Cask Whisky Production & Ethical Investments: A Deep Dive

What are Ethical Investments?

Ethical investments (also known as socially responsible investments (SRI), Environmental, Social and Governance (ESG), sustainable investments, or impact investments) are a term used to describe an investment approach that creates positive change. By choosing to invest ethically, especially in cask whisky, an individual has made the decision to place their money in an investment that aligns with their own values for the greater good, such as an ethical investment fund or a company that practices sustainability.

There are many reasons why an investment might be classed as 'ethical,' but no one determining factor that separates ethical investments from the rest. That is because ethical investing is better described as a subjective approach rather than a rule. That means it is up to the investor to determine what is classed as an ethical investment when deciding on what a company, individual, or fund will be invested in, as the term 'ethical' means different things to different people.

Types of Sustainability Practices

Socially responsible investing is an investment strategy that can be undertaken by choosing investment opportunities that align with the following:

ENVIRONMENTAL ISSUES

Environmental concerns dominate the whisky landscape and apply to every company involved in the production of whisky today - in one form or another. This can range from lowering CO2 emissions to investing in culturally important brands of whisky.

In the whisky industry, some of the environmental concerns that affect the production include:

• Climate change has the potential to affect whisky production. From negatively affecting the production of barley to impacting the water supply.
• Peat is used to dry the malted barley in whisky production, but this process damages peatlands and creates CO2 emissions.
• Local water resources are put under pressure in the production of whisky due to the high volume of water used in its production.

And finally, whisky production generates a lot of waste, such as spent grains, wastewater, and carbon dioxide.

In response to the ongoing issues, the Scotch Whisky Association (SWA) has set out an ambitious sustainability strategy to tackle climate change and reduce the environmental impact of whisky production by 2040. Aiming to reach net-zero emissions, the strategy includes:

• Reducing all greenhouse gas emissions to net zero.
• Ensure that all companies in the industry are using water responsibly by 2025.
• Helping to restore Scotland's peatlands.
• Help ensure that all packaging is reusable, recyclable, or compostable.

The SWA has been working hard on protecting nature, preserving resources, and preventing climate change since 2009 when they first developed their Environmental Strategy. Since then, they have achieved a lot in terms of the targets they set out to achieve; however, in 2021, they built on what they had learned so far and created the ambitious sustainability plan which they are currently working on today. (1)

SOCIAL CONCERNS (INCLUDING DIVERSITY, INCLUSION & GOVERNANCE)

Ethical investments involve looking for companies that operate in an ethical and transparent manner toward their employees. The list is long in terms of what counts as an 'ethical practice'; however, a company is deemed 'ethical' when it treats employees fairly and addresses diversity and inclusion.

For instance, one issue that affects the whisky industry is the treatment of women. A survey called "Do You Even Like Whisky? The Barriers Holding Back Women in the Industry" was conducted in July 2023 by the OurWhisky Foundation. The survey received 602 responses from women in multiple countries who represent a variety of job roles in the whisky industry and found that more than 70% of women have faced some sexual harassment. (2)

As one of the largest alcoholic beverage companies in the world, Diageo is one company tackling the issue of diversity and inclusion within its operations. As part of their 10-year Environmental, Social and Governance (ESG) action plan, called the ‘Society 2030: Spirit of Progress,’ they have created a number of ambitious targets that they hope to complete by 2030. Among a number of initiatives, they are championing gender diversity with an ambition to achieve 50% representation of women in leadership roles, and championing ethnic diversity with an ambition to increase the representation of leaders from ethnically diverse backgrounds to 45%.

COMMUNITY SUPPORT

Community support involves engaging with local communities and supporting social initiatives that benefit the community where the company is based. One larger-scale example of this comes from the Scotch Whisky Action Fund (SWAF). The Scotch Whisky Action Fund was created in 2013 by the Scotch Whisky Association and has awarded funds to over 50 initiatives across Scotland working to reduce alcohol-related harm. By 2023, the Fund will have provided £1 million of support to charities. (3)

RESPONSIBLE SUPPLY CHAIN MANAGEMENT

For a company, responsible supply chain management means ensuring that suppliers adhere to ethical and environmental standards and socially responsible practices. For instance, the production of glass packaging used in whisky production creates harmful carbon gasses. One project that has been tackling the issue comes from Diageo, in partnership with the UK Government Department for Business, Energy and Industrial Strategy (BEIS). The Energy Innovation Programme is leading a £7.1 million initiative to explore the most effective routes to switching glass manufacturing to low-carbon fuels. Diageo worked with glass manufacturer, Encirc, and leading industry research and technology body Glass Futures, to create waste-based biofuel-powered furnaces to reduce the carbon footprint of the bottle-making process by up to 90%. (4)

As an Investor, How Can I Practice Ethical Investing?

Investing in whisky from sustainable distilleries that demonstrate a commitment to protecting the environment, their employees, and the wider community is crucial in order to practice ethical investing. But what does a sustainable distillery look like? The answer isn't simple because the level of sustainability a company practices depends on a number of factors, such as its management team, available funding, and the local area the company is based. However, there are some common factors that you can look out for when researching suitable investments.

LOCAL ECONOMIC DEVELOPMENT

It is considered ethical to support small, local distilleries because it contributes to the development of local economies. Small businesses can help transform the lives of people in the surrounding area. By investing in whisky from small distilleries, you will be creating demand for their product and ultimately supporting the business.

SOCIAL RESPONSIBILITY

A number of whisky producers engage in social responsibility initiatives, including promoting responsible drinking and contributing to local causes. Investors looking to invest in socially responsible companies can usually find information publicly about any initiatives that are taken on the company website.

CULTURAL PRESERVATION

Some regions are renowned for their whisky production and the companies that make them are sometimes hundreds of years old. The Glenturret Distillery, for instance, was founded in 1763 (5) and brings with it a traditional method of whisky production into the modern era. Supporting cultural ethics can be achieved by investing in distilleries that preserve and promote these cultural practices.

ENVIRONMENTAL INITIATIVES

Environmental initiatives are wide and varied amongst distilleries, and the techniques and methods are being improved upon and perfected with every day that passes. As an investor, keep a look out for distilleries that practice the following environmental initiatives.

Organic Farming of Grains:

The use of organic grain is a key sign of sustainability. Organic grains increase biodiversity in agricultural ecosystems and demonstrate a commitment to responsible farming practices and a desire to produce whisky that harmonizes with the natural environment around them.

Look out for distilleries that:

• Avoid or limit the use of synthetic fertilizers, pesticides, and genetically modified organisms (GMOs)
• Use crop rotation and other techniques to improve soil health in organic farming, which contributes to the ecosystem's overall sustainability.

Waste Management:

In addition to dealing responsibly with any waste that is produced, sustainable distilleries strive to minimize waste generation throughout the production process. By practicing recycling and repurposing techniques, harmful byproducts created during production can be reduced and/or they can be turned into a valuable resource. Distilleries reduce their environmental footprint by minimizing waste and implementing closed-loop systems.

Look out for distilleries that:

• Sustainability-focused distilleries often develop strategies to minimize waste in production, from grain to glass.
• Utilization of by-products: Spent grains (the leftovers from mash) can be used as animal feed or compost, reducing landfill waste.
• Waste can be minimized further by using environmentally responsible packaging made from recycled materials.

Water Recycling and Conservation:

It is important to conserve and utilize water as a natural resource in whisky production. By adopting water recycling and conservation techniques, a distillery is able to reduce its impact on local water sources.

Look out for distilleries that:

• Use technology and techniques that conserve water.
• Implement closed-loop systems to recycle water within a facility, thereby reducing water consumption.
• Treat wastewater on-site which ensures a clean and uncontaminated environment after it is returned to it.

Renewable Energy Sources:

Sustainable distilleries prioritize the use of renewable energy sources. In addition to reducing carbon emissions, these distilleries also contribute to a more resilient and sustainable energy future by utilizing wind, solar, hydroelectric, and other renewable energy options. As well as reducing the environmental impact electricity has on the environment, this also contributes to a more sustainable future.

Look out for distilleries that:

• Make use of green energy such as wind, solar, or hydroelectric power.
• Reduce fossil fuel consumption by implementing energy-efficient practices in distillation, heating, and cooling.

LOCAL SOURCING & TRANSPORTATION

By sourcing supplies locally, distilleries support the local community and reduce transportation costs. Additionally, ensuring that their own vehicles are energy efficient is paramount.

Look out for distilleries that:

• It is more sustainable and supports local farming communities when grains and other ingredients are sourced locally.
• The environmental impact of the carbon footprint of transportation can be reduced by reducing logistics and transportation costs.

As an Individual Investor, How Do I Avoid Unethical Practices?

Practicing ethical investing means avoiding individual companies that undertake unethical practices such as unfair labour practices, gambling, adult entertainment, animal testing, environmental degradation, or irresponsible marketing. There is a critical need for due diligence when it comes to researching and avoiding unethical companies. Ensure that research is undertaken to determine an organization's ethical preferences, its management, and the wider news.

Furthermore, many distilleries and companies within the whisky industry will set out their company goals, aims, and achievements on their website. Look out for those who publicize production processes, sourcing practices, community engagement, and overall business philosophy.

Final Notes

It is not only environmentally ethical but also a long-term strategy to invest in whisky distilleries that practice ethical standards and have a positive impact on their community, the environment, and their staff. Using natural resources responsibly can align with the global push for sustainability, reducing climate change, and preserving the environment.

One such push is the Net Zero 2040, which the Scotch whisky industry is pushing forward. As distillers reduce greenhouse gas emissions by more than a third over the last decade, the revised Sustainability Strategy builds on progress they have made. There are four main themes in it (tackling climate change, using water responsibly, moving to a circular economy, and caring for the land) and it commits the industry to working together with government and supply chain partners to achieve a sustainable future.

Using sustainable investing as a strategy means that you can contribute to a broader shift towards sustainability in the corporate world. However, please be aware, that it will be a more time-consuming strategy to undertake compared to traditional investing but, ultimately, it will be a much more worthwhile one.

(1) https://www.scotch-whisky.org.uk/insights/sustainability/

(2) https://www.thespiritsbusiness.com/2023/10/how-the-whisky-industry-is-tackling-harassment/

(3) https://www.scotch-whisky.org.uk/newsroom/scotch-whisky-action-fund-announces-further-support-to-projects-across-scotland/

(4) https://www.diageo.com/en/news-and-media/press-releases/2021/diageo-collaborates-on-innovation-trial-to-make-most-sustainable-glass-scotch-whisky-bottles-ever

(5) https://en.wikipedia.org/wiki/Glenturret_distillery