April 4, 2023
For our two-part series on ESG, a couple of weeks ago we shared Best Practice examples.
This week we will shine a light on the numerous reasons whyF&B companies should be putting ESG into practice.
ESG considerations are becoming increasingly important in the F&B industry as consumers are more conscious of the impact of their purchases on the environment and society, and investors are placing more emphasis on companies that prioritize sustainable and socially responsible practices.
There are many arguments for putting ESG front and centre of your company policy in 2023.
What exactly are they? We will get to that in an instant. First, we would love to tell you what ESG actually refers to in an F&B context. If you are already clued in, feel free to skip this part and go straight to the pros down below.
Environmental impact is probably the most straightforward area of the three. This includes a company’s activities affecting the environment, such as reducing waste and GHG emissions, sourcing sustainable ingredients and generally promoting environmentally friendly business practices.
Here are some quick examples of companies doing well in the field of environment:
Globally almost 40% of food goes to waste. The app Too GoodTo Go tackles food waste by connecting customers with local restaurants and cafes to buy food that would otherwise be thrown away at a reduced price. The platform has prevented millions of meals from being wasted and has helped businesses to reduce their food waste. (1)
When it comes to sustainable sourcing, UK company Belu is an impressive example of what is possible. They source their water from a sustainable underground aquifer in Wales and use eco-friendly packaging made from recycled materials. In addition, they address global water issues by investing 100% of its net profits in clean water projects in developing countries. (2)
When it comes to F&B companies, the social factor of ESG includes fair labour practices, community engagement, and social responsibility initiatives.
One example of a company committed to high social standards is Tony’s Chocolonely. As they explain, the chocolate supply chain is characterized by an unfair distribution of benefits. Although it involves millions of farmers who produce cocoa and billions of consumers who enjoy chocolate, the intermediate segment is dominated by a few chocolate giants.These corporations prioritize maximizing profits by keeping cocoa prices low.Consequently, this situation creates a poverty trap for farmers, leading to illegal child labour and modern slavery. Tony’s Chocolonely’s SourcingPrinciples for slave-free cocoa should guarantee farmers a living income, so they can end modern slavery and illegal child labour on cocoa farms in WestAfrica.
The term governance factors refers to the company's internal management and control systems, such as the board of directors' composition, executive compensation, and ethics and compliance policies.
One company worth mentioning in this area is Clipper Teas.This UK-based Fairtrade tea company has implemented a range of policies and practices to ensure good governance, including a code of ethics and a commitment to transparency. (4)
As a result, Clipper has been granted the B Corp certification. This is given to companies that meet rigorous standards of social and environmental performance, accountability, and transparency. (5)
Were you aware that ESG can considerably impact a company’s performance and offer tangible benefits? Let us show you how.
Here are three major advantages of integrating ESG:
1. Improved risk management
2. Enhanced reputation
3. Increased access to capital
Companies that prioritize ESG issues in their supply chain management are better positioned to manage risks such as supplier disruptions.
One ESG measure that has an impact is local sourcing. A sustainable supply chain that emphasizes local sourcing can help increase resilience by reducing the reliance on global supply chains. The latter can be disrupted by unforeseen events such as natural disasters, trade disputes, or pandemics. With international sourcing, there is further a risk of inconsistent quality standards. Domestic sources, on the other hand, generally pose less logistical risk, enable more efficient communication, and include fewer barriers to overcome. (6)
Another way to manage risk is to transition to a circular economy, which can increase resilience. Designing products for reuse, repair, or recycling reduces reliance on virgin and raw materials, as well as exposureto price fluctuations or shortages of key resources. Additionally, a circular economy approach can help companies reduce their carbon footprint and mitigate the risk of climate-related disruptions, such as extreme weather events or supply chain disruptions due to carbon regulations. (7)
Reputation may be an intangible factor, that is difficult to quantify. However, it can truly affect a company’s bottom line. Companies with a strong ESG performance are often seen as more responsible and trustworthy by employees, consumers and investors.
Such companies boast improved employee satisfaction and retention. Prioritizing social issues such as fair labour practices and employee health and safety are more likely to attract and retain skilled workers. What is more, according to Glassdoor, Best Places to Work companies outperformed S&P500 by an average of 122%, while the lowest rated companies underperformed S&P 500 by 29.5%. (8)
On the customer side, RepTrak data revealed that ESG Scoresare 85% correlated with Willingness to Trust in a Time of Crisis. They also showed that a low ESG Score results in as low as 10-20% willingness to buy, while a high ESG Score typically results in a 60-67% willingness. (9)
The Pandemic has only made ESG more important. According to a survey by Accenture in 2021, half of respondents have changed their shopping preferences due to the COVID-19 pandemic. They are willing to pay a premium for brands that align with their principles and demonstrate better treatment of people. Consumers who are socially conscious now seek to understand how the companies they endorse contribute to the greater good. When they do so, customers have become much more loyal to such brands. By being transparent and effectively communicating their ESG initiatives to customers, companies that follow ESG principles can attract and retain more customers. (10)
In terms of investing, brand and reputation has overtaken returns as the main ESG driver, according to BNP’s 2021 survey. Investors are attempting to mitigate risks by investing in companies that share their values, in addition to generating financial value. (11)
The final area we would like to look at is investment.Adopting good ESG practices can lead to increased access to capital, while failing in this area increasingly equates to more difficulties in securing funding.
Companies can attract socially responsible investors. Many investors are increasingly likely to invest in companies that prioritize sustainability and responsibility. In an increasing number of cases, good ESG practice may even be needed to meet investor and lender requirements. Many of them are now requiring companies to demonstrate strong ESG performance as a condition of investment or lending.
For example, BlackRock has pledged to prioritise investing in companies that are making progress on sustainability. They have introduced sustainable versions of their main model portfolios that prioritize environmental, social, and governance (ESG) factors instead of the usual market-based options. Eventually, they hope sustainable models will become their primary ones. (12)
In conclusion, ESG is no longer a nice-to-have, it is a must despite the current challenges.
While challenges remain to companies wanting to improve their ESG performance, the above-mentioned advantages should be enough to convince CEOs that ESG really is an important aspect their company should be focussing on in 2023.
There are a numberThere a number of keywords we have encountered in the above article that you can tackle head on to improve yourESG performance. They include sustainability, social impact and transparency.
In order to become more sustainable and improve social aspects of one’s company such as labour practices, you have to start with transparency. How do you do this? By laying bare all the information pertaining to your product’s value chain. Where, how and by whom are your products and all their ingredients or components made? Only if you have the answers to these questions can you work on improving your performance.
An efficient way of doing this are product impact assessments (PIAs). PIAs have historically been incredibly complex affairs.This is no longer the case, and one of the reasons is our team at inoqo.
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 their entire value chain. We lay bare your product’s impact on different dimensions such as climate, animal welfare or social practices and support you in reducing your impact hotspots.
Only once you make your processes completely transparent, can factors negatively impacting your ESG performance be dragged out into the open and discontinued once and for all.
If you would like to learn more about how we can assist you in your ESG journey, feel free to reach out to us by sending an email to firstname.lastname@example.org.
April 4, 2023