. And let me pose two interventions that are opposed to each other. One is, do I do more business with one supplier and lean more heavily into de risking that supplier, or do I not do anything with that supplier to de risk them? But do I actually hedge my bets by working with ten suppliers? I don't think there is a simple answer to that.
Saif Hameed [00:27:19]:
I think it will vary company to company. But there is a good logic to say, look, I'm buying cocoa, let me work with three intermediaries, and let me do the best thing I can to remove risk from those three intermediaries and build long term partnerships such that those three intermediaries are always in business and will always do well and will always be resilient and it's a true partnership versus do I just spread my bets across as many as possible, which could actually increase my risk? Because maybe actually I'm doing business with 100 intermediaries. They're all dependent on ghanaian coco. And as agro climatic zones shift, the market moves to other locations and I'm completely exposed. So I would actually say that you need to get a much deeper understanding before you go for lever a or b. And there might just be a simple trade off between them.
Isobel Wild [00:28:07]:
Talking about Coco there just reminded me of we were both at an event together, I think it was maybe march of this year, and we both tried no cocoa chocolate. And that was as a result of, I think it was Fazer who supplied the goods there. And what she was saying was that actually coco is quite a high risk commodity type and especially with the changing weather patterns where as you said, you, we source cocoa from a couple of countries, the majority comes from a couple of countries as it is now. And maybe that pool of supplies is getting smaller and smaller and smaller. So maybe one of the other measures is not just supply chain diversification, but actually product type diversification. And trying to, what we said earlier about bring the consumer on board because no cocoa chocolate is quite a big bold move to go out with. But I think that's also maybe an interesting lens to apply here.
Saif Hameed [00:29:03]:
It is. And Izzy, I think the interesting thing is that again, double materiality works together here, because there are two interventions that can both reduce your emissions and also reduce your risk exposure together. One is transition to a lower emissions intensity product and that's going to lower your emissions profile, but also very likely reduce your risk exposure depending on what you're transitioning to, let's say. The second is actually use less of it or reduce the waste associated with it, for example, which will also reduce your emissions and also reduce risk exposure. And that's because both of these interventions are at the end of the stack, which means that they apply across the whole stack of your sourcing, production, etcetera, environment, because they happen right at the end and they are therefore more impactful than anything you could do at any one point in that chain.
Isobel Wild [00:29:55]:
That's a really cool way of looking at it. I also want to ask you about any cool pieces of tech innovations that you've seen that actually are helping manage these climate related supply chain risks.
Saif Hameed [00:30:09]:
Yeah. So I think that the transition we're seeing, certainly with the companies we work with, is towards a unified sustainability operating system. And so if you think about, let's say two years ago, there was a generation of carbon accounting companies, and there was, let's say, a generation of climate risk management companies. And so maybe cervast and Jupiter intelligence and a bunch of others were on the climate risk side and Altruistiq and others were on the, let's say, accounting side. And I think what you're seeing is that potentially you actually in some cases have emerging where we now, for instance, see ourselves as a sustainability operating system. And the reason that we see ourselves as a sustainability OS is because we're gathering data at a granular level. We're assigning classifications and tags at a granular level, and we are using that data to calculate emissions and footprints, but we are also allowing users to use that data in its own native right to manipulate it, achieve insights, design programs. And actually, those programs could increasingly be risk mitigation oriented just as much as they could be emissions impact reduction oriented.
Saif Hameed [00:31:23]:
And I think that is the transition towards being actually a sustainability operating system where data can be used for multiple different use cases.
Isobel Wild [00:31:32]:
And are there any key characteristics to look out for those sustainable operating systems? That would be good bets, yeah, I.
Saif Hameed [00:31:42]:
Think the real question to ask is what is this system or solution solving for? Are they solving for environmental accounting or carbon accounting? Is that the North Star for them? Is the North Star to be the world's best carbon accounting platform? Because if it is, then the marginal gain will always be in the doing carbon accounting a little better and doing it for more people. And actually, the companies that have that as their North Star will probably want to do that for the widest set of businesses possible, they are less likely to be industry specific, for instance. Whereas if you're trying to be a sustainability operating system, it is almost impossible that within the next 6789 years, you will be that system for companies across industries because there is just too much subject matter variability. And if you look at like, let's say, doing even product carbon footprints, and we'll talk about this in our webinar, if you look at doing product carbon footprints for food, they are very different to how you would do it for apparel, for instance, or for other sectors, or let alone for metals and mining and jewelry and those things. And so if you want to be a sustainability operating system, you're probably committing to a particular industry, and you are in the way that we are committing to food and beverage, for example. And you are looking to then be a flexible data environment to be able to solve for a wide range of use cases. So you're going much deeper at the cost of going broad.
Isobel Wild [00:33:11]:
Okay, that makes total sense, I think. Before we wrap up stuff, I got one last question, which is, and you briefly spoke about it, talking about how you communicate to procurement around these, like, risk mitigation levers. But I'd love to understand how you would see the best way of packaging up risk and supply chain and disruption and all of that into a business case to maybe unlock more funds or unlock more resources to be able to mitigate against it.
Saif Hameed [00:33:40]:
So, Izzy, as always, I would package it in dollars. I would literally wrap it up in a big bundle of dollars with a big dollar number around it. And what I mean by that is any sustainability team that wants to get things done should position their business cases internally with a dollar impact. And so if we're looking at, let's say, emissions reductions, I think we should start to think about what does this get us in terms of efficiency, cost savings? What does this get us in terms of market share? What does this get us in terms of pricing potential? What is the scale in terms of enduring brand advantage? That one is always harder to quantify, but you should try. And when we're approaching risk mitigation, what is the dollar cost of disruption? If I have a supply chain disrupted for a month or two months, what does that cost my business? The good thing for sustainability teams is there's great data around this, because we had it in Covid. Covid is a great example where supply chains globally were disrupted. And so there is a muscle memory in procurement teams of having to solve for that, and different teams had to solve for it in different ways. But everyone remembers it as a traumatic experience experience.
Saif Hameed [00:34:50]:
So there may well be a once in a career lifetime opportunity for sustainability teams to tap into that trauma and say, look, let's make this never happen again. And by the way, the next Covid is climate change.
Isobel Wild [00:35:03]:
The next Covid is climate change coining. There's like this instinctive nature in me that I always feel that I need to package up sustainability or climate change in quite like a positive way in order to get more people on board. What you're saying there perhaps suggests that actually you need to lean more into the trauma. Is that right? Or how would you play the kind of positive negative reinforcements?
Saif Hameed [00:35:26]:
Climate change is a dark and depressing topic. It is much more Dostoevsky than Tolstoy. I think it is misleading to position it as a positive. Frankly, there may well be a positive in, let's say, capturing pricing, premium and market share. But even if you look at the sustainability leaders who do that who build a great sustainability brand. They are positioning this as a battle against the forces of darkness. If you look at Atoni's chocol only they're talking about slave labor in the value chain. It doesn't get darker than that.
Saif Hameed [00:35:59]:
If you look at oatly, they're talking about global warming at large scale. And by the way, potentially also a massive dose of cruelty to animals. Like this is dark stuff. And I think that dollars have a purity to them. I would always talk about both aspects in just the same terms as the business talks about everything else, which is this is business, this is dollars up and dollars down.
Isobel Wild [00:36:22]:
Okay, so you talk about the commercial uplifts, but also about the commercial risks, essentially. But moving away from those dark, dark corners of climate change, is there anything else you want to talk about? Maybe to leave us on more of a positive, optimistic note before we say goodbye?
Saif Hameed [00:36:39]:
Yes, I think that we are starting more or less from ground zero on all these topics. And we have in this podcast, Izzy, we've been excited to talk about emissions calculation and a lot of the stuff associated with that. I think that risk and managing climate change related risk is going to be bigger. Frankly, I just think it's going to be a bigger problem to solve. I think it's going to be more complex in many ways to solve it. In a way, I'm coming at that from a dark place, which is, I think we're going to shatter through two degrees. I don't think we're going to solve for climate change. I think we have the potential to make a dent in the problem, but it's happening.
Saif Hameed [00:37:22]:
And I think that the realization that it's happening means you start to also just think about risk. You start to think about adaptation and resilience. Mitigation is, am I reducing global warming, am I reducing the emissions out there? Resilience and adaptation is more like, am I actually able to cope with what's going to happen?
Isobel Wild [00:37:41]:
Okay, thank you. You gave me a more positive note. So maybe to quickly summarize, we have gone through the different types of risks that pose to your supply chain stability. But whether it be macro sustainability shifts or micro sustainability sustainability shifts, we've also kind of leaned into the mitigation levers available to you. So maybe that's long term contracts, maybe that is increasing your margins, or maybe that's insurance programs. We then went on to preparing for the data changes that might happen. But also I loved how you said that there was a positive that could come out of that in terms of the transferability from your carbon and environmental data alongside maybe the risk data that you can feed in. And then we lastly talked about the technological innovations that actually could come in handy and mostly around sustainability, operating systems and maybe looking at ones which could be more industry focused.
Isobel Wild [00:38:37]:
Those are probably the better ones to go for for where you're sitting in the market. Saif, is there anything I've missed or anything you want to highlight again, please take it away.
Saif Hameed [00:38:47]:
No, I think that's good. I think we should probably spend maybe more time sharing content on risk management levers. And so maybe this is a topic for a guide at some point, Izzy, and potentially our listeners can let us know if that's something they would be.
Isobel Wild [00:39:01]:
Excited by or maybe even a webinar.
Saif Hameed [00:39:03]:
And our listeners can have this, maybe even a webinar.
Isobel Wild [00:39:07]:
Awesome. Well, thank you so much, Saif, and speak soon. Goodbye.
Saif Hameed [00:39:11]:
Thanks, Izzy. Bye.