WINE IS AT RISK! OR HOW A GLOBAL WINE COMPANY IS RESPONDING TO CLIMATE CHANGE AND WHAT ELSE NEEDS TO BE DONE
Climate change puts the sustainability of the wine industry at risk. The article looks into a global wine company’s response to the challenge and provides further recommendations.
A wine lover knows that the ideal temperature to serve Cabernet Sauvignon is at around 65°F while Chardonnay is best if served cooler, at around 50°F. But do they know how vulnerable wine is to climate variability? Grape quality and berry composition are greatly affected by temperature[1],[2]. Scholars claim that climate change is posing a legitimate threat to the sustainability of the wine industry[3],[4],[5]. It is predicted that virtually no wine region in the world will remain unaffected by the climate change while some wine regions can experience a drop of 85% in production by 2050[6],[7].
Treasury Wine Estates: To Please Your Palate and Your Curiosity
Treasury Wine Estates (hereafter “TWE”) is one of the largest wine companies in the world. Before the demerger in May 2011, it was an integral part and the wine-making division of Foster’s Group (hereafter “Foster’s”). TWE grows and sources grapes from its own, leased and grower vineyards throughout Australia, New Zealand, the U.S., and Italy as well as from the bulk wine market[8]. It markets and sells a wide variety of brands – for the wine-lovers out there, think of the iconic Australian Penfolds or local American Beringer, Chateau St. Jean. Not only did I choose a company that could please different palates with its wide portfolio of brands, TWE is a public multi-billion-dollar company that operates in different regions across the world. Due to its size, data accessibility and international presence, TWE (or former Foster’s) has attracted interest of scholars who study the implications of a climate change on wine-making[9].
Governing Inside to Mitigate and Adapt to the Outside
Below is the summary table of the actions that Foster’s took to address the impact of climate change. Although no follow-up research has been done to analyze the results of these actions after the demerger, the company still presents an interesting case-study with its well-structured and multifaceted response and mitigation plan.
TWE/Foster’s response to climate change[10]
Governance actions: TWE/Foster’s established an Environmental Leadership Team (ELT), which was comprised of global cross-functional groups and responsible for developing and monitoring environmental strategy at site and company levels. The ELT standardized company’s environmental objectives (Global Environmental Policy) and ensured that Carbon Reduction and Energy/Water Use Efficiency targets were included in the company’s key performance objectives expected of all employees.[11]
Mitigative actions: TWE/Foster’s implemented changes, aimed at reducing their carbon footprint, throughout its value chain, i.e., growing, production and distribution[12]. Its key actions addressed what many studies reported to be the main contributors of climate change in the wine industry – packaging[13], chemical fertilizer use[14] and energy consumption (which accounts for 60-75% of overall greenhouse gas emissions in wineries)[15]. Although some of Foster’s actions were dictated by the regulatory and industry standards, the company also engaged in additional technological solutions and process innovation[16].
Adaptive actions: TWE/Foster’s is also preparing for the dire consequences of climate change by planting new grape varieties that are suitable for hotter climates, planning to buy land in areas that are less affected by higher temperatures and replanting the land that was abandoned for being too cool[17]. However, planting new grape varieties, whether in an existing or a new vineyard, is a very long process that could take from a couple of years to decades before grapes can be commercialized[18],[19]. Foster also tries to adapt to less rainfall through efficient use of water[20].
Cooperation: Answer for the Future
TWE/Foster’s has initiated comprehensive steps to mitigate and adapt to the changing environmental scenario. However, climate change is global in nature, and it is casting survival doubts on the entire wine industry worldwide. I would argue that the fight to adapt, mitigate and rectify its dire consequences calls for a collective global approach. To address the common threat, wine companies should come together and initiate an information and knowledge sharing mechanism. To understand what climatic factors affect different crop types across different regions, what steps can be taken to improve yield, quality and, if possible, to reverse some of the damage already done. This framework would help in information dissemination and to spread best practices and innovations. To a smaller extent, it is already happening – some wine companies in Australia (especially those in leading wine regions) are actively pursuing knowledge exchanges about climate change with one another[21]. The research shows that these knowledge exchanges improves the innovative capacity and the implementation rates of climate change innovations[22],[23],[24],[25].
750 words
[1] Coombe, B.G., 1987. Influence of temperature on composition and quality of grapes. Acta Hortic, Volume 206, p. 23–33.
[2] Briche, E., Beltrando, B., Somot, S. & Quenol, H., 2014. Critical analysis of simulated daily temperature data from the ARPEGE-climate model: application to climate change in the Champagne wine-producing region. Climatic Change, Volume 123, p. 242.
[3] Ibid., p. 6.
[4] Jones, G.V., White, M., Cooper, O. & Storchmann, K., 2005. Climate change and global wine quality. Climatic Change, Volume 73, p. 319–343.
[5] Nemani, R.R., White, M.A., Cayan, D.R., Jones, G.V., Running, S.W. & Coughlan, J.C., 2001. Asymmetric warming over coastal California and its impact on the premium wine industry. Climate Research, Volume 19, p. 25–34.
[6] Galbreath, J., Charles, D. & Oczkowski, E., 2016. The Drivers of Climate Change Innovations: Evidence
from the Australian Wine Industry. J Bus Ethics, Volume 135, p. 219.
[7] Hannah, L., Roehrdanz, P. R., Ikegami, M., Shepard, A. V., Shaw, M.R., Tabor, G., Zhi, L., Marguet, P. A. & Hijmans, R. J., 2013. Climate change, wine, and conservation. Proceedings of the National Academy of Science, 110(17), 6907–6912.
[8] Treasury Wine Estates. “About Company”. https://www.tweglobal.com/about, accessed November 2016.
[9] Galbreath, J., 2011. To What Extent is Business Responding to Climate Change? Evidence from a Global Wine Producer. J Bus Ethics, Volume 104, p. 421–432.
[10] Adapted from Ibid., p. 426.
[11] Ibid., p. 421-432.
[12] Ibid., p. 421-432.
[13] Colman, T., Paster, P., 2009. Red, white, and ‘green’: The cost of greenhouse gas emissions in the global wine trade. Journal of Wine Research, Volume 20, p. 15–26.
[14] Ibid., p. 15-26.
[15] Commonwealth of Australia, 2003. A guide to energy efficiency innovation in Australia wineries: Energy efficiency best practice. Canberra: Commonwealth of Australia.
[16] Galbreath, J., 2011. To What Extent is Business Responding to Climate Change? Evidence from a Global Wine Producer. J Bus Ethics, Volume 104, p. 421–432.
[17] Ibid., p. 421-432.
[18] Galbreath, J., 2011. Climate change and Margaret River wine: Study results. Perth: Curtin Graduate School of Business.
[19] Galbreath, J., 2011. To What Extent is Business Responding to Climate Change? Evidence from a Global Wine Producer. J Bus Ethics, Volume 104, p. 421–432.
[20] Ibid., p. 421-432.
[21] Galbreath, J., 2015. To cooperate or compete? Looking at the climate change issue in the wine industry. International Journal of Wine Business Research, Volume 2, p. 220-238.
[22] Ibid., p. 220-238.
[23] Bell, G.G., 2005. Clusters, networks, and firm innovativeness. Strategic Management Journal, Volume 26, p. 287-295.
[24] Jaffe, A.B., Trajtenberg, M. & Henderson, R., 1993. Geographic localisation of knowledge spillovers as evidenced by patent citations. Quarterly Journal of Economics, Volume 108, p. 577-598.
[25] Galbreath, J., Oczkowski, E., 2013. Determinants of climate change innovation: a study of meso- and micro-level perspectives, in Proceedings of the Australia and New Zealand Academy of Management Conference, Hobart.
Hi Greta – very scary post! I really hope wine companies can come together, as you suggest, to share knowledge about best practices and mitigate the impact of environmental changes on wine production. I am curious to know if it’s possible that any region or grape type might actually benefit from effects of climate change. In your research, did you come across any geographies that were unable to grow wine in the past, but with rising global temperatures, may be able to grow wine in the future?
I found it interesting that so much of TWE’s response is focused on adapting to climate change rather than mitigating it. Moving to cooler climates and growing berry varieties more resilient to hotter weather seems that it will fundamentally change the types and tastes of wines it currently produces. It raises an interesting question about agency problems in climate change. Those industries and companies whose operations are most affected by climate change (for example, vineyards) may not have significant control over green house gas emissions, which are driven primarily by completely different industries. Because of this principal-agent problem, where those contributing most to global warming are not those most affected, further government regulation may be necessary to protect my wine habit!
Very interesting article, Greta! I’m surprised that wine companies are not more focused on practicing sustainability when it comes to the wine barrels used in production. Similar to the IKEA case we reviewed, I imagine that wine companies should focus on sourcing barrels that use wood from PEFC-certified forests or aim to purchase forests so they can fully vertically integrate their supply chain and control the process. Did you come across any focus on the barreling process in your analysis? I wonder if similar to IKEA – there are “engineered woods” that can be used in the barreling process. I’m curious if any technology has been implemented to address this.
As an avid wine drinker, this post was extremely informative. I’ve constantly wondered how climate change has and will affect the industry – and in particular my favorite Bordeaux vineyards! It’s fascinating to see that TWE/Foster’s has put into place a three-pronged approach – Governance, Mitigative, Adaptive – to combat the effects of climate change. For obvious reasons, an effective sustainability plan is critical to the future of the company and it seems like TWE/Foster’s certainly is focused on this plan. I do wonder how it will assess when to identify and purchase plots of land that historically may not have been conducive to growing grapes but in the upcoming new climate environment may prove to be quite fruitful. This strategy could prove to be very capital intensive – how TWE/Foster’s balances this decision with likely prove to be critical to its long-term operations.