Key trends impacting ESG performance in the consumer sector
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FMCG companies face unavoidable pressure from consumers: GlobalData’s Q1 2022 global consumer survey found that almost two thirds (63%) of consumers' purchasing choices are influenced by more ethical or environmentally friendly products. Immediate ESG action will future-proof businesses and create tomorrow’s winners.
Environment, social, and governance are equally important. Companies must excel across all three aspects of ESG. For example, BrewDog is an environmental leader, becoming the world’s first carbon-negative beer business in August 2020. However, the company is a social laggard, with ex-employees publishing an open letter in June 2021 citing a “toxic” office culture.
Being a laggard in one area of ESG discredits the whole company’s image, and consumers will judge FMCG businesses holistically when making purchasing decisions.
Supply chain management is the foundation for ESG progress. Many social and environmental issues exist within FMCG supply chains. A lack of traceability is no longer an excuse, and FMCG companies will be judged based on supply chain ethics. For example, Greenpeace found that suppliers to Mondelez destroyed 70,000 hectares of palm oil forest between 2015 and 2017.
Real industry change must involve collaboration between players throughout the supply chain.
Strategic player partnerships and technologies like blockchain and artificial intelligence (AI) help with supply chain management and transparency. Unilever launched a blockchain pilot to track and manage transactions across its tea supply chain, verifying 10,000 supply chain contracts. This involved collaboration with Sainsbury’s and Sappi.
Supply chain management is the most important strategic initiative an FMCG company can take to avoid environmental or social scandal.
Key technology trends impacting ESG performance
Artificial Intelligence (AI)
Different AI technologies can be used to drive sustainability initiatives across the FMCG supply chain, such as supply chain optimisation, the sourcing of sustainable ingredients, and minimising food waste.
AI can be used to analyse historical data and use machine learning (ML) regression algorithms to predict demand. For example, Afresh, a provider of inventory management tool for grocery retailers, created a demand management platform to forecast demand and avoid waste. It uses historical data and ML regression algorithms to predict demand. This has reduced food waste by 25% among Afresh clients.
Blockchain can help FMCG companies track stock across the supply chain, allowing better traceability and food safety and sourcing guarantees. For example, wine monitoring and analysis company eProvenance launched a blockchain solution with IBM to increase its traceability, efficiency, and profitability across the wine supply chain.
ESG concerns could be a substantial driver of blockchain uptake, helping corporate transparency on sustainable practices.
Internet of Things (IoT)
IoT can be used to tackle food waste, a big problem in the FMCG supply chain. 1.6b tons of food is lost or wasted globally every year, with a value of $1.2tr. For example, Eseye provides IoT tools to tackle food waste and promote environmental sustainability. According to CEO Nick Earle: “By connecting every single part of the supply chain, we can grow, pick, and ship only what we need, and then better care for that product to ensure it reaches the fork unharmed.”
The UN targets a 50% reduction of food wastage by 2030 as part of its global opportunity for SDGs.
Key macro-economic trends impacting ESG performance
Ethical consumerism is a key trend that consumer goods companies must cater to. GlobalData’s Market Pulse Consumer Survey 2020 found that customers are more likely to pay a premium for sustainability-aligned causes, and 81% of customers in LATAM and APAC regions would pay more for products that support environmental protection.
However, green premiums can exclude lower-income consumer groups, who are also concerned about sustainability. Research and development should be conducted to reduce green premiums and create accessibility.
Ecommerce sales have increased during the COVID-19 pandemic. Global ecommerce sales will reach $2.8 trillion in 2023,up from $1.6 trillion in 2019, according to GlobalData estimates.
Direct-to-consumer (D2C) supply chain models provide a convenient shopping experience, but they cause a higher level of carbon emissions because the supply chain is disjointed, with lots of separate to-the-door deliveries rather than large deliveries to established retail spaces.
Brands must work to make convenience sustainable, such as the personal care brand By Humankind, which achieves carbon-neutral shipping by investing in forest projects to help offset the company’s emissions.
One of the quickest ways to excel in a theme is to acquire a company that is already excelling. Consumer goods companies are realising the importance of ESG, and many will improve their image by acquiring sustainable companies in the future.
FMCG companies that do not have a diverse plant-based offering could acquire a company that does to avoid falling behind in this theme.
Veganism and plant-based diets are a fast-growing consumer trend driven by ethical issues like environmental impact. In March 2021, Agri-food holding company NHS Industries acquired Be Good Meats Food Company, a food production and distribution company focused on plant-based ethically sourced foods, for $2.3 million.
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.