How an agricultural company responsibly managed its Environmental, Social, & Governance risks and paved the way for its sustainable growth?

An Indian agricultural company specialized in producing and distributing various food crops and had a strong presence in the domestic and international markets. However, the company had been focusing solely on short-term profitability and growth and was found neglecting environmental, social, and governance (ESG) practices. As a result, the company found itself at the receiving end of fines and penalties from regulatory bodies. This considerably damaged the company’s reputation and negatively impacted the stakeholder perception. The company requested Research Nester analysts to draw out a plan of action to facilitate a smooth integration of ESG solutions into the company’s policies and practices.

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An overview:

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The agricultural company had been in the business for over a decade and a half and had become well-established with a strong market position.

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The company primarily was in the production of food crops- comprising vegetables, grains, and cereals.

3

The company had an integrated facility for the cultivation, processing, and distribution of agricultural produce.

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The company also did not adhere to sustainable farming methods or conservation practices resulting in deforestation and loss of natural habitats.

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An inquiry into its facility led to the discovery of its non-compliance with ESG practices.

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The company was fined and also penalized, which dented its reputation and also resulted in a loss of market share.

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The company leadership requested Research Nester consultants for their intervention to help the company sail through the crisis.

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The Story

The agricultural company was incorporated in 2008, under the provisions of the Companies Act, 1956 with the Registrar of Companies, Madhya Pradesh, (India). The Company had been engaged in agricultural operations in the Khargone district of MP since its inception, producing food grains such as wheat, sorghum, millet, etc., and also pulses, oil seeds, and some vegetables. The company heavily relied on chemical fertilizers and pesticides without proper control measures. This resulted in soil degradation and water pollution in its surrounding areas. The pesticides considerably harmed the ecosystem, constrained biodiversity, and degraded natural resources. This started affecting long-term agricultural productivity and was harming human health. The hazard was soon detected by regulatory authorities. Since the company had entirely neglected the environmental, social, and governance protocols, in 2018, the company was booked under the Environment Protection Act, of 1986. As the news of its penalty spread, the company’s reputation suffered a significant blow. Consumers became increasingly aware of the negative impacts caused by the company’s operations, which led to a decline in demand for its products. Concerned buyers including retailers and food processors began shifting their preferences towards more sustainable and ethically produced agricultural goods. They started turning to competitors who prioritized long-term sustainable ESG practices. The company had been flouting all environmental, social, and governance norms which raised red flags for investors, hindering the company’s expansion and restricting the funding for innovations and sustainable initiatives. Finding themselves cornered and totally at a loss, the company leadership in December 2019, sought the services of Research Nester analysts to rework the company’s strategy to integrate ESG practices for sustainable growth and profitability.

Our Solution:

The major hindrance to the company’s viability and robust growth was its non-compliance with environmental, social, and governance protocols. Since agriculture is already said to be responsible for a significant amount of carbon footprint considering the high-water use, application of fertilizers and pesticides, degradation of natural habitats, loss of biodiversity, soil degradation, and erosion. Research Nester consultants offered a customized solution in the form of the Agricultural Biologicals Market report that provided an in-depth analysis of the benefits of organic farming and the adoption of biopesticides and biofertilizers. RNPL consultants further suggested the following strategies that would work for incorporating ESG practices-

  • Implementing regenerative agricultural practices that include, no-till farming practices, increasing crop diversity, crop rotation, composting, cover cropping, and managing livestock grazing.
  • Reducing the usage of chemicals. Pesticides can be replaced with plant-derived substances such as corn gluten, garlic compounds, and black pepper and animal manure can be substituted in place of harmful fertilizers.
  • Apart from that, nitrogen fixation can be used to replace synthetic nitrogen for rebuilding soil fertility.
  • Using modern irrigation methods such as drip irrigation to prevent the percolation of toxic chemicals into groundwater. In addition, it can also invest in state-of-the-art irrigation systems to optimize water usage and reduce environmental impact.
  • Efficiently managing the agribusiness supply chain with effective monitoring of prices and addressing the gaps between demand and supply.
  • Strictly monitoring emissions and wastewater disposal systems.
  • Keeping track of changing consumer demands and preferences.
  • Position itself as a responsible and reliable agricultural company, committed to Environmental, Social, and Governance practices.
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Results

Till 2018, the company recorded a stable growth of around 12% YoY. However, the growth was derailed when the company faced heavy penalties for flouting ESG protocols. With the incorporation of strategies suggested by RNPL analysts, the company was able to transform its market standing and gradually build its reputation. The revenue for the year 2020 reached INR 350 million, reflecting a growth of 10% as compared to 2019, and gradually grew to 18% and 27% in 2021 and 2022 respectively. The company was finally able to bring its production and growth back on track and move towards sustainable and long-term expansion.

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Swara Keni

Head- Global Business Development

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