Why sustainability credentials are essential to food and beverage companies

How can companies demonstrate sustainability credentials that count?

The need for organisations within the food & beverage sector to address sustainability issues is fast becoming business-critical. But that requires strong leadership – and proven progress – across the supply chain.

As we previously reported, Environmental, Social and Governance (ESG) issues are increasingly important considerations for many companies. But a number of key developments have combined to further increase pressure on food manufacturers worldwide.

Consumer demand for more sustainable products and services is growing, investors are shifting towards sustainable investment opportunities and regulators are rolling out new and tighter sustainability regulations. It’s a simmering pressure pot that food companies need to be aware of – and need to be developing strategic action plans to address.

The food system accounts for 34% of global greenhouse gas (GHG) emissions

A call for grocers to lead the way

As a recent McKinsey & Company report states, “it’s not simple to reform a system that more than 500 million farmers, workers and employees around the world depend on, and that plays a critical role in people’s health.”

But that doesn’t give food manufacturers an excuse for slow responses or a total lack of action.

McKinsey reports that the food system accounts for 34% of global greenhouse gas (GHG) emissions. On the back of that, the analyst proposes that grocers are in a unique position to influence and drive much-needed sustainability transformation across the food supply chain. Starting with the development of strategic sustainability transformation plans that focus on value creation – and on the role grocers can play in encouraging change across the full supply chain.

Food companies need to embrace all aspects of ESG

But that’s just one angle on a much wider and increasingly unavoidable issue for food manufacturers everywhere: how to ensure the adoption of best practices and demonstrate credibility in all aspects relating to ESG issues.

Those companies that don’t embrace and adapt to this new expectation are likely to quickly find themselves being left behind – and at a distinct competitive disadvantage relative to their peers.

Credit ratings and risk analysis provider Moody’s Investor Service has recently expanded its ESG credit impact scores to more sectors and Fitch Ratings has begun extending its Climate Vulnerability Scores across all corporate sectors globally.

In March, the US Securities and Exchange Commission (SEC) proposed rule changes that will require the disclosure of climate-related risks and opportunities, indicating that GHG emissions will need to be reported and independently verified by a third-party specialist.

In the UK, regulator the Financial Conduct Authority has recently finalised rules requiring listed companies to report on and disclose against targets for the diversity of their senior leadership teams.

Meanwhile, a recent survey by global technology and business services provider IBM found that potential employees are increasingly likely to apply for and accept jobs from companies they view as sustainable.

Executives struggle to measure impacts

However, while sustainability and environmental concerns are top of mind for many executives across the world, with many starting to plan and prioritise positive, sustainable changes to the way their organisations operate, they are struggling to measure their progress.

Research conducted for Google Cloud found “a troubling gap” between how well organisations think they’re doing in addressing ESG issues, and how accurately they’re actually able to measure their impact.

In the survey, only 36% of respondents said their organisations have measurement tools in place to quantify their sustainability efforts, and just 17% are using those measurements to drive further improvements.

Without accurate assessment, genuine progress is hard to document – and so-called ‘greenwashing’ is rife.

In the Google Cloud survey, 58% of respondents agreed that green hypocrisy exists and that their organisation has overstated its sustainability efforts, with executives in Supply Chain/Logistics registering the second-highest admission of this, at 65%. Roughly two-thirds (66%) of respondents questioned how genuine some of their organisation's sustainability initiatives really are.