Loblaw Companies Limited

The company’s plant-based strategy expansion continues to be consumer-led, and we do not expect this trajectory to change significantly in the next 12-18 months. The company expanded its climate risk assessment and will disclose outputs later this year, where we hope to see robust climate mitigation actions covering its supply chain. The company continues to recognise that consumer behaviour changes towards low-carbon products, like plant-based proteins, could have a material impact on its business. For example, its CDP report highlighted revenue changes from more carbon-intense categories, like meat, to other categories, like plant-based, which could increase costs related to operations and retrofits. Yet, the company does not acknowledge high animal protein exposure as a material risk, the need to transition to sustainable diets and its role in enabling this. Portfolio diversification is solely driven by consumer demand, despite climate change and emissions being identified as ‘very high’ in the materiality matrix. Loblaw is not addressing a significant GHG emission source (Scope 3 emissions from purchased goods and services) and is ignoring portfolio diversification as a climate mitigation tool to address emissions from its supply chain. Loblaw remains one of Canada's largest buyers and sellers of meat, poultry, eggs and dairy products. Loblaw does not have a protein diversification target and acknowledges that its current strategy around alternative proteins has been consumer-led and not intentionally climate-aligned. Protein diversification is not a deliberate part of the company’s carbon reduction plan. In 2021, the company extended climate risk assessment, which aligns with TCFD recommendations, to identify further and validate material physical and transition risks. Loblaw shared with investors that it is finalising this assessment and will disclose findings in 2022. The company confirmed the work was conducted with a third-party service provider, and disclosure will include information on supply chain risks and top commodities. Agriculture will be implicitly included as an overarching impact. We expect the company to outline adaptation and mitigation actions in response to the assessment outputs. Last year the company stated that its climate-mitigation strategy would be clearly defined by the end of the year. Yet, this has not been achieved, specifically around Scope 3 emissions, which will be key for the recently announced Net-Zero commitment. We expect that the 2022 disclosures on climate risk assessment are accompanied by climate mitigation actions that cover animal agriculture supply chains.

The company made progress by setting long-term net zero targets, including scope 3. Yet, Loblaw has been slow at setting adequate Scope 3 targets, and this current trajectory continues to place it as a laggard relative to peers. The company lacks a credible pathway of action and interim targets to make its recently announced longer-term targets feasible. Its sustainable sourcing initiatives have not significantly evolved, and its internal quantitative target on plant-based sales seems to have been shifted away from specific trackable figures. In March 2022, the company committed to achieving net-zero GHG emissions for Scope 1 and 2 by 2040 and Scope 3 by 2050. Also, the company committed to setting near-term SBTi targets, which is a step in the right direction, but extremely slow relative to peers in the engagement. Loblaw’s current Scope 3 target only covers business travel and waste. The company stated that investors can expect an interim Scope 3 target in the medium term and that it will include animal agriculture supply chains; however, it provided no time frame for setting a target. The current strategic initiatives to address Scope 3 emissions do not take into consideration as these focus on food waste, plastic, and decarbonising transport. This continues to make the company a laggard. Loblaw shared that it is developing a target to get its suppliers committed to reducing emissions; here, the company shared that it is better to take a reactive stance and move with the industry rather than create its own emissions reduction program. Nevertheless, the company reported integrating circularity in its animal agriculture supply chains. For example, through its partnership with Loop Resource, the company redirected food waste to farms for animal feed. Sustainable sourcing initiatives primarily focus on animal welfare (e.g., eggs and pork supply chains) and do not cover all species. -Its beef sustainability efforts are supported by a target of 30% of its beef sourced from Canadian Roundtable for Sustainable Beef (CRSB) certified farms and ranches. Loblaw reported one million pounds of certified beef was purchased in 2020; for 2021, it has committed to buying three more million pounds of certified beef by 2023. -Loblaw has high exposure to dairy and does not have a specific sustainable sourcing commitment, policy, or programme to address its environmental impacts. -Sustainable sourcing for seafood relies on third-party certification, which is only one avenue to address the environmental impacts. -Loblaw is supporting local sourcing through a 2025 target and, in its latest ESG report, reported progress against this target as ongoing but did not disclose a specific figure. Regarding its portfolio diversification target, last year, Loblaw shared an internal target on the number of items and sales target at the brand level (President’s Choice). As of 2021, the company reported 81 products in this range but did not disclose how much revenue these products generated. Further, the company has shifted away from a quantitative target yet stated it would continue to increase the plant-based portfolio annually. For 2022 and beyond, the company shared it will focus on sustaining growth and maintaining President’s Choice as a leading plant-based brand, with dozens of new products planned to launch over the next couple of years; within the next year, the company shared it will launch 15 plant-based products. Yet it did not meet its target to have 110 plant-based items in its PC selection as it reached 101 in 2021. There continues to be no evidence to demonstrate that the company links its healthy eating programme to increased consumption of plant-based foods and alternative proteins.

Loblaw made progress as it developed a new partnership in support of plant-based regulation in Canada. The company continues to invest in R&D and its portfolio is expanding; its approach to plant-based proteins is now focusing on fewer ingredients and less processed products. In April 2022 Loblaw partnered with Protein Industries Canada to examine Canadian regulations related to the plant-based foods and ingredients sector to support regulatory modernisation. Plant-based R&D is one of the company's top eight product development priorities for the next three years. Loblaw has shown evidence of investing resources into its plant-based product portfolio. It has recently created a research team dedicated to future technologies and ingredients to expand its plant-based offerings. Besides, resources within R&D are dedicated to the strategic direction and management of the plant-based portfolio, including a dedicated Product Developer, Product Manager and dietitian working in the product development process and trials for plant-based foods. In the last 12 months, the company continued to expand its external brands, for example, the Stuffed beast, a plant-based roast, under The Very Good Butchers brand. Own brand President’s Choice has the largest plant-based range in Canada. In 2021, it launched 59 own-brand plant-based products, to reach a total of 101 products; this includes products in underserved categories like cheese, dressings, and desserts. However, it is unclear how many plant-based products the company has as it reported different numbers for total plant-based products in its portfolio: 101 in its Annual report and 81 in its ESG report. For its own brands, the company primarily uses pea protein over soya; the rationale behind this is not sustainability but based on consumer research which found that soya can be a deterrent to customers seeking alternative products. It is unclear how and if the company evaluates the environmental profiles of alternative ingredients in the development of new products; it recently introduced some novel inputs such as jackfruit, yet it is unclear if there are sustainable sourcing initiatives behind the sourcing of this product. Loblaw is beginning to transition away from highly processed meat-mimicking products and starting to develop cleaner products with fewer ingredients. Loblaw’s priority within product expansion is to create foods with cleaner, simpler ingredients that consumers want to eat. The company’s forward-looking plan is to shift towards more plant-based options driven by consumer demand but clarified it will not restrict the offer and development of animal-derived products. It remains unclear how the company is integrating nutrition in the (re)formulation of plant-based and alternative protein products. Nevertheless, the company shared its Blue Menu line offers healthier meal choices for consumers looking to increase their consumption of vegetables and other whole foods. The company shared that its biggest risks to plant-based expansion are technological limitations, recipe refinement, and supply chain issues.

The company has not made any considerable progress on its consumer engagement, and we do not expect this to significantly change in the next 12-18 months. Loblaw merchandised alternative proteins parallel to the products they replace to make them convenient and accessible for the consumer to try. It uses clear labelling through third-party vegan certification for PC plant-based products. The company aims to align the pricing of plant-based products to animal-protein products. The plant-based products in Loblaw’s own brand, President’s Choice, are cheaper than those of leading competitors, with the intention of making the company’s plant-based options affordable to all Canadians. The company regularly conducts consumer research to understand preferences and map the opportunity size of product development. Loblaw does not specifically promote its sustainability efforts but will provide information to consumers upon request. It is unclear if the company does this in response to consumer insights indicating that the market is not receptive to visible sustainability claims. Loblaw does not measure the success of its plant-based promotions on a continuous basis but does track the engagement of specific campaigns or new product launches

Loblaw continues to lag behind its peers by not tracking or disclosing data on Scope 3 emissions. Loblaw has not set a near-term target for Scope 3, and the long-term commitment has no clear roadmap. From its public reporting, it is difficult to track how its plant-based assortment is growing. During the meeting with investors, the company shared that 90% of Loblaw’s Scope 3 emissions are due to purchased goods and services (Category 1). In its CDP report, it states that emissions in this category are relevant but have not been quantified yet. Currently, the company only discloses waste and corporate travel Scope 3 emissions. The company shared it is still formulating a plan for Scope 3 tracking and reporting and that it hopes to have a more defined strategy by next year. Relative to peers this pace of change is slow and coupled with the lack of a near-term Scope 3 target. Loblaw set an internal portfolio diversification target but did not share progress on it; the company is not publicly disclosing total revenues generated by PC plant-based products. Currently, Loblaw does not have formal metrics to track its portfolio transition other than the number of items in its plant-based PC brand (81 as of 2021). The company shared that the sales growth in plant-based and vegan-certified products were in excess of 60% for 2021.

The company did not attend the technical roundtable on protein diversification metrics. It met with FAIRR and the investors for formal dialogue. Loblaw responded to FAIRR’s follow-up questions via email and reviewed the final assessment.