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Cellar beware: Why ESG matters for Australian wineries

Finlaysons Wine Roadshow 31 is taking the ESG message to Australia’s wineries and explaining why it could impact their ability to sell wine to major buyers globally.

In August, Finlaysons Wine Roadshow 31 will begin its Australia-wide series of seminars, with the specialist team sharing its deep knowledge and expertise with small and medium winemakers.

As happens every year, the topic is chosen for its relevance and timeliness within the ever-changing landscape that Australia’s wine businesses operate in – this year’s theme is environmental, social and governance (ESG).

Finlaysons Lawyers chair of partners and head of wine group Will Taylor said that, although Australian wineries have been pretty good at dealing with environmental and sustainability issues, ESG is much broader – and understanding what it means and its practical implications for the wine business is crucial.

“ESG has really only got a head of steam in the last couple of years – and it’s evolving at a scary pace,” Taylor said.

“Perhaps naivety is the wrong word, but there’s a lot of learning yet to be done by many Australian wineries, particularly the smaller guys.

“The big corporates are pretty well across this; they hear about it from the Business Council, AICD, ACCC, ASIC and ASX et cetera, and they tend to have people responsible for ESG within their organisations.

“But little wineries, of course, have none of that – so, there’s a lack of appreciation of the potential practical consequences for their business.”

For wineries that are not compliant with ESG requirements, whether legal or ethical, Taylor said the ramifications could come from all directions – government, buyers, suppliers and consumers.

“Banks aren’t going to fund them, insurers won’t want to insure them, consumers aren’t going to buy their wines if they don’t have their ESG house in order and, most importantly, the major wine buyers around the world won’t touch them,” he said.

“You don’t want to be called out on social media if someone finds out that you have inadvertently under-paid an employee or one of your pickers suffers heatstroke on a particularly hot day.”

Taylor has spearheaded Finlaysons wine practice since the early 90s, when he was the client relationship partner for Thomas Hardy & Sons.

The wine icon’s rapid expansion through the purchase of wineries in Australia, France and Italy led first to a merger with Berri Renmano, then its listing on the ASX. While Finlaysons did the majority of the merger and float work, Berri took control so the account had to moved to their law firm.

This spurred Taylor to found a wine law practice team of unparalleled expertise and experience – one that, unlike any other law firm at the time, travelled into the regions to host seminars to assist the winemakers. And so, in 1993, the Finlaysons Wine Roadshow began.

Finlaysons services wine businesses across Australia and internationally. Their client list ranges from global ASX-listed and foreign players, to a whole host of small family wineries.

“It surprises people, with South Australia being the epicentre of the Australian wine industry, that we do more work briefed from outside of South Australia than from here,” Taylor said.

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While he said the larger wineries “can get themselves in a position where they are generally compliant with ESG requirements”, he warned of the potential for issues for small wineries dealing with the big wine buyers, such as Sainsbury, Tesco, Walmart and Sweden’s Systembolaget, which generally have responsible/ethical sourcing standards.

“Most of the terms and conditions of these major buyers make you responsible for your whole supply chain,” Taylor said.

Locally, Coles and Endeavour Group take a more reasonable approach.

“What if someone five rungs down the supply chain is called out for abusive child labour practices or disposing of waste into a river in some far-flung part of the world?” he said.

“How can a small Australian winery even know about that?”

“There’s some fuzzy wording in some of the buyers’ Ts and Cs… there has to be some practical reasonableness limit to the requirements.”

“There is an issue here for the whole sector and there’s a need for leadership at industry body level – Wine Australia and Australian Grape & Wine are the obvious players.

“Somebody needs to go into bat for the sector to negotiate with all these major buyers globally on something that satisfies their own ESG requirements but is reasonably able to be complied with by small Australian wineries in a practical sense.”

Taylor believes that the major wine buyers will focus harder on which brands they want to keep and which they will let go as the market contracts. People are drinking less wine globally and the purchase of premium wines could further decelerate in difficult economic times.

“Whenever we go into an economic downturn, big buyers tend to review their portfolio products and rationalise them,” he said.

“If wineries haven’t met the ESG requirements, their brands are probably in the running to go.

“There is a real opportunity here, though. If a wine business can get to the forefront of ESG and effectively market that position, it could really steal a march on its competitors.

“As always, the smart players will capitalise on the trend.”

Finlaysons Wine Roadshow 31 starts August 7 travelling to the wine regions of South Australia, New South Wales, Victoria, Tasmania and Western Australia.

Find out more and book tickets.

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