The private sector can be a key partner in achieving the SDGs. By investing in innovation, creating employment, improving environmental stewardship and influencing global supply chains, businesses can and are contributing to all 17 SDGs. However, business-as-usual activities have had negative impacts on climate, waste, water and nature, posing challenges to social goals, including reducing poverty and hunger.51 In addition, many business models rely on selling packaged products that are high in fats, sugars or salt.52 Although the benefits of transforming these actions to promote health and sustainability may not always be immediately apparent to businesses, global trends indicate an increasing commitment to these values, with significant implications for the hidden costs of agrifood systems.
Businesses in agrifood systems engage in various activities beyond primary production, including aggregating, transporting, processing and selling food products to consumers (Figure 3). These businesses range from micro and small enterprises to global corporations, with varying levels of concentration across agrifood systems types. Each subsequent agribusiness in the chain can exert business leverage over the preceding one, depending on its scale and market power. For example, a major supplier can influence subsuppliers' compliance with sustainable principles.53, 54 Consumer demand for healthier food options, sustainability and fair production practices is driving change in the usual practices of agribusinesses. Such change can help agribusinesses reduce financial costs or risks, gain a competitive advantage by anticipating regulations, increase productivity through employee satisfaction and improve their reputation.55, 56 Therefore, it is in businesses’ best interest to heed and respond to these signals.
In some instances, it is the private sector itself that is nudging consumers and driving change. Entrepreneurs and businesses are exploring new opportunities, introducing new products and raising awareness among consumers. For example, in the United States of America, several large manufacturers have voluntarily reformulated their products by decreasing the sodium content (among the top dietary risks leading to NCDs). However, consumers have often countered these health benefits by gravitating towards saltier alternatives, leading to a decline in sales for these healthier products. This setback suggests that reformulation occurred too quickly and without incorporating interventions to change consumption behaviour. Hence, policies aimed at transforming food supply chains need to address both supply and demand, as discussed in Box 29 in Chapter 5. The example highlights the importance of collaborative efforts in both the public and the private sector to achieve meaningful and lasting change.
Businesses increasingly assume environmental and social responsibilities
The case for businesses to be socially conscious has been building since the 1960s and has gained significant momentum of late, as the business case for environmental and social responsibility has advanced.55 In 2023, 79 percent of more than 2 800 business leaders around the world (6 percent from the food and beverage sector) said they had identified a business case for contributing to at least one SDG, while 91 percent said they had made a public commitment to advancing one or more SDGs.51 The business case narrative alone is not enough to deliver on these commitments, given the presence of trade-offs between multiple goals; it needs to be combined with a social responsibility narrative to drive voluntary action.57
Existing and rapidly emerging voluntary frameworks aimed at helping agrifood businesses develop, deliver and report on science-based climate and nature strategies have opened a window of opportunity for companies to get ahead in preparing for forthcoming climate and nature legislation.58 One example is the Taskforce on Nature-related Financial Disclosures, which provides organizations with a risk management and disclosure framework to act on evolving nature-related dependencies, impacts, risks and opportunities.59 Another is the more than 410 agrifood companies that have set, or committed to setting, approved emissions reduction targets with the Science Based Targets initiative (SBTi), a corporate climate action organization that enables companies and financial institutions worldwide to play their part in combating the climate crisis. However, action is not happening fast enough, and only a small handful of these companies have updated their targets in line with the latest 2022 guidance needed to retain SBTi validation. To speed up progress, governments can support the three conditions that help with the internalization of externalities: awareness, motivation and capability.4 This is particularly relevant for small and medium agribusinesses that may find it hard to make the business case for voluntary action.
Meanwhile, policymakers in several countries are using existing voluntary standards to inform the development of new regulation for greater levels of supply chain transparency and public reporting on sustainability strategies.58 Companies can and should play a role in supporting the harmonization of national legislation with existing voluntary frameworks by working with governments and supporting the creation of long-term legislative roadmaps. With such roadmaps, companies can have the clarity they need to act confidently at scale and avoid future business disruptions. Yet, the writing is on the wall about the direction the food and agriculture sector must take.
Beyond sustainability, many large firms are conducting environmental, social and governance (ESG) reporting – an evaluation framework that assesses the environmental, social and governance factors behind business practices. It is a means of measuring and reporting on business risks and opportunities and a way of demonstrating a company’s commitments to investors and consumers.60 Of the 525 ESG indicators linked to the SDGs, 360 relate to environmental and social goals, but only ten to SDG 1 and SDG 2, which are related to the social hidden costs of poverty and undernourishment.51 This suggests there is more work to be done to improve the ESG indicators on social hidden costs of agrifood systems and underlines the challenges of quantifying and linking them to actions of agrifood businesses. True cost accounting assessments can help and, indeed, are helping on both fronts. To extend the reach of ESG reporting, new government mandates are forthcoming. For example, the European Union’s Corporate Sustainability Reporting Directive will require 50 000 companies to report on business risks and opportunities related to social and environmental issues and the impact of their operations on people and the environment from 2025.61 However, ESG reporting is not without valid critiques; there is no single standard for ESG reporting, so there can be “smoke and mirrors” when corporate sustainability initiatives fall short of measuring impact and making more informed decisions.62 In other words, when not backed by genuine action, ESG reporting can lead to greenwashing or SDG-washing.51, 63 By providing a systems approach to quantifying impacts across all four capitals, TCA is already enhancing ESG reporting.
Many, though not all, of the ESG practices promoted by agrifood businesses are implemented at the primary production level, but the benefits of the changes are enjoyed by other actors in the supply chain. For example, there is growing evidence that such changes are good for business, suggesting an early-adopter advantage. Products in the United States of America with ESG-related claims in relation to animal welfare, environmental sustainability or social responsibility, for example, have seen an average 28 percent cumulative sales increase over the past five years, compared with 20 percent for products that make no such claims.63 Brands with more ESG-related claims enjoy greater customer loyalty, suggesting that ESG is here to stay.
Businesses enjoying the premium associated with ESG claims have a moral imperative to move towards more inclusive and sustainable practices all along the supply chain, but it is also their responsibility to incentivize and reward ambitious action by farmers.64 In particular, firms in global value chains that extend beyond national jurisdictions can drive sustainable transformation by improving the awareness, motivation and capability of their small-scale suppliers in various ways.4 For example, they can – and, increasingly, many do – sign offtake agreements to establish and guarantee demand for sustainably produced commodities; offer premium prices and better contract terms for those commodities; adapt current business models, for instance, by locating processing facilities nearer to production hotspots (where environmentally appropriate); and offer financing to producers to support small-scale producers that cannot afford the frequently long payback periods of sustainable investments. Partnerships with both public and private financing institutions are essential.
Beyond company-level reporting, coordination among supply chain actors – and other agrifood systems stakeholders – is key to enabling TCA, internalizing externalities and, ultimately, achieving sustainability and ethics goals. Living wages in global supply chains, for example, require agreements among multiple supply chain actors. Important innovations are underway for the advancement of living wages in the banana sector. The World Banana Forum (WBF), a neutral, permanent platform convening participants from diverse backgrounds, has a dedicated Commission on Living Wages and Income to ensure comprehensive and inclusive discussions and decisions. Box 16 discusses the establishment of the WBF commission and the Action Plan on Living Wages created in 2024. Box 17 shows how retailers in the United Kingdom of Great Britain and Northern Ireland are joining forces to close the living wage gap for the bananas they sell. Other examples of facilitating multistakeholder collaboration include the Livestock Environmental Assessment and Performance Partnership and the Global Soil Partnership.65, 66
International organizations can play a pivotal role in addressing the challenge of geographical dispersion in global value chains, where policies tend to be national or subnational. For example, the Organisation for Economic Co-operation and Development (OECD)–FAO Guidance for Responsible Agricultural Supply Chains is the leading international standard for due diligence on ESG risks in agrifood supply chains.67 With a proposed model policy on responsible business conduct and a practical framework for undertaking risk-based due diligence on ESG impacts, the guidance can help producers and businesses reduce the hidden costs and internalize externalities by identifying, assessing and reducing their negative environmental and social impacts. Corporate uptake of the guidance can play an important role in facilitating the shift towards TCA within food supply chains.
The proliferation of reporting standards has created a complex web of requirements, which can sometimes create unnecessary trade costs and act as non-tariff trade barriers with adverse impacts – specifically for small-scale producers in low- and middle-income countries. The role of international organizations is critical in efforts to harmonize reporting platforms to avoid such risks.68
Incorporating hidden costs into business decisions and prices
True cost accounting can be applied at the business level to identify business impacts and dependencies on the capitals and identify risks. Unlike ESG reporting, TCA offers the option to monetize impacts so that they can be integrated into business balance sheets, management strategies and decisions, rather than exist as a stand-alone initiative.71 The TEEBAgriFood Operational Guidelines for Business, developed in conjunction with a business carrying out its own pilot TCA assessments, support this approach.72 For instance, Brazilian food retailer Liv Up used the evidence acquired from a TCA assessment to justify allocating more resources to its sustainability department.50
In addition to TCA, some businesses are experimenting with “true prices”, where the hidden costs of products are incorporated into transactions to improve transparency and decision-making.73 In the Kingdom of the Netherlands, the true price supermarket, De Aanzet, permanently charges true prices, fostering a positive bond between farmers and consumers.74 Similarly, the Van Vessem bakery uses true price information to demonstrate that its bread is twice as sustainable as the average bread.75 The goal of true pricing is to eliminate or reduce hidden costs as much as possible and ensure that affordable and healthy food is accessible to people, aligning with the right to food. By broadening its implementation, unsustainable products could become more expensive, while sustainable alternatives could become more affordable. This shift would encourage consumers and businesses alike to prioritize sustainability in their purchasing decisions.
A bold experiment on customer commitment to socially and environmentally responsible products was conducted by the PENNY discount grocery store in Germany. For one week in August 2023, PENNY’s True Cost campaign, in partnership with the University of Greifswald and the Nuremberg Institute of Technology, raised the price of nine food products to their true price across more than 2 000 stores. Box 18 explores how the experiment garnered a lot of media attention, but also highlights the constraints that retailers face in achieving customer buy-in. While customers already committed to organic products continued to demonstrate their loyalty despite the price increases, many consumers felt priced out by the true-cost surcharge.
Box 18Introducing true costs at the supermarket checkout: PENNY’s initiative
A true cost campaign that took place in August 2023 at German food retailer PENNY provided interesting insights into the opportunities and challenges of closing the gap between the market and true prices of food items.79
Across more than 2 000 stores, customers were given information on the true cost of nine different food products for one week, which they had to pay if they chose to buy those products. Surcharges totalled between 5 and 95 percent of the sale price. The true prices were calculated by researchers from the University of Greifswald and the Nuremberg Institute of Technology. They included climate, soil, water and health damage for the whole production process, expressed in monetary terms using a true cost accounting (TCA) method developed by Michalke et al. (2023).80 The additional revenue (the sum of the surcharges) was donated to improve the energy efficiency of the farms of selected PENNY suppliers through the Future Farmer (Zukunftsbauer) project.
The pricing of true costs naturally had a strong impact on product sales. However, the decline in sales was not as big as predicted based on past price changes. In contrast to dairy and meat products, the plant-based product – which had the lowest price mark-up – saw a slight increase in sales. A survey of 2 250 customers showed that more than 60 percent of participants were aware of the campaign. Survey questions asked before and after the campaign week revealed insights into the level of support for TCA measures and policies, as well as behaviour when confronted with the true price of foods. Indeed, the primary motivations for purchasing campaign products included customer loyalty and a strong interest in sustainability issues. The consumers surveyed were divided in their perception of its effectiveness. Four out of five participants who shopped at PENNY but did not buy a campaign product said the main reason was excessively high true-cost surcharges, while around half said they did not care about environmental issues.
The campaign faced many challenges. From the retailer’s point of view, the choice by a discount supermarket to participate in such an experiment was a bold move in a highly competitive market. The campaign received extensive media coverage nationally and internationally, sparking greater political discourse and public awareness. Policy backing is crucial for such initiatives,81 as demonstrated by the campaign’s media outreach in Germany, which prompted discussions on the mandatory reporting of true costs, highlighting the need for political regulation over voluntary compliance.
The campaign highlights the importance of increasing the awareness and purchasing power of consumers to incentivize supply chain actors to participate in true pricing. The costs to producers of mitigating the hidden costs along the food supply chain would need to be balanced with benefits they can count on, which can be achieved in part by redistributing the additional returns generated by true pricing. Nevertheless, given the public-good characteristics of most of the benefits of addressing the hidden costs of supply chains, government actions (such as taxes,82 subsidies and regulations) are an important piece of the puzzle in incentivizing supply chain actors to transform agrifood systems.
The food service industry is also experimenting with true pricing, particularly in the Kingdom of the Netherlands, where the canteen of the Ministry of Infrastructure and Water Management has piloted true pricing for 15 products.76 Vermaat, one of the country’s largest catering companies, has used true price information to adapt recipes, used remediation to improve the egg value chain, and now has true pricing in its Food Vision 2027.77 In partnership with Netherlands universities, it applied true prices to meat, increasing prices by an average of 40 percent, while vegetables, fruits and vegetarian meals became 9 percent cheaper. This resulted in greater customer satisfaction and people buying 20 percent less meat and seven times more vegetarian options, vegetables and fruits.78
This demonstrates that companies’ interest in moving towards healthier, more sustainable and justly produced goods needs to be backed by financial investment. The next section explores how and why financial institutions are increasingly prioritizing activities that advance agrifood systems transformation.
