Wineries must manage ESG risk to avoid sour grapes | Insurance Business America
Wine is a big business in the US. As of 2019, the country accounted for 12% of global wine production and it led the world in terms of consumption.
Over 7.5 million tons of grapes were produced in America in 2018, and production was valued at over $6.5 billion, according to figures from the National Association of American Wineries.
Like other industries, many wineries have embarked on an ESG push. Major sustainability initiatives over recent years have included wastewaster recycling and treatment, working with eco-friendly shippers, and introducing compostable packaging.
Wineries have also moved to use sheep and goats for mowing grass and chickens for pest control. Recycling has also extended to pomace (wine waste, skins, stems, and seeds).
As well as environmental benefits, wineries have reported cost savings from ESG efforts and introducing solar power. In Australia, the sixth largest winery De Bortoli Wine was able to save “thousands” of Australian dollars a year by generating 5.5% of its electricity using the technology, according to a 2016 report by Wine Australia.
In the US, California tops wine production – the state produces at least 85% of the country’s wine, according to figures from NAAW – and is also leading the charge on small-scale solar output, according to Chester Energy and Policy, which cited research by the US Energy Information Administration that found California was responsible for 43% of the nation’s total small-scale solar photovoltaic output in 2016.
Read more: Californian wineries threatened by rising temperatures and longer wildfire season
“From a financial standpoint, the efficient use of energy and water can lower overall operational costs,” PAK Programs risk management specialist Justin Guerra (pictured) told Insurance Business.
However, the drive towards sustainability has opened businesses up to new risks. Solar power has the potential to cause a case of sour grapes for wineries if risks are not properly accounted for, according to Guerra.
“The vast solar infrastructure adds weight bearing load to any structure,” Guerra said.
“Depending on the angle and positioning of panels, they can also add risks involving wind, lightning or other weather issues.”
Solar panels also add complexity to the electricity grid and require regular maintenance and cleaning, according to Guerra, while some risks are potentially devasting.
“Some of these systems also run-on backup battery power at night or during cloudy days and they use battery compartments that, if not well ventilated, pose fire risks as well as hydrogen gas exposure,” Guerra said.
Read more: Do you know the risks associated with solar panels?
Despite the risks, solar power can be a “great” initiative, Guerra said, and agents and brokers should be helping clients to go green.
“With climate change an ever more present risk factor contributing to the devastating impact on wineries over the past years, it is important to work towards a sustainable future,” according to Guerra.
“[Agents should] make sure any ESG equipment or infrastructure is added to the policy with appropriate coverage and work patiently with clients to address any potential exposures sustainability may bring.”
For some wineries, ESG efforts have translated to a further financial boost on top of operational cost savings.
“With a better reputation and more eco-friendly products, some wineries have seen higher sales,” Guerra said.
In addition to financial advantages, there is another potential benefit for wineries looking to bolster their ESG efforts, and it is one mirrored across sectors.
Read more: Climate and ESG increasingly crucial in risk management
“It can help with recruiting, as data shows the next generation is more driven to work for companies that accept their environmental responsibility and offer a motivating mission employees can get behind,” Guerra said.
“This can translate to a stronger, more motivated workforce.”
The transition to a greener model is not without risk, and Guerra stressed the importance of preparation and planning.
“As businesses switch their main energy source or change their harvesting practices to accommodate sustainability, there will always be financial and operational risks,” he commented.
“With new exposures to manage and additional training for staff members to teach them how to work through these new processes, business owners need to be prepared and educated on how to properly implement sustainability initiatives.
“Before making any major changes, we always recommend business owners speak with their insurer to ensure they are taking the right steps to keep their business safe while becoming more environmentally conscious.”