Diageo waters down pledge for net-zero direct emissions, pushing 2030 target further out of reach

Image Credit: Diageo

Diageo’s latest Annual Report reveals a notable shift in its 2030 sustainability ambitions, with some key goals being scaled back. The changes affect its targets for Scope 1 and 2 emissions, Scope 3 emissions, and the use of recycled content in packaging.

The company, best known for brands such as Guinness, Don Julio tequila, and Smirnoff vodka, has explained that these revisions reflect the realities of operating in an increasingly complex global environment.

The “important adjustments”

Not every target has been touched. Those relating to water use and replenishment, which Ewan described as the “biggest threat”, remain intact.

However, the company’s climate-related ambitions and packaging goals have undergone significant revisions. The updated targets include:

• Water efficiency in water-stressed areas: A 40 per cent improvement by 2030, unchanged from the previous year’s commitment.

• Water efficiency across the company: A 30% improvement by 2030, unchanged.

• Water replenishment: Achieving complete replenishment in water-stressed areas by 2026, unchanged.

• Emissions from direct operations (Scope 1 and 2): Previously aiming for net-zero carbon by 2030, the new target is a 50% reduction by 2030, with net-zero pushed back to 2040.

• Value chain emissions (Scope 3): Having previously targeted a 50% cut by 2030, Diageo now aims for a 26% reduction, with net zero set for 2050.

• Recycled content in packaging: Previously aiming for 60 per cent recycled content by 2030, the goal has been revised to 50 per cent.

Why the step back?

While the lower targets for emissions and recycled content may disappoint some stakeholders, Diageo’s report stresses that these adjustments are not about abandoning ambition. Instead, the company says it acknowledges the complex and interconnected challenges facing both society and the environment.

According to the report, revisiting these targets allows Diageo to remain resilient as a business, protect its licence to operate, and still position itself for growth in a turbulent marketplace.

Navigating external pressures

One of those market pressures is the cost of tariffs introduced by US President Donald Trump. As a global player with an extensive supply chain, Diageo is absorbing an estimated $ 200 million per year as a result of these trade measures.

A reflection of complex global challenges

While the revised emissions and recycling targets will not be well received in some quarters, Diageo’s report gives a detailed explanation for the changes, which it says reflect the “complexity of the challenges faced by society and the environment”.

It says: “Our sustainability strategy acknowledges the breadth of the environmental and social consequences of a changing climate and our dependencies on nature and people.

“It recognises the interlinkages between climate, nature, agriculture and people, and the connections to our value chain.”

The report says the targets are reviewed regularly as “regulations evolve or we gain more information on the timeframe required to address systemic issues, like greenhouse gas emissions”.

These reviews enable the company to review its commitments, enhance its business resilience while safeguarding its licence to operate and grow.

Working alongside the Science-Based Targets initiative

While the fundamentals of Diageo’s strategy to conserve water and “take a focused approach to greenhouse gas emission reductions” have not changed, the report states that it has reviewed the targets used to measure progress.

It says: “This review, conducted as part of our regular update of Science Based Targets initiative (SBTi) targets, resulted in changes to greenhouse gas emission reduction percentages and timeframes to achieve those reductions.

“We also reframed our packaging targets due to both external factors and our growth ambitions, shifting our focus to the recycled content of our packaging, with lightweight packaging reporting focused on examples, rather than a formal target.”

Mitigating the cost of tariffs

Like all businesses with a global supply chain, Diageo has had to bear the cost of the tariffs imposed by US President Donald Trump. The Annual Report estimates that tariffs will annually cost the business US$200 million.

It says: “We have continued to undertake considerable contingency planning in recent months and are focused on what we can control in relation to tariffs.

“Assuming the current 10% tariff remains on UK and 15% European imports into the US, that Mexican and Canadian spirits imports into the US remain exempt under the United States - Mexico - Canada Agreement (USMCA), and that there are no other changes to tariffs, the unmitigated impact of these tariffs is estimated to be c.$200 million on an annualised basis.”

The company has undertaken several actions to help mitigate the potential impact, including inventory management, supply chain optimisation, and reallocation of investments.

It adds: “Given the actions to date and before any pricing, we expect to be able to mitigate around half of this impact on operating profit on an ongoing basis.

“Looking ahead, we will continue to work on measures to mitigate this impact further. Our long track record of managing international tariffs gives us confidence in our ability to navigate this successfully.”

Interim Diageo CEO Nik Jhangiani writes in the report’s introduction: “We continue to believe in the attractive long-term fundamentals of our industry and in our ability to continue to outperform the market as the Total Beverage Alcohol landscape evolves.

“Diageo’s ambition remains clear: to be one of the best performing, most trusted and respected consumer products companies in the world.”

He adds: “With world-class brands and talent, highly effective global consumer insights and an ongoing focus on efficiency and effectiveness, we are confident in our ability to outperform the market, restore Diageo to a top quartile TSR consumer company and provide stronger returns to shareholders.”