- Bacardi has set itself ambitious sustainability goals for 2023 and 2030, reflecting a rising trend in the distilling industry.
- The group is working to cut emissions from its own operations as well as those related to its suppliers (Scope 3) and make its packaging more sustainable.
- Sustainable practices are increasingly important for high-profile consumer companies particularly, as customers become more environmentally and society-conscious.
Spirits makers – a highly energy-intensive industry – are striving to go net zero, not to mention improve their sustainability credentials in other ways too.
In the aftermath of November’s Cop26 climate summit, the then chief executive of the Scotch Whisky Association celebrated that nearly 40% of the industry’s energy was generated from renewable sources. “But,” Karen Betts said, “we know we need to go further and faster.”
Extracting sugars from grain (in the case of whisky) or converting cane sugar to rum takes a vast amount of power. And that’s before you get into the subject of packaging and transporting the finished product.
Distillers recognise they need to reduce emissions throughout their production process, as pressure rises from investors, regulators and – importantly for high-profile brands – consumers alike for businesses to be more sustainable.
Almost one in three shoppers in most markets are actively engaged with sustainability – in other words they look for sustainable options when shopping – according to a survey published in mid-February by market research firm Kantar, based on 34,000 consumers in 35 countries across Europe, the Americas, Asia and Africa, found that except for the Middle East (see chart).
“Failure adequately to manage [environmental] risks can lead to reputational risk, failure to transition to a low-carbon economy, and higher costs,” wrote Edward Mundy, equity analyst at investment bank Jefferies in a report on the European alcoholic beverage market in October.
One distiller working hard to address these challenges is Bermuda-based Bacardi, best-known for brands such as its eponymous rum, Grey Goose vodka, Bombay Sapphire gin, Dewar’s whisky and Patrón tequila.
The largest privately held spirits company in the world – still family-owned after seven generations, and with estimated revenues of $4.6bn last year – has consistently set ambitious sustainability goals, most recently in 2017. Particularly notable is that several include targets for 2023 and 2025 rather than far-distant 2050. These are urgent objectives that are harder for incumbent CEOs to shrug off as a successor’s problem.
“We really believe that sustainability makes business sense,” says Rodolfo Nervi, vice president of global safety, quality and sustainability at Bacardi. “You do it because it’s right for the environment and… for the world. But actually your business is [also] better if you follow sustainability programmes.”
The highest-profile of Bacardi’s commitments is to cut greenhouse gas emissions from its flagship Bacardi distillery in Puerto Rico by 50% from next year. These reductions are mostly being achieved through the use of biogas generated via the waste water treatment system to provide power. The remaining 40% of the distillery’s electricity needs will come from a combined heat and power system, which will go live next year and replace heavy fuel oil with propane gas.
Solar technology is not an option for two reasons, says Nervi. First, it produces direct current that tends to produce sparks, which are very unwelcome in a distilleries, given alcohol’s potential to explode. In addition, June to September is hurricane season in a region particularly exposed to extreme weather. “A solar panel with the wind of a hurricane becomes a nice kite,” Nervi says.
The group has also committed to cutting its Scope 1 and 2 emissions by 50% across the group from a 2015 baseline, and its Scope 3 emissions – those connected with a company but outside its direct control – by 20% by 2025 for both suppliers and deliverers. The 2015 figures were the most accurate and in-depth data the group had, says Nervi.
Bacardi had cut emissions by 14% as of the end of last year, and Nervi is confident it will meet its Scope 1 and 2 commitments by rolling out programmes similar to that in Puerto Rico at each of the group’s 23 factories.
Other big players are making similar moves. British multinational Diageo, the world’s largest distiller, has been pushing ahead with plans that it launched in November 2020 to be net zero by 2030. Three of its distilleries in Scotland are already carbon-neutral – Brora, Royal Lochnagar and Oban – and earlier this year the group broke ground on its first carbon-neutral whisky distillery in China.
There is obviously a cost implication here. But the industry is notoriously secretive, a reflection of intense competition and widespread private ownership of firms. While Bacardi’s corporate responsibility report is long on ambition, it is short on concrete figures. The company will not even confirm its annual revenues.
But it is possible to extrapolate some figures. A September report from Heriot-Watt University in Edinburgh last year estimated that the whisky industry was responsible for around 10% of Scotland’s energy consumption. A move to more sustainable electricity saw an almost fivefold cut in yearly electricity costs to £1.5m from £7.3m for an average-sized distillery.
The Scope 3 challenge
Such a shift is no simple task of course. Nervi admits that hitting Bacardi's Scope 3 emissions goal might be a challenge, part of which involves addressing the sustainability of the materials the company uses. He declines to say what the current level of Scope 3 emissions is nor whether they have measured them yet.
Bacardi recently moved to a web platform to which every supplier uploads data on their emissions, after which it is verified by the distiller itself.
The trickier aspect of measuring Scope 3 emissions relates to how the finished products are moved around. Bacardi says it is using railways more in Europe (without quantifying by how much) because of the infrastructure there, and trying to use electric vehicles where possible, Nervi adds. But the nascent charging infrastructure does not make this easy, especially for lorries, he says.
Even more than emissions, a high-profile issue for distillers – especially rum producers – is the supply of sugar cane. Working conditions in the sugar cane fields have been an international cause célèbre since an expose about the industry in 2015.
All of Bacardi’s sugar cane derivatives, however, are certified by Bonsucro, a London-based group set up in 2008 to promote sugarcane sustainability. This has been made easier for Bacardi because it does not have “thousands of suppliers”, says Nervi, so it can visit them regularly. What’s more, the Bonsucro process is not a “one-shot audit”, he adds.
Bacardi had pushed for each of its suppliers to be Bonsucro-certified by the end of last year. All of its Asti grape suppliers – the group makes the Martini Asti sparkling wine – were certified sustainable at the end of last year, and 90% of the botanicals in its Bombay Sapphire gin have been certified by For Life, an international standard for fair trade in agriculture, manufacturing and trade.
Bacardi has not quite managed to get all its suppliers internationally certified for sustainability because liquorice, one of the gin’s ten botanicals, comes from mountains near Bejing in China, Nervi says – thanks to particularly tight Covid-19 restrictions there, it has been impossible to get anyone over to assess Chinese suppliers yet.
It's about the presentation
Packaging is, however, where sustainability can hit the bottom line most obviously for companies, as it heavily affects customers’ buying decisions.
The types of packaging that “won’t have a future” are those “that are truly not sustainable and are super resource-intensive”, says David Feber, a Detroit-based partner at management consultancy McKinsey during a podcast last month.
Buyers are not tolerating “excuses” from organisations about excessive packaging any longer, agrees Jonathan Hall, head of the sustainable transformation practice at Kantar.
Bacardi has made substantial changes in respect of its packaging in recent years. In October 2020, it announced it was working with US-based biopolymer manufacturer Danimer Scientific to develop fully biodegradable bottles made from seed oil rather than crude oil. The distiller intends to roll these out across its brands from next year.
Part of this move is cost-related. The bottles for both the malt Royal Brackla and the vermouth Noilly Prat have been redesigned over the past few years to be lighter, saving 14 tonnes and 73 tonnes of carbon emissions a year, respectively.
Bacardi plans for all of its packaging to be recyclable and 40% of it to come from recyclable content, with zero plastic in secondary packing, by the end of next year, and to use no plastics at all by 2030. For the first two goals, the group has already hit 92% and 36%, respectively, and it had already removed 80% of plastic from secondary packaging by the end of 2020 after moving away from polyethylene terephthalate (PET) plastic inserts to recycled alternatives.
There are big savings to be made on changes to packaging. It traditionally accounts for 9.1% of the cost of a bottle of spirits, estimates US packaging specialist Fres-co. The company also calculates that using plastic rather than glass bottles cuts fuel consumption by up to 40% and overall transport costs by 80%.
There are indirect cost benefits too. At the start of this year, the EU introduced a plastics tax for manufacturers on non-recycled plastic packaging waste of €0.80 ($0.88) per kilogramme. Similarly, the British government is introducing a plastic tax on corporates from 1 April on both manufactured and imported plastics at the cost of £200 ($263.6) per tonne of finished plastic packaging components containing less than 30% recycled plastic.
A sign of how prevalent plastics still is in products is that the EU estimates that the tax will bring in between €6bn and €8bn of revenue a year.
Shift in behaviour
All this reflects a major shift in not only policy but also consumer behaviour – to the extent that sustainable packaging is becoming accepted even at the luxury end of the market, where customers have traditionally liked buying heavier, more substantial bottles.
“In the last three to five years there has been increasing demand from our customers about what our approach to sustainability is, what’s the nature of our products and how we are managing our impact on the world,” says Nervi.