Why has Diageo Cut its Core Sustainability Goals?

Diageo has outlined updated environmental goals as part its 2025 Annual Report, cutting back on several key sustainability targets while maintaining its focus on areas like water usage and replenishment. 

The global drinks business behind names like Guinness, Don Julio and Smirnoff explains the move as a step towards greater credibility and realism, which it says is based on better data and deeper understanding of the challenges involved.

Ewan Andrew, Diageo's President, Global Supply and Procurement & Chief Sustainability Officer, wrote on LinkedIn: “In 2020, when we set ambitious environmental sustainability goals as part of our Spirit of Progress action plan, we didn’t have all the answers. 

“But we knew progress would require innovation, long-term commitment and supportive policy environments.

“Five years on, we have better data, deeper insights and a clearer view of the practical realities to deliver net zero,” he continued. “Today, alongside our Annual Report, we’re updating our sustainability goals, with some important adjustments to our carbon and packaging goals to give us a stronger, more credible path forward.”

Revisions across carbon and packaging targets

Diageo has maintained all three targets relating to water – an area that Ewan recognises as the “biggest threat” for the business. Specifically, these targets include:

• Water efficiency in water-stressed areas: 40% improvement by 2030
  
  
• Water efficiency across the company: 30% improvement by 2030
  
  
• Water replenishment: 100% replenishment in water-stressed areas by 2026

These aside, Diageo has made significant revisions to several other key numbers in its 2024 reporting, including direct and indirect emissions and its ambitions around recycled packaging content. 

• Emissions from direct operations (Scope 1 and 2): Previously net zero by 2030, now a 50% reduction by 2030 with net zero targeted for 2040
  
  
• Value chain (Scope 3) emissions: Previously a 50% reduction by 2030, now a 26% reduction by 2030 with net zero by 2050
  
  
• Recycled content in packaging: Previously 60% by 2030, now revised to 50% by the same year
  

Scope 1 and 2 emissions refer to direct emissions from owned or controlled sources and indirect emissions from the generation of purchased energy. 

Scope 3 includes all other indirect emissions that occur in a company’s value chain, including those from suppliers and product use.

Packaging, a crucial area for a company that sells over 200 brands into more than 180 countries, has also seen a shift. 

While recycled content remains the central metric, Diageo has lowered its overall goal moving from a 2024 target of 60% recycled content in products to 50% in its latest report. 

Understanding the rationale behind the cuts

Diageo offers a detailed explanation of the adjustments in its report, attributing the changes to ongoing challenges “faced by society and the environment”. 

The report outlines the challenge of aligning environmental goals with real-world operational pressures, stating: “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.”

It goes on to explain how regulatory evolution and new information feed into Diageo’s regular review process. Those reviews allow the company to adapt its goals as needed, preserving both its operational resilience and long-term business ambitions.

Another reason behind the revisions is the company’s alignment with the Science Based Targets initiative (SBTi), a programme that helps firms define greenhouse gas reduction pathways in line with climate science. 

Diageo notes that its revisions result from a routine update of these targets, stating: “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 recycled content of our packaging, with lightweight packaging reporting focused on examples, rather than a formal target.”

Strategic approach to tariffs and future outlook

Alongside its environmental adjustments, Diageo also addresses the financial burden caused by the sweeping, and disruptive, trade tariffs introduced by US President Donald Trump’s administration. 

The company estimates the cost of these tariffs will continue to be around US$200m annually.

According to its report: “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.US$200 million on an annualised basis.”

To manage this, Diageo has adjusted its approach to key operational areas such as inventory control, supply chains and the reallocation of capital. “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.”

Introducing the latest reporting, interim CEO Nik Jhangiani says: “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.

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.”