October 16, 2014 / 9:15 PM / in 3 years

Alcoholic drinks makers lead way on climate change adaptation

6 Min Read

SYDNEY (Reuters) - Wine and beer lovers face an uncertain future. While climate change is a distant consideration for many global businesses, grapes and grains are on the front line.

The good news for those who like a tipple is that alcoholic drinks makers are among businesses leading the way in devising technology to mitigate and adapt to climate change.

Gradual paucity of water for grapevines and barley is high on the agenda of companies including the world's second-largest listed vintner by market value, Treasury Wine Estates Ltd (TWE.AX), and the world's biggest alcoholic drinks maker Diageo Plc (DGE.L).

"It's something we are focused on," Treasury's Chief Supply Officer Stuart McNab said at the Reuters Global Climate Change Summit. "It's treating water as a scarce and precious resource."

In recent years, Treasury, Diageo and other alcoholic drinks makers have faced drought and water shortage in the United States, Britain and Africa, and both drought and flooding in Australia.

Treasury, whose brands include Penfolds, Beringer, Wolf Blass and Rosebank, is testing watering pipes laid beneath the soil because rising temperatures mean too much water is being lost above ground through evaporation.

The Commonwealth Scientific and Industrial Research Organization (CSIRO) projects an increase of 0.3 to 1.7 degrees Celsius by 2030 in Australia's wine regions, including the Barossa where Treasury is trying out the irrigation technology.

That rise is likely to reduce grape quality by 12 to 57 percent, according to CSIRO.

Cassava Beer

Diageo is also focused on water efficiency, with 23 of its global sites in areas it classifies as water-stressed, or where demand for water exceeds the amount available.

Thirteen of those sites are in Africa where Diageo is looking to new ingredients that require less water to brew its beer.

Diageo, which generates 20 percent of sales from beer, in 2012 launched a brew in Ghana made from cassava, a potato-like root plant that needs less water than traditional beer crops. SABMiller PLC SAB.L, the world's No.2 brewer, started using cassava after overcoming rotting with a mobile processing plant.

"For us, this hits all of our sweet spots in terms of getting a great product to market," David Cutter, Diageo's president of global supply and procurement, told the summit at the Reuters office in London. "It increases our raw material sourcing locally and we are looking at doing that more and more across Africa."

The London-based drinks maker aims to improve its water efficiency by 30 percent from 2007 levels by 2015. The company's annual report for the 2014 financial year showed it uses 6.9 liters of water to produce one liter of packaged product.

In Australia, Diageo manages just 1.1 liters of water per liter of packaged product and is looking to replicate that elsewhere.

Adaptation Imperative

The winner of the most recognized Australian industry award for climate change adaptation this year was a drinks company, Treasury's privately held competitor Yalumba Wine Company.

The National Climate Change Adaptation Research Facility, which works with CSIRO, cited Yalumba's commitment to sustainability throughout its production chain, from vines to packaging.

Yalumba is currently joining - or grafting - saline-resistant vine roots with grape-producing vines so when drought brings about a rise in the level of ground salt, the vines are more resilient to the change.

Experts say such mitigation and adaptation techniques are critical for a range of companies to prepare for a future that is hotter, drier and prone to extreme weather and consequences such as flooding.

"We have to act very soon on mitigation, reducing carbon dioxide in the atmosphere, and adaptation," CSIRO Science Director for Climate Adaption Mark Stafford Smith said in an interview in Sydney.

Yet many businesses are still burying their heads in the sand. Standard & Poor's Ratings Services managing director of Infrastructure, Michael Wilkins, told the summit that many companies are "woefully underprepared."

That has spurred S&P's involvement in an initiative launched at a United Nations summit last month that will assess the financial loss a company could expect once in a hundred years from climate change.

In a more immediate time frame, a business case for addressing climate change can be found in a study released last month by CDP, a London-based business environment adviser.

CDP found that companies featured in the S&P 500 share index .SPX which actively planned for climate change booked return on equity (ROE) in the 2014 business year that was 18 percent more than peers and 67 percent higher than those which did not disclose climate change-related strategies.

Such companies also reported 50 percent lower earnings volatility over the past decade compared with firms at the lower end of CDP's climate-awareness scale.

Follow Reuters Summits on Twitter @Reuters_Summits

Additional reporting by Nina Chestney and Martinne Geller in LONDON; Editing by Christopher Cushing

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