Mark Field and Sarah Blanchard of Prof. Consulting Group outline how embracing an effective ESG agenda creates opportunities for growth while mitigating risk.
Brands who make their sustainability performance transparent help to address major ecological and human challenges while also attracting investment. Investors and shoppers want to know where they should allocate capital based on holistic criteria. Additionally, civil society is holding brands increasingly accountable for their role in climate change and social injustice.
Transparent information about how a brand treats people or its impact on the environment allows benchmarking within peer groups. It encourages good practice and nudges poor performers to improve.
Sustainably run companies captured $40tn assets in 2021. People realise they can have a significant impact on a brand’s direction by voting with their wallet. Investors in capital markets recognise this and are placing higher expectations on brands to position ESG at the centre of their business strategy.
What exactly is ESG and why do investors care about it?
ESG is a way to measure a company by factors other than financial performance. How it treats people and contributes to the community (S, social), protects nature (E, environment) and acts with integrity (G, governance). For example, paying a living wage and rapidly reducing carbon emissions.
During the pandemic, investors’ appetite for green companies has heightened. Covid shone a light on inequality and raised awareness of the climate emergency. For instance, the relationship between the quality of food, its supply chains and societal wellbeing came to the fore. A nutritionally weak diet impacts human health, and this is more prevalent when you live below the poverty line. And our diets have an enormous impact on the environment – food production emits a third of all greenhouse gas emissions and uses 70% of the available fresh water.
Investors recognise that these global issues impact the ability of companies to perform, and create increased risk: for example, droughts raise the price of wheat, affecting the profitability of wheat products and that affects the affordability of a staple food. Unhappy workers are quitting – if they can afford to. Shoppers are buying into disruptor brands who offer healthier and ethically sourced products.
Amidst the threats lie opportunities – food businesses are in prime position to deliver solutions that counter climate change and inequality. Those demonstrating positive action will win shopper and investor trust. Integrating aspects such as deforestation, labour rights and healthy products into their ESG programme will place them ahead of their competitors and ready for legislation changes.
Race against time
Brands need to act with urgency and good intent. The speed of climate change and its catastrophic effects (such as extreme wildfires and floods) are physical reminders that business must move quicker. Winning brands are already leading change and committing to ESG agendas.
Immediate and bold action is needed from the corporate sector if we are to rapidly reduce greenhouse gas emissions by 2030 in line with the Paris Agreement, and attempt to limit global temperature rise to no more than 1.5°C. COP15, the biodiversity summit will add additional goals.
COP26 focussed attention on reducing greenhouse gases (GHG) – but it is not universally acted on. In a global survey of CEOs, only 22% of their companies have set net zero targets. The good news is that 22 leading food and agriculture companies worth $550bn (the G7 pledge) have formally committed to improving their environmental, social and nutritional impact.
COP15 will raise expectations on businesses to minimise their impact on nature and restore it; sourcing from farmers who use regenerative techniques will restore the land and mitigate the effects of extreme weather. They will be more resilient to the effects of climate change and more attractive to investors who want to avoid having stranded assets. As we look to feed the growing population, we must increase productivity whilst reducing environmental impact with sustainable produce.
Speed, innovation and finance are three elements that business excels at – harnessing these qualities is the key to achieving these goals.
How can brands make an ESG plan?
The huge potential of fast-moving consumer goods (FMCG) to lead change excites us at Prof. Consulting Group, as they can cut GHG emissions, draw down carbon dioxide and create equality. We want to help brands maximise their impact and attract investment by prioritising their actions at scale.
For businesses who have struggled to navigate investor, customer and regulatory requirements – especially brands with multiple facets and complex ESG issues – our advice is to:
Companies not currently reporting their ESG progress will inevitably be part of someone else’s value chain and will have their part to play in reaching global goals. Many will contribute to the Scope 3 impact of a brand’s value chain, so they can prepare for their customer’s future query, and be ahead in negotiations where supply criteria will eventually include ESG factors.
Successful brands integrate ESG into their strategy so that it becomes business as usual. And as ESG is becoming the smarter way to do business, the question is rapidly changing from “can I afford to have an ESG agenda within my business?” to “can I afford not to have an ESG strategy?”
This article originally appeared in the European Climate Change Review Magazine – Issue 3 2022