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The most pressing ESG concerns for the consumer goods industry

Credit: Bert van Dijk/Getty images.

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FMCG companies continue to face significant pressure from consumers: GlobalData’s Q3 2022 global consumer survey found that three-quarters (76%) of consumers say that products or services being sustainable or environmentally friendly is either essential or nice to have. Immediate ESG action will help to future-proof businesses and create tomorrow’s winners.

Consumers are also demanding action from FMCG companies: GlobalData’s Q3 2022 global consumer survey found that over half (56%) of consumers agree, to some extent, that they want brands to address global social issues, such as racism and sexism, highlighting the importance for brands to acknowledge these concerns.

Finally, the demand for FMCG companies to be socially responsible in their corporate structure is high: GlobalData’s Q3 2022 global consumer survey found that almost half (47%) of consumers' purchasing choices are influenced to some extent by how socially responsible a product or service is, which directly correlates to the social responsibility of a brand/company.

There are actions and investment opportunities that brands can take to compete effectively and meet sustainability-linked expectations from their customers

FMCG companies must excel in the environment aspect of ESG to maintain a durable and long-term competitive advantage. For example, General Mills has shared its commitment in its annual report to environmental innovation and has undertaken actions to support that intention. In fact, General Mills was one of the only 10 North American companies to rank top of the CDC’s list for climate change and water security. General Mills is well on its way to hit its 100% recyclable or reusable target by 2030, but more innovations and rethinking material use will need to take place.

Not acknowledging the importance of environmental initiatives damages the whole company’s image, and consumers will judge FMCG businesses holistically when making purchasing decisions. 24% of global consumers strongly agree that they are more loyal to brands that support environmental matters.

Consumers today have 24/7 access to information at their fingertips, so transparency is crucial for brands to gain and maintain trust in the sustainability credentials shown on packaging and in marketing. Incorporating blockchain technology into the supply chain can allow FMCG companies to showcase their environmental initiatives to consumers and add reputability to the matter.

Piers Berezai, Research Director, Consumer Goods and Foodservice, GlobalData

Supply chain management is the foundation for environmental progress

Supply chain relevance is very clear in the environmental segment, from waste management and careful energy and material sourcing, to investing in circular economy principles, there are many changes for FMCG companies to make to environmentally optimise the supply chain.

There is a strong focus on climate change, environmental deterioration, biodiversity loss, and resource shortages amid growing energy demands in the supply chain. Consumers and companies are increasingly making decisions based on responsibility towards the natural environment, driving a need for continual improvement in genuinely responsible products and services. A closed-loop supply chain would assuage any worries shoppers may have on how the brand is managing waste, as well as lowering production costs.

Quality-focused consumers are embracing products that they consider to be both ethically virtuous and personally pleasurable

The next generation of consumers has a greater sense of responsibility towards the world into which they were born. As consumers, they will be attracted to more ethical products and services, and therefore, to survive, FMCG companies must combine their traditional profit motive with socially-acceptable practices.

Consumers are becoming more aware of social issues, which translates into their purchasing preferences as they choose to avoid brands that do not comply with their views or values. This has become particularly evident post-pandemic and during the cost-of-living crisis, as FMCG companies are faced with the opportunity to acknowledge those in need and realign strategic operations to be more ethical.

We are seeing a global shift concerning the social component of ESG as consumers become more aware of corporate bad practices and how companies can be better. Especially in light of the current cost-of-living crisis, FMCG brands need to do their bit to support local communities which can include consulting local stakeholders.

Piers Berezai, Research Director, Consumer Goods and Foodservice, GlobalData

Consumer goods companies must emphasise social initiatives to demonstrate their commitment to driving change for inequality and unethical practices, to drive a category-wide revolution

Social performance assesses a company’s engagement with its workers, customers, suppliers, and the local community, and the effects of corporate actions on society are only now being fully realised.

FMCG companies can enact clear policies against forced labour and pay equal attention to eliminating forced labour from supply chains, to address core human rights concerns in this sector.

Discrimination based on gender, disability, religion, race, age, ethnicity, or sexual orientation continues to be a global problem in consumer markets. Companies can provide mentorship programs and regular anti-discrimination training to eliminate unconscious bias.

FMCG companies must meet the moral obligations of stakeholders

Repeated failures in corporate governance—from aggressive tax avoidance to corruption, excessive executive remuneration, and relentless lobbying—has meant that society is losing trust in large FMCG companies.

Governance is important for FMCG brands in particular, as a lack of commitment in this area can really impact reputation, supply chain efficacy, and investment opportunities.

Piers Berezai, Research Director, Consumer Goods and Foodservice, GlobalData

Companies must emphasise their corporate governance in annual reports and through certifications to reassure consumers. BRF is a good example of success in this area, as they have a clear governance plan that is easy to understand with established deadlines and progress updates, their production processes are continuously verified and audited by stakeholders to gain them reputable certifications, including an anti-bribery management system to prevent corruption.

Being a laggard in this specific area of ESG will limit a consumer goods company’s ability to compete effectively in the market and gain the trust of stakeholders, especially consumers.

Increased regulation is important to excel in ethical corporate governance

A lack of traceability is no longer an excuse, and FMCG companies will be judged based on their internal social responsibility. Technological advancements, such as blockchain in the supply chain, allow consumers and stakeholders to view discrepancies and decipher whether the brand aligns with their governance values.

Regulation is necessary regarding personal data sharing, union blocking, and a lack of a complaint handling system, as without structured guidelines on these topics, consumer goods brands are at risk of ruining their reputation and causing major delays in the supply chain.

GlobalData, the leading provider of industry intelligence, provided the underlying data, research, and analysis used to produce this article.  

GlobalData’s Thematic Intelligence uses proprietary data, research, and analysis to provide a forward-looking perspective on the key themes that will shape the future of the world’s largest industries and the organisations within them.