Nestlé's Exit from the Dairy Methane Action Alliance: Implications for ESG Strategy and Investor Confidence

Nestlé's recent withdrawal from the Dairy Methane Action Alliance (DMAA) has sparked a critical debate about the alignment of corporate ESG strategies with global climate goals. As a founding member of the DMAA-a coalition co-founded with Danone, Starbucks, and General Mills to address methane emissions in dairy supply chains-Nestlé's exit raises questions about its commitment to sector-specific climate action. While the company emphasizes its broader goal to halve climate pollution by 2030, its lack of a science-based methane reduction target and opaque reporting practices have drawn scrutiny from environmental advocates and investors alike, according to a Business Times report.

Strategic Rationale and ESG Gaps

Nestlé cited routine membership reviews as the reason for its departure from the DMAA, a vague justification that contrasts with its peers' continued participation. For instance, Danone has pledged a 30% methane reduction from fresh milk by 2030, a science-based target aligned with the Science-Based Targets initiative (SBTi). Nestlé, by contrast, has only disclosed a 20.56% reduction in methane emissions from ingredients since 2018, attributing progress to regenerative agriculture and biogas projects. However, the Changing Markets Foundation has criticized the company for failing to provide granular data on emission sources or methodologies, undermining transparency, as reported by Dairy Reporter.

This strategic disengagement risks eroding Nestlé's ESG credibility at a time when the food and agriculture sector faces intensifying regulatory and reputational pressures. The EU's Corporate Sustainability Reporting Directive (CSRD) and U.S. state-level mandates like California's SB 253 demand rigorous disclosure of Scope 3 emissions, including methane, a point underscored in Rothschild & Co's ESG insights. Nestlé's 22.41 million metric tons of dairy-related Scope 3 emissions in 2024 highlight the scale of its exposure (see the Dairy Reporter coverage cited above). Without a methane-specific roadmap, the company may struggle to meet evolving regulatory expectations, potentially inviting penalties or investor divestment.

Investor Confidence and Financial Implications

The food and agriculture sector's ESG performance is increasingly tied to investor decision-making. In 2025, global ESG funds faced a record $8.6 billion outflow in Q1, driven by geopolitical uncertainties and shifting policy priorities, according to the Corporate Climate Responsibility Monitor. While Nestlé's exit from the DMAA has not yet triggered a stock price decline, its dairy division reported negative growth in 2025, partly due to declining coffee creamer and ambient dairy sales (reported in Dairy Reporter). This underscores the financial risks of ESG disengagement: stakeholders are rewarding companies with robust climate strategies, such as Nescafé's 32% regenerative coffee sourcing, while penalizing those perceived as lagging.

Moreover, ESG fund managers are recalibrating their criteria. The Corporate Climate Responsibility Monitor 2025 notes that companies relying on carbon removals without direct emission cuts-like Nestlé's current approach-face heightened scrutiny. This trend could pressure Nestlé to adopt more ambitious targets to retain ESG fund allocations, which now account for $3.16 trillion in global assets, according to a Regulatory Shifts in ESG analysis.

Sector-Wide Risks and the Path Forward

The food and agriculture sector's ESG risks are multifaceted. Water stress, land degradation, and methane emissions are central to regulatory frameworks and investor expectations. For example, the DMAA's focus on methane-a greenhouse gas 28 times more potent than CO2-reflects its outsized role in climate impact (see Business Times coverage). Nestlé's exit may signal a broader industry reluctance to address methane, but this could backfire as policymakers and consumers demand accountability.

To mitigate risks, Nestlé must bridge its ESG strategy gap. Adopting a science-based methane target, enhancing disclosure granularity, and collaborating with third-party auditors could restore stakeholder trust. The company's progress in renewable energy (91.9% of electricity from renewables in 2023) and regenerative sourcing (21.3% of key ingredients) demonstrates its capacity for innovation, as noted in a WBCSD announcement. However, these efforts must be scaled to address dairy-specific challenges.

Conclusion

Nestlé's exit from the DMAA exemplifies the delicate balance between corporate autonomy and ESG accountability. While the company has made strides in reducing emissions and advancing regenerative practices, its lack of a methane-specific target and opaque reporting practices expose it to regulatory, reputational, and financial risks. As ESG investors prioritize transparency and science-based goals, Nestlé's ability to adapt will be critical to maintaining its market position. The food and agriculture sector's future hinges on companies like Nestlé embracing-not evading-sector-specific climate challenges.