13 Sep 2023
I recently visited a whisky distillery in the north of Scotland. Clearly, this was for pleasure, not business, as making potent alcoholic beverages isn’t going to feature in a sustainable fund. However, I must confess to enjoying good single malt and while on the distillery tour, I got to thinking about the sustainability challenges the industry faces.
Few sustainability issues are clear cut and whilst there are obvious, tragic consequences to the misuse of alcohol, it’s also worth considering that the whisky industry directly employs around 11,000 people in Scotland (many of whom live in remote rural communities) and generates in excess of £6bn per annum for the Scottish economy.
On the environmental side, water usage is on everyone’s minds after the hottest June on record left people all over Scotland frantically searching for their solitary pair of shorts. For all the different varieties and flavours of whisky, it has only three ingredients: water, barley and yeast. It takes an average of 42 litres of water to produce just one litre of whisky. That’s a lot of the world’s most precious resource for not very much of the world’s second most precious resource (I jest… sort of).
The Scotch Whisky Association (the industry’s guardian) realises this is an issue and has set producers a target of reducing water usage to between 12.5 and 25 litres per litre of whisky by 2025. It has also set a net-zero target of 2040, which is sooner than most countries. The need to conserve water is clearly pressing; on my tour, the guide mentioned that a nearby distillery had stopped production for the usual summer break early this year because its water source had run too low. Clearly, like many other industries, producers will need to reduce consumption and prepare for the consequences of climate change.
Energy is another obvious area of impact, as distilling requires a lot of heating. As with water, action is being taken here. For example, after a recent £4m upgrade, the Balmenach distillery now processes co-products into bio-methane gas, which then generates the distillery’s power. Similarly, Glenfiddich has begun converting its fleet of delivery trucks to run on biogas made from its distilling by-products, which cuts emissions by 95% per truck.
Kudos also to Pernod Ricard subsidiary Chivas Brothers, which has made open source its design and implementation data for the heat recovery technology recently installed at its Glentauchers (have fun pronouncing that) distillery. The technology has reduced energy usage at the site by 48% and carbon emissions by 53%, saving enough energy to power nearly 5,000 homes. The CEO of Chivas commented: “Collaboration across our industry will be fundamental if we are to meet collective ambitions around sustainability”. The Scotch whisky industry has always been known for being extremely close knit and collaborative and it’s great to see this being expanded to sharing sustainability practices.
Lastly, another area of focus in industrial processes is waste. Here, most distilleries have long had measures in place to reuse materials and become part of the circular economy. Typically, the used malted barley is taken by local farmers and used as animal feed (it’s ok, it’s not alcoholic at this stage of the process, so there are no drunk highland cows wandering around).
All in all, I came away quite heartened by the industry’s approach to sustainability. Given the grave consequences of global warming on crop production and water - two of whisky’s three ingredients - it can scarcely afford not to take it seriously. And whilst we’re not about to invest in distillers in our sustainable funds, these practices should serve as an example of how an industry, whatever it produces, can take steps to reduce its environmental impact. In particular, operators putting aside traditional competitive tendencies to share sustainability best practice will make a huge difference to the world’s transition to net zero.
Scotland is famous for exporting its aqua vitae (the word ‘whisky’ is an anglicised form of the Gaelic ‘uisge-beatha’, which itself translates as aqua vitae) to the world and hopefully it can now also be famous for exporting best practice for making industries as clean and efficient as possible.
Important disclosures
This material is provided by Aegon Asset Management (Aegon AM) as general information and is intended exclusively for institutional and wholesale investors, as well as professional clients (as defined by local laws and regulation) and other Aegon AM stakeholders.
This document is for informational purposes only in connection with the marketing and advertising of products and services, and is not investment research, advice or a recommendation. It shall not constitute an offer to sell or the solicitation to buy any investment nor shall any offer of products or services be made to any person in any jurisdiction where unlawful or unauthorized. Any opinions, estimates, or forecasts expressed are the current views of the author(s) at the time of publication and are subject to change without notice. The research taken into account in this document may or may not have been used for or be consistent with all Aegon AM investment strategies. References to securities, asset classes and financial markets are included for illustrative purposes only and should not be relied upon to assist or inform the making of any investment decisions. It has not been prepared in accordance with any legal requirements designed to promote the independence of investment research, and may have been acted upon by Aegon AM and Aegon AM staff for their own purposes.
The information contained in this material does not take into account any investor's investment objectives, particular needs, or financial situation. It should not be considered a comprehensive statement on any matter and should not be relied upon as such. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to any particular investor. Reliance upon information in this material is at the sole discretion of the recipient. Investors should consult their investment professional prior to making an investment decision. Aegon Asset Management is under no obligation, expressed or implied, to update the information contained herein. Neither Aegon Asset Management nor any of its affiliated entities are undertaking to provide impartial investment advice or give advice in a fiduciary capacity for purposes of any applicable US federal or state law or regulation. By receiving this communication, you agree with the intended purpose described above.
Past performance is not a guide to future performance. All investments contain risk and may lose value. This document contains "forward-looking statements" which are based on Aegon AM's beliefs, as well as on a number of assumptions concerning future events, based on information currently available. These statements involve certain risks, uncertainties and assumptions which are difficult to predict. Consequently, such statements cannot be guarantees of future performance, and actual outcomes and returns may differ materially from statements set forth herein.
The following Aegon affiliates are collectively referred to herein as Aegon Asset Management: Aegon USA Investment Management, LLC (Aegon AM US), Aegon USA Realty Advisors, LLC (Aegon RA), Aegon Asset Management UK plc (Aegon AM UK), and Aegon Investment Management B.V. (Aegon AM NL). Each of these Aegon Asset Management entities is a wholly owned subsidiary of Aegon N.V. In addition, Aegon Private Fund Management (Shanghai) Co., a partially owned affiliate, may also conduct certain business activities under the Aegon Asset Management brand.
Aegon AM UK is authorised and regulated by the Financial Conduct Authority (FRN: 144267) and is additionally a registered investment adviser with the United States (US) Securities and Exchange Commission (SEC). Aegon AM US and Aegon RA are both US SEC registered investment advisers.
Aegon AM NL is registered with the Netherlands Authority for the Financial Markets as a licensed fund management company and on the basis of its fund management license is also authorized to provide individual portfolio management and advisory services in certain jurisdictions. Aegon AM NL has also entered into a participating affiliate arrangement with Aegon AM US. Aegon Private Fund Management (Shanghai) Co., Ltd is regulated by the China Securities Regulatory Commission (CSRC) and the Asset Management Association of China (AMAC) for Qualified Investors only; ©2022 Aegon Asset Management or its affiliates. All rights reserved.