Delivering long term value by embedding natural, social, human capital impacts and dependencies into business strategy and key decision-making analyses and processes.
The food system forms an inextricable link between people’s health and planet health. Food production and supply chains need to be transformed to meet the needs of people and the environment. As a market-leading and differentiated food, feed and fibre global agri-business, Olam Agri believes in playing an integral role in the food system transformation and delivering high returns to all our stakeholders through the active management of our non-financial capitals.
We focus especially on the natural, social and human capitals which are not assessed in traditional accounting and reporting frameworks. To recognise the value of these capitals and make informed business decisions, we challenge ourselves to re-imagine financial management and business reporting. Our Sustainability Finance team was established to holistically approach multi-capital valuation and accounting and embed it into our business decision-making.
Multi-Capital Valuation & Accounting (MCVA)
MCVA is a systems approach that addresses the complexity of today’s agricultural and food production systems which are inextricably intertwined with and underpinned by the natural environment and society. This approach enables Olam Agri to lead the sector towards achieving regenerative and sustainable agricultural and food systems. With a holistic understanding of our dependencies and impacts on natural, social and human capitals, we can make informed business decisions to address externalities and enhance positive impacts.
Olam Agri endeavours to be a resilient and reliant partner for all its stakeholders by creating long-term value. With MCVA, we are better equipped to mitigate the risks and seize the opportunities presented by environmental and social challenges such as climate change, biodiversity loss and social inequities, thus enhancing our business resilience.
Drive a Mindset Change
Monetisation of environmental and social impacts (and dependencies) allows us to formalise a framework to assess and quantify the long-term value that we derive from natural/social/human capitals which drives a mindset change as businesses see economic benefit in preserving and even striving to grow these capitals in the long term.
Internalisation of Externalities
Sustainability Finance strives to “internalise” externalities by using valuation methodologies (often based on environmental economics concepts) to monetise our impacts and dependencies on environment and society and then work with businesses to incorporate these into financial analyses that drive business strategy and inform key business decisions.
Delivering Long Term Value for All Stakeholders
Thinking of stakeholders holistically is at heart of Olam Agri’s way of operating. Multi-capital valuation and accounting allows us to achieve this in a systematic manner, by striving to incorporate the quantified impacts into decisions that impact lives and livelihoods of various stakeholders.
Natural Capital Valuation Assumptions & Notes
Carbon Emissions
We have applied a Social Cost of Carbon (SCC)1 of US$90/ tCO2e to value the costs to society of climate change impacts due to GHG emissions, measured by a global GDP reduction.
Water Use
The shadow price of water2, which accounts for the value of “services” provided by water to human health, ecosystems, agriculture and domestic supply, is calculated to be US$2.52/m3 for Haryana. The valuation excludes rainwater as the rainwater anomaly3 was above the normal range in India in 2020. We will continue to update its water use methodology as more appropriate data become available.
Water Pollution
We have applied the environmental prices4 of nitrogen (N) and phosphorus (P) emissions to water from fertiliser use. There is a limitation in the use of European values in the context of Thailand as damage costs of environmental pollution can vary widely according to local circumstances. We will continue to update its water pollution methodology as more appropriate valuation data become available. The leakage rates (leaching and runoff) of N and P from fertilisers are assumed to be 24%2 and 40% respectively.
1 Mid-point of SCC recommended by Massachusetts Institute of Technology (Pindyck, R S. 2019, The social cost of carbon revisited).
2 We have used the shadow water pricing methodology from the Corporate Bonds Water Credit Risk Tool developed by GIZ/NCD/VfU (2015).
3 Rainfall anomaly is the ratio between rainfall for the current year and the long-term average rainfall in the region, expressed in percentage terms. Values between 90% and 110% are considered as being within the range of normal variability, according to World Food Programme’s Vulnerability Analysis and Mapping (VAM). In India, the rainfall anomaly was above 110% in 2020.
4 Environmental prices from CE Delft Environmental Prices Handbook EU28 Version (2015), corrected for inflation and purchase power parity.
Capital Accounting Transparency (Caveat)
Olam Agri's multi-capital accounting analyses are not related to financial results or financial reporting. The analyses and insights are specific to the selected operations and are based on the use of environmental economic estimates of non-monetary ecosystems goods and services; They should not be used outside the context of our analyses. All underlying methodologies are based on well-established databases and frameworks. However, as they depend on third-party expert studies, all values are indicative estimations and are provided as ballpark estimates to inform debate in relation to the management and mitigation of multi-capital impacts. Results from the natural capital costs analyses may be readjusted according to further methodological refinements.
