The Future of Sustainable Agriculture: How ESG Ratings Can Drive Change

The agri-food system accounts for 22% of anthropic Greenhouse Gas (GHG) emissions (Calvin et al., 2023) and 70% of freshwater withdrawals and occupies 44% of habitable land. Consequently, it is a significant contributor to climate change as well as water stress, especially in areas where water is scarce. It also becomes a driver of soil degradation when unsustainable agricultural practices are applied.

The environmental burden of the agri-food sector is particularly significant. Unlike many other sectors, it is both a driver and a victim of its own impacts. The quantity and quality of its output are intrinsically tied to the availability of natural resources, which the sector itself pressures. Creating resilient agri-food systems is paramount for ensuring public health and safety.

Challenges in the agri-food sector span from environmental risks to social pressure, resulting in increasing scrutiny from investors, regulators, and consumers. Environmental, Social, and Governance (ESG) ratings support investors in evaluating the sustainability of food production, helping stakeholders distinguish between companies that are actively committed to mitigating climate change impacts and those that contribute to ecological degradation.

This article explores how ESG ratings can drive changes in agriculture to make it more sustainable and highlights key metrics that can support investments toward a more sustainable food system.

The agricultural sector is assessed through the ESG lens by considering its main environmental and social impacts such as climate impact, water use, soil and biodiversity protection, labor conditions, and access to nutritious food.

Unlike other sectors, the agricultural sector stands out for its Scope 1 GHG emissions, which are generated directly through farming activities due to energy use, intensive agrochemical application, and methane emissions.

Reducing GHG emissions in agriculture requires proper emissions assessment and involves the implementation of on-field practices that enhance soil and land management, including activities that foster carbon sequestration, such as cover cropping, agroforestry, and the optimization of livestock feed to reduce methane emissions.

Read more: ESG Risk Ratings vs ESG Impact Ratings

(Source: Inrate Standard Coverage, Last releases, Fiscal Years 2023 and 2024)

Water is a precious resource, as already highlighted in a previous blog by Juliana Frizzo (Investing in Water Archives – Inrate). Agriculture and food production are highly dependent on the availability of fresh, safe, and abundant water and hence must use the resource judiciously.

Technological advancements in water management—both at the field level and within processing facilities—can substantially reduce water withdrawals.

Impacts on water are not limited to its use— the agricultural sector is the largest producer of wastewater by volume. Agricultural wastewater contains contaminants such as agrochemicals, trace metals, antibiotics, and fungicides.

Proper water management involves monitoring both water consumption and discharge, alongside the adoption and implementation of programs to reduce water withdrawal and the use of fertilizers and pesticides.

(Source: Inrate Standard Coverage. Last releases, Fiscal Years 2023 and 2024)

Improper land management, combined with unsustainable practices such as intensive monocropping, deforestation, the excessive use of agrochemicals, inefficient irrigation, intensive tillage, and lack of cover crops, can lead to various forms of soil degradation such as soil compaction, nutrient depletion, and reduced oxygen availability due to compaction.

A non-diverse landscape—typically driven by monoculture—along with deforestation and unmanaged land-use changes, is a major driver of biodiversity loss as it leads to the destruction of biological organisms’ habitats.

Poor soil quality results in reduced yields and lower nutritional value of crops, and in extreme cases, can lead to land becoming incapable of sustaining further production due to the loss of fertility.

Therefore, soil management and integrated agricultural practices are critical to soil health preservation.

Read more: Future of ESG Investing: Key Trends Shaping 2025 and Beyond

Regenerative agriculture is a systems-based, ecological approach to farming that protects and restores soil health, while fostering biodiversity and enhancing ecosystem services. Although some regenerative farming practices are ancient, their adoption has recently been rediscovered and enhanced through modern scientific knowledge and techniques. This renewed interest in regenerative agriculture is emerging as a game-changer in the agricultural sector, paving the way for more sustainable farming.

As a result, sustainability-oriented companies have started implementing on-field practices, such as incorporating perennials and trees, which enhances carbon sequestration and biodiversity while providing habitats for pollinators; adopting integrated pest management practices that rely on natural pest controls such as beneficial predators; and producing compost from crop residues, manure, and organic waste to reduce reliance on external inputs.

Organic farming is among the more sustainable agricultural practices. Even though the environmental sustainability of organic farming has been debated, particularly in terms of GHG emissions and land use (when yield-based), it is clear that organic farming offers advantages in preserving soil health and improving the quality of agricultural output.

(Source: Inrate Standard Coverage, Last releases, Fiscal Years 2023 and 2024)

Food production doesn’t end at the farm gate—its value chain extends far beyond agricultural fields and its environmental impact. Agricultural production employs around 1.23 billion people globally, accounting for around a quarter of the world’s labor force. This data offers a glimpse into how labor-intensive the agricultural sector is, highlighting the importance of protecting human resources. Unfortunately, agricultural workers are still among the most exploited globally and are often part of the most vulnerable populations. They might face in-work poverty, poor health & safety conditions, and limited or non-existent labor & social protections.

ESG ratings enable a comprehensive assessment of how effectively companies manage their supply chains and contractor relationships, including human resources, with a special focus on labor rights. Companies are screened for the existence of monitoring systems to ensure contractors’ compliance with labor policies, the inclusion of labor issues as a clause in standard procurement contracts, the assignment of labor responsibilities at the highest governance level, systems to promote labor relations, and the presence of policies addressing labor issues for both employees and contractors.

Food production has for long been at the center of the sustainability debate due to its significant environmental impact and vital role in our daily lives. Today, we have the opportunity to take action and drive meaningful changes by leveraging data and knowledge to support best-in-class companies. ESG ratings can play a major role in this transformation, helping pave the way for global food security and equitable access for all—indeed they allow for the evaluation of the aforementioned sustainable practices and provide a comprehensive picture on their adoption and maintenance over time.