Anheuser-Busch InBev’s Contribution to – and Solutions for – Climate Change
Anheuser-Busch uses a lot of water in the production of beer. From growing crops to fermenting in the brewery, creating a sustainable way to use water and electricity is a crucial part of the company's long term strategy.
Due to its significant reliance on water, the beer industry is perhaps as directly affected by the potential impacts of climate change as any industry. Current projections maintain greenhouse gases could cause a 27% increase in global land surface affected by severe drought within the century, and that the demand for water may surpass global supply by 2030.[1]
As the largest beer company in the world, Anheuser-Busch InBev (AB InBev) is sensitive to any impacts to their raw materials and supply chain. Water is of particular concern. Their reliance on clean and abundant water is best illustrated by the fact that seven barrels of water are needed to produce one barrel of beer.[2] Outside of the brewery, the net water footprint – which is the amount of water required to produce one liter of beer – reveals scale of the issue. Roughly 90% of the water footprint of beer production can be attributed to the agricultural supply chain that produces these raw materials. Additionally, the agriculture supply chain accounts for 33% of the carbon emissions in a North American produced beer.[3] Consequently, AB InBev is not only affected by the impacts of climate change, but also contributes to its causes.
AB InBev’s Response to Climate Change
AB InBev readily acknowledges the long-term impact that climate change will have on their supply chain. In their 2016 Annual Report, the company identified that decreased water quality and quantity would cause increased production costs and lower capacity.[4]
Short Term Plans
AB InBev has several projects ongoing that that will contribute to water sustainability and a decreased carbon footprint from energy use. Refrigeration is a contributor to the company’s carbon footprint, and this past year 96% of their refrigeration purchases were eco-friendly units.[5]
AB InBev will also continue to reduce is carbon footprint through efficiencies in packaging. They have reduced packaging weights by 126,800 tons since 2012. A specific illustration of this is demonstrated by the innovative reduction of Stella Artois bottle weight by 7%. In addition to packaging improvements, AB InBev has lowered waste through recycling initiatives that reduced waste sent to landfills by 26% this past year.[6]
These short-term efficiencies will continue to be improved to further reduce the carbon footprint.
Long Term Plans
AB InBev’s plans to reduce its water footprint has two areas of focus. One, they plan to increase their plants’ efficiencies. This has been a coordinated effort for several years, and they reduced their global usage to 3.17 hectoliters of water per hectoliter of production during this past year.[7] Two, they have partnered with non-governmental organizations, such as The Nature Conservatory, to launch initiatives to improve water quality and availability in the communities where AB InBev is located.[8]
Last March AB InBev announced that it would obtain all its electricity from renewable sources by 2025. Two months ago, this commitment began to come to fruition as AB InBev signed a Power Purchasing Agreement with Enel Green Power to supply 50% of AB InBev’s electricity needs. This is enough to produce 20 billion cans of beer annually, and will substantially decrease their carbon footprint. Only 2% of the company’s electricity is currently supplied by renewable sources.[9]
Recommendations for the Future
There are two areas in which AB InBev can help mitigate the effects of climate change on their supply chain and the planet. First, the company should continue to pursue regulatory and tax breaks for efforts that reduce their carbon footprint and water usage. This is especially relevant given the high number of countries in which they operate. Second, they should continue funding research not only on improved equipment technologies, but also on plant microbiome technology to make their crops more drought resistant.
Questions Going Forward
The main question going forward is how profitable can these climate change initiatives be for a publicly traded company. Will shareholders have a more short-term view and care less about charitable efforts to local communities if sales and profits drop?
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Citations
[1] Rebecca Henderson, Sophus Reinert, Polina Dekhytyar, Amram Migdal, “Climate Change in 2017: Implications for Business,” HBS No. 9-317-032 (Boston: Harvard Business School Publishing, 2017), p. 4.
[2] David Edmunds, “Before the Taps Run Dry: Incentivizing Water Sustainability in America’s Craft Breweries,” George Washington Journal of Energy & Environmental Law (Spring 2016): 164. ABI/INFORM via ProQuest, accessed November 2017.
[3] Ben Cooper. “Sustainability in Beer: Part I – Looking Beyond the Brewery,” Just Drinks – Global News, February 18, 2013. ABI/INFORM via ProQuest, accessed November 2017.
[4] Anheuser-Busch InBev, 2016 Annual Report, p. 15, http://www.ab-inbev.com/content/dam/universaltemplate/ab-inbev/investors/reports-and-filings/annual-and-hy-reports/2017/03/AB%20InBev%20Annual%20Report%202016%20-%20Financial%20report.pdf, accessed November 2017.
[5] Anheuser-Busch InBev, “2016 Better World Report,” p. 19, http://www.ab-inbev.com/content/dam/universaltemplate/ab-inbev/BetterWorld2/reporting/better_world_report/ABInBev_2016BWR.pdf, accessed November 2017.
[6] Ibid., p. 19.
[7] Ibid., p. 15.
[8] Ibid., p. 15.
[9] “Anheuser-Busch and Enel Green Power Announce Renewable Energy Partnership”, Energy and Ecology Business, September 17, 2017, ABI/INFORM via ProQuest, accessed November 2017.
ABI has done an incredible job establishing itself as the leader in the global adult beverage industry. Yet, with great power comes great responsibility. As the leader, other firms and the broader global market, looks to ABI to set standards and push for more sustainable solutions for producing beer. In addition to the environmental benefits, it is hard to imagine that ABI would undertake such broad measures, especially given the presence of 3G Capital as a large shareholder, without substantial projected economic benefit.
One interesting development has been the launch of ABI’s startup incubator ZX ventures. One of the ZX investment mandates is to explore how ABI can push beyond traditional brewing and create new revenue streams from their existing business. I loved one idea that was recently funded (which they discussed at their company presentation) which utilizes spent grain. Canvas, a startup launched out of ZX in 2017, utilizes fiber- and protein-rich spent grain from ABI’s breweries to develop a plant-based protein shake. This is a clever use of the grains, which historically had been sold at steep discounts to farmers to be used as livestock feed.
Check out Canvas at this link: https://www.bevnet.com/news/2017/grain-gains-canvas-spins-beer-byproduct-plant-based-protein
Thanks for sharing Alex. As a former Denver resident, I was curious to see how craft breweries are dealing with these issues in similar, or different, ways than Anheuser-Busch. The article below references another way in which craft breweries are impacted by climate change at a higher magnitude than ABI – massive storms that destroy their production and storefront facilities. These small businesses have been tasked with the challenge of developing stronger infrastructure to withhold unpredictable hurricanes and other weather events. While ABI may at times be affected by irregular storms, I suspect that it is at a much smaller level due to the magnitude of their facilities. That being said, downstream partners in their supply chain, such as liquor stores, may also be impacted by these storms.
Similar to ABI, craft brewers also recognize the significant threat to raw materials, including water, and are taking action to combat climate change at a greater scale. A number of breweries have signed the Brewery Climate Declaration to help draw increased attention to the severity of climate change in the beer industry and become accountable for reducing their carbon footprint.
It’s great to see that craft breweries are taking initiative; however, given the scale of ABI’s operations, I agree with that Drew that ABI needs to be a leading force in addressing climate change for the industry. I hope that ABI will look for ways to share best practices with craft breweries so that this entire industry can battle climate change on a unified front.
Source: HuffPost, “These Storms Are Just Crazy: Craft Brewers Feel The Affects of Climate Change.” https://www.huffingtonpost.com/entry/craft-beer-trump-climate_us_5a1419ace4b0c335e9973a91
Thoroughly appreciated your article, Alex. As a Belgian and a citizen of Leuven (where ABI’s HQs are) and thus a natural beer aficionado, I too, worry about a sustainable future for my favorite brew. I applaud ABI’s efforts to reduce their drinking water footprint and am bullish on their ability to deal with increasingly more unpredictable weather patterns and crop yields. As Anna pointed out, this threat is lessened by ABI’s global presence and its ability to source raw materials from many markets geographies. To address your final question around a potential disliking of the market of ABI’s sustainability efforts, it merits looking at what its biggest competitor, Heineken, has been doing, and why. Heineken states that it focuses on protecting water resources as it is ‘everyone’s responsibility to safeguard it for the future’. [1] For a for-profit company that uses water as its most important raw material, sourcing it sustainably does not only make moral but also financial sense.
‘Sustainability Focus Areas’, Heineken, http://www.theheinekencompany.com/sustainability/focus-areas, accessed December 1, 2017
I was fortunate enough to visit the Budweiser brewing facility in Fort Collins a few years ago and learned about some of their water conservation efforts. I completely sympathize with the argument about the company being profit-driven, but I don’t think we put enough emphasis on the fact that this business will actually cease to exist if they don’t do something about their water crisis. Additionally, decisions like the emphasis on renewable energy sources follow the same logic. By taking these steps now, they are ultimately mitigating their own risk of either going under or having to incur significant costs in the future.
Although probably not a remedy that AB Inbev would be able to use, this reminds me of an innovative water strategy that was implemented at the nuclear power plant owned by my former company. Being based in Phoenix, it is one of the few nuclear plants not on a source of water. In order to reduce consumption of clean water needed by the residents of the city, they adopted a strategy to use treated effluent (waste water) for cooling the reactors. The water is recycled through a water reclamation facility on the premises and used several times over. It protects the plant from extreme drought situations and helps the community around by ensuring their water sources go untouched. You can read more about it via the link below. I wonder if there is an even more innovative approach like this that AB Inbev can take that will be mutually beneficial.
Link: http://tucson.com/business/local/palo-verde-nuclear-plant-s-use-of-wastewater-defies-drought/article_59b758cb-1106-5197-84ee-96e3935bd208.html
I had never realized that my favorite beverage was also doomed by climate change!
I agree with Drew’s comments that as an industry leader ABI play an important role in setting the industry standard for climate conscious business practice and am glad to learn they are making a conscious effort in this space.
That being said, ABI’s overall carbon footprint is negligible and will not affect the march towards warmer climates and environmental transformation forthcoming. More importantly, ABI should focus on changing their operations for the inevitable pain this will bring. While diversification into alternative revenue streams provides an attractive business opportunity, almost selfishly I’m more concerned with sustaining the beer manufacturing business. ABI can learn for global leaders in water recycling such as Australia. The Western Corridor Recycled Water Scheme in Brisbane, Australia is the country’s largest water project at $2.5B. The project purifies 232 megaliters a day and redirects it for use in industrial and agricultural industries as well as supplementing local drinking water. [1][2] Such innovations would allow ABI to continue to support its primary operations while reducing its demand on the water table.
1. Johnstone, Craig (8 May 2009). “Water recycling pipeline in mothballs”. The Courier-Mail. Queensland.
2. Veolia Water (2010). “Western Corridor Recycled Water Project, Queensland”. Key contracts and projects.
Very interesting read. In addition to the long term plans you have listed, I think it would also be interesting to consider whether companies such as ABI, which are large consumers of scarce public goods, should play a more integral role in developing public infrastructure. For example, ABI could build and own water treatment facilities, and in doing so reduce the development burden on public utility companies that might lack the capital for new investments.