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The writer is the incoming chief executive of Diageo and former CEO of Tesco
All companies have to consider risk carefully. Are they prepared? Have they thought through every scenario? How should they balance long-term resilience against the issues knocking at their door every day? And how do they prepare for a world where the past is no longer a good predictor of what's to come?
As chief executive of Tesco, a business in a competitive market with complex and far-reaching supply chains, I thought about risk a lot. When margins are under pressure, it can be difficult to focus on what feel like longer term problems. But I came to realise that Tesco's success was deeply dependent not just on our customers, staff and supply chains, but on the environment.
In the past, supermarkets took this dependency on nature for granted. But climate change and the biodiversity crisis mean that is no longer possible. Without healthy soils, reliable seasons and weather within reasonable norms, the food system could face collapse.
After leaving Tesco, I became chair of conservation charity WWF-UK and helped to launch the Retailers' Commitment for Nature, a collaboration with seven major UK supermarkets that aimed to halve the environmental impact of British shopping baskets by 2030. The idea was that collaboration, though difficult among competitors, is essential if we are to change the system by which food is sourced, delivered and sold.
The supermarket CEOs who signed up didn't do so out of the kindness of their hearts. Research by WWF and others highlighted the enormous risks posed by climate change and nature loss to the UK food system on which they rely.
As a former CEO, I was able to point out with some credibility that if these risks weren't addressed, supermarkets would find their business models eroded and undermined.
Since then, climate change and nature loss have only continued. We are now seeing increased price volatility, both in imported products like coffee, chocolate and orange juice, and in homegrown staples too, such as bread and pork -- where supplies are at risk. This year's drought hit UK farmers hard, leading to the second-worst harvest on record.
Earlier this year, an anonymous group of food industry executives released a memo claiming the sector had reached "a moment of threat to food security like none other we have seen" -- one that would lead to inevitable food shortages, the collapse of supply chains and business failures. The risks we might once have thought far off in the distance are now knocking on our door.
And yet, progress is stagnating on the goals set as part of the commitment. With less than five years to go until the 2030 target, WWF's latest report finds that 10 supermarkets, representing 90 per cent of the UK grocery market, are far off track on many measures.
While we are seeing more environmental innovation and pilot initiatives, they are not being scaled or embedded into common business practice. The kind of change we need to make the food system more reliable and resilient is just not there, either from companies or the government, at a time when we need it the most.
Environmental shocks, from flooding to soil degradation to heat stress, pose direct threats to commercial viability and business resilience, and they are already translating into stock prices. Recent evidence from the Natural Bureau of Economic Research found that the share prices of companies most exposed to biodiversity risk underperformed those that are less exposed.
Despite this clear link to investability, nature and climate risks are still not a regular feature at boardroom discussions. It's time boards across the food industry acknowledge this as an immediate risk, reporting on progress, impact and barriers. As we enter a new era of disruption, they need to go beyond signing off targets and allocate resources to support delivery at scale, commission expert analysis into viability and profitability and ensure climate and nature risks and dependencies are integrated into decision making.
These crises are not going away. It's a sobering thought that what we're experiencing now could be the most stable the climate will be for the rest of our lives. More extreme weather, more disruption, more climate shock, are already baked in. This is the new reality. Food industry boards must ensure that the businesses on which their consumers depend are creating a sustainable, resilient and stable food system. After all, if we can no longer grow food, what will their companies sell?