Preserving the aqua vitea – Scotch whisky's surprising ESG story

Aegon Asset Management: Preserving the aqua vitea – Scotch whisky's surprising ESG story

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.

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