A term you will not get past in 2023, no matter whether you are a retailer or an F&B brand, is ESG. These three letters embody a whole host of policies that modern companies need to take into account when operating their business. Success in business is no longer just about the financial bottom line.
ESG stands for Environmental, Social, and Governance. It's a framework that assesses a company's sustainability and ethical practices. Investors use ESG to evaluate risks, while companies use it to improve their practices and reputation.
What do the terms Environmental, Social, and Governance mean in practice? Environmental criteria look at areas such as energy efficiency, waste management, and carbon emissions. Social criteria assess labour practices and human rights. Governance criteria examine internal policies and practices. These include accurate reporting, risk and performance management, ethical business practices, leadership diversity, and executive pay transparency. Good governance can attract investors and supply chain partners and facilitate business growth. (1)
Why should companies care about ESG? Companies listed on the stock market that recognize and manage ESG risks and opportunities are more likely to perform better than those that don't. This is because they are more prepared to handle the effects of adverse events, like extreme weather, and can respond to new consumer demands, such as those that resulting from decarbonization efforts.
A Morgan Stanley study revealed that sustainable companies outperformed traditional companies by 6.5% over a decade. (2,3) Additionally, companies practicing sustainability are less likely to experience financial difficulties, and investors who prioritize ESG factors earn higher risk-adjusted returns. (3)
So what does great ESG truly look like? Here we share three companies that have impressed us in terms of their ESG policies.
Co-op, a leading British supermarket, received recognition as the most ethical supermarket for the fifth consecutive year in 2021 by Ethical Consumer magazine. This honour was largely attributed to the company's unwavering commitments to sustainability, animal welfare, and workers' rights. (7)
Co-op has set ambitious environmental goals to become carbon net zero by 2040. To remain accountable, they publish annual reports monitoring their progress on the road to net zero.
As part of this commitment, Co-op plans to become the first supermarket in the world to offer fully carbon-neutral own-brand food and drink by 2025. To this end, they have also made a commitment to link executive pay to the delivery of their new climate targets. (13)
The supermarket plans to extend their offsetting approach to include their value chains from farm to packaging and end-of-life. In line with this, all of the company's own-brand food packaging is now completely recyclable.
However, they recognize that offsetting alone is not enough and have science-based targets to reduce greenhouse gas impact by 50% and 11% for operations and products, respectively. The plan is to electrify all delivery vehicles and phase out fossil heating. Additionally, they want to explore insetting, i.e. financing climate protection projects along their own value chain to reduce or sequester emissions, and support carbon reduction research and innovation using funds raised from the carrier bag levy. (13)
Additionally, in mid-2021 Co-op announced a new initiative to "tackle the plant-based price gap" by investing over £1.7 million (approximately €1.93 million) to reduce the cost of 29 vegan products, so they are on par with their animal-based equivalents. This move caters to the growing flexitarian consumer base and supports the company's overall goal of reaching carbon neutrality by 2040. (6)
“At Co-op, we believe it shouldn’t cost you more money to eat plant-based food and that this disparity is unfair to those following vegetarian, vegan and flexitarian diets,” said Jo Whitfield, CEO of Co-op Food. (6)
When it comes to their focus on social aspects, Co-op has a long history of promoting ethical sourcing and has a range of fair trade and organic products. It has partnerships with organizations such as the Ethical Trading Initiative and Sedex. (8)
The company has established a Sound Sourcing Code of Conduct, Modern Slavery Statement 2021, and Sustainability Report 2021 to clearly outline its expectations of suppliers in relation to issues such as forced labour, child labour, working conditions, living wages, and working hours. (8)
Co-op has further conducted extensive supply chain mapping, risk assessment activities, and risk monitoring and management processes to identify priority risks and ensure that all own-brand suppliers in its food business join Sedex. The company has also established governance relating to the management of its supply chain and continually tracks its progress in relation to modern slavery, previously establishing objectives and targets for 2022 and beyond. (8)
In terms of governance, the Co-op is a mutual organization, which means it is owned by its members, rather than shareholders. This gives members a say in how the company is run and ensures that the company is accountable to its members, rather than just to profit-driven investors. The Co-op also has a strong code of ethics and values, which guide its decision-making and operations. (9)
The director of Rügenwalder Mühle, a German meat company, compared sausages to cigarettes and expressed his desire for a third of the company's sales to come from vegetarian products by 2019. This statement stirred controversy among his colleagues, who labeled him a traitor. (12)
At Rügenwalder Mühle (RM), a family-owned business, sustainability is a top priority. The company aims to contribute to a better environment and society for future generations. To achieve these goals, RM produces innovative and sustainable plant-based alternatives to meat products, using its decades of experience in the meat industry. (10)
In 2014 they introduced plant-based meat alternatives to the market as the first meat-processing company to do so. As early as 2015 they set themselves the target that by 2019 30% of their sales should come from their vegetarian range. (11)
“This resulted in innovative products that are made without meat but taste and look just as good as their meat-based counterparts,” they stated in their 2020 Sustainability Report. (10)
The company has established guidelines for sustainable economic, ecological, and social practices throughout its supply chain, including responsible sourcing and reducing greenhouse gas emissions.
RM has also taken steps to ensure ethical and responsible behaviour. The company implemented measures to prevent corruption and promote transparency. Furthermore, they established a behaviour code for strategic partners, do not use service contracts to save on social security and tax payments, and offer childcare support and flexible working hours for employees. (10)
The company values diversity and inclusivity, with employees from 25 different countries working together and opportunities for all to develop and advance within the company. In addition, the RM promotes employee well-being and safety by providing free, individually tailored protective gear and offering counselling services for employees dealing with mental health issues. (10)
Patagonia is a leading outdoor clothing company with a unique approach to business. It has been praised for its lifetime guarantees on products and commitment to sustainability. However, Patagonia is doubling down on its ESG initiatives by establishing the Patagonia Purpose Trust and the Holdfast Collective.
The company uses any profits not reinvested in the business to combat climate change. The collective, which owns 98% of Patagonia's stock, will donate all profits to protect nature, support communities, and fight environmental change. Patagonia believes the collective will donate around €94 million to environmental causes each year. (4)
Investmentmonitor.ai calls it a move that “has shaken up the investment community across the world and potentially launched a new era for sustainable development.” (5)
There were however other voices pointing to the fact that through this move, the company avoided over €650 million in taxes, so possibly the act was not as entirely selfless as it may seem at first glance. (14)
We hope these examples have inspired you to approach the topic of ESG with more vigour. As a major component of ESG, sustainability is a complex topic, that can be tricky to tackle entirely on your own. This is where we come in.
inoqo is an AI-powered retail solution that enables retailers, F&B brands and suppliers to assess and optimize the impact of thousands of products along the whole value chain. We shine a light on your product’s impact in various important areas such as climate, animal welfare or social and support you in reducing your impact hotspots.
If you would like to learn more about how we can work hand in hand with you to future-proof your business, feel free to reach out to us by sending an email to firstname.lastname@example.org.