James Tickner
8 July 2021 Rather than being pushed aside by the pandemic, the importance of issues such as climate change seem to have accelerated because “there has been a step change in how consumers think about sustainability.” General Mills cited data that 80% of consumers would prefer to buy a sustainable version of their favourite brands if it became available.
Companies such as Nestlé and General Mills are now committed to be Net Zero by 2050, with others focusing more on greater recycling or use of recyclable materials or waste, energy and water use reduction, as well as certified sourcing schemes for key agricultural commodities.
Some companies viewed their expansion into plant-based foods as part of this trend, extolling how their more plant-based portfolios generate lower carbon emissions than others – “emissions from the production of a bacon breakfast sandwich could be as much as double the greenhouse gas emissions compared to cereal and milk.”
A Wall Street Journal survey evaluated 5,500 publicly traded companies on environmental, social and governance (ESG) metrics, with Nestle the only food company scoring in the Top 100. That’s troublesome for an industry that wishes to enhance its connection to and credibility with consumers.
So how effectively are food businesses developing sustainability credentials and how is their progress perceived by customers and investors?
Metrics to measure ESG are by no means straightforward, particularly in the food industry where supply chains are so complex. There seems to be no standard by which food businesses are measured against sustainability but sustainable sourcing of packaging and ingredients in the sector is certainly moving up the priority list. Companies are beginning to announce commitments on sustainable sourcing and setting deadlines.
Greencore for example, recently committed to using 100% recyclable or reusable packaging by 2025 and bakery ingredients business Zeelandia pledged to make its use of palm oil 100% sustainable.
Consumer influence and long-term environmental impact
Consumers are increasingly looking for better access to affordable food that will benefit both the planet and their health – a recent EIT food study showed an accelerated demand for healthy and sustainable food during the pandemic, as well as increased scrutiny of packaging and label information (whether for health, hygiene, or sustainability concerns).
There is a long road ahead to reshape various aspects of the food supply chain from farm to fork. For example, with the use of palm oil or cocoa, there are concerns of damage to natural habitats and deforestation. However, Gary Lewis, head of business development, oils and fats, for KTC Edibles argues that there are other impacts from shunning palm oil altogether: “Boycotting palm oil would put economies at risk in Southeast Asia, with 40% of the world’s palm oil coming from smallholders, this would cause direct harm to some of the world’s poorest people”
Investor confidence in sustainable food businesses
While ESG investors have had some high-profile financial successes with companies such as Beyond Meat and Impossible Foods, promoting their plant-based products as eco-friendly alternatives to meat, ESG investors seem to be finding it hard to incorporate food in their portfolios. Food businesses’ far-reaching impacts are difficult to measure, making it unclear whether they meet ESG criteria.
For example, food companies may not emit that much carbon themselves, but their supply chains often do. Public health is another source of substantial risk. “When you look at the root causes of many global health issues, refined sugar has emerged as being a big part of the underlying problem,” says Andy Howard, global head of sustainable investment at asset manager Schroders.
Investors can study businesses’ marketing policies, favoured ingredients and innovation strategies to assess their long-term exposure to these risks, but the data is often imprecise and incomplete, which makes it hard to create investment products tailored for the sector. “The only place I would say ESG metrics may exist for food today is in the environmental bucket (as opposed to social and governance areas),” says Michael Waterman, chief executive of Canopy Holdings.
Complexity of supply chain and reporting demands
One of the key challenges food processing companies are grappling with is the demands for data to support ESG credentials. This includes delivering against the demands of upstream retail business partners and making their own demands of downstream partners in agriculture. However, if no dedicated sustainability team exists (or is in its infancy), the process of sustainable business transformation is likely to land on the desk of the Operations Director or Finance team as an “add-on” to their core responsibility.
Reporting of accurate data is becoming essential in building trust in sustainable business practices and the level of complexity is rising. The increase of mandatory reporting schemes, pressure from many retailers and consumers means the importance of demonstrating credible data as part of a clear and achievable sustainability strategy is only going to increase over the next few years.
