Background
This simple blog poses the important question is sustainability achievable for the FMCG industry? The FMCG (and other) industries are embracing new goals such as sustainability, circular economy, ESG etc. Whilst these goals are commendable the obvious question is are they realistic? Do all these different terms have the same meaning? Are the goals environmental, financial or social?
Sustainability
‘Meeting the needs of the present without compromising the ability of future generations to meet their own needs’
Report of the World Commission on Environment and Development: Our Common Future, 1987
The first challenge for the FMCG industry is to define what sustainability is. Some may suggest sustainability is a business safely co-existing with the planet in the long term. Others will argue this is too narrow a focus. The Harvard Business School (What Does ‘sustainability’ mean in business?, October 2018) suggests sustainability in business has 2 categories – effect on environment and effect on society. Many suggest sustainability has 3 categories – economic, environmental and social, also known as profits, planet and people. Some may suggest sustainability has as many as 5 P’s.
For ease of use this blog will use profits, planet and people. This is also referred to as the triple bottom line.
Non-sustainable products
Non-sustainable products are those which cannot be replaced or replenished at the same rate they are consumed. For example, it takes millions of years for crude oil to be created. Crude oil can be a raw material to make many products, including plastic. So plastic is a non-sustainable product for the FMCG industry. Already many in the FMCG industry are reducing their use of plastic, e.g. removal of single use plastic bags, as they are non-sustainable products. The plastic industry is working on sustainable plastics, for example bioplastics / PHA.
Circular Economy
The US EPA defines a circular economy as:
‘A circular economy reduces material use, redesigns materials, products, and services to be less resource intensive, and recaptures “waste” as a resource to manufacture new materials and products.’
The circular economy is different to sustainability as it focuses the efficient use of raw materials / products. Sustainability has a broader focus that includes profit and people.
ESG
ESG is an acronym for Environmental, Social and Corporate Governance. My blog, ESG in FMCG , provides more details. Supporters suggest ESG is better vs other models because it measures the overall impact a business has. For example, 100% renewable energy by 2030. ESG is different to sustainability primarily because it focuses on a broader set of criteria. For example, Corporate Governance, e.g. banning all forms of bribery and corruption.
IMHO (in my humble opinion) many in the FMCG industry thinks terms such as circular economy, ESG and sustainability are ‘the same thing’. The different terms may have some common elements, but each term is unique with its own meaning / set of goals.
Profit
Obviously for any model to be sustainable in the long-term it has to be profitable for manufacturers and supermarkets. IMHO many people in the FMCG industry believe sustainability is a ‘necessary cost’ to meet stakeholders demands. This is not always the case.
Most of the initial profit improvements will come from removing production costs. These include general costs such as electricity and direct costs such as using less packaging. For example, Unilever Sustainable Living Plan (2010 to 2020) decreased Unilever costs by over €1 billion since 2008. This was achieved by improving water and energy efficiency in factories plus using less raw materials and producing less waste. Other simple examples include Nestle using less plastic in water bottles and Aldi Australia using solar panels to create renewable electricity rather than buying electricity off the grid. There may be some initial set up costs but in the long-term sustainability can be a profitable option.
Planet
A commonly held view in the FMCG industry is that sustainability is about using less natural resources to protect the planet. An example would be supermarkets replacing single use plastic bags with reusable bags. Generally speaking, using less natural resources, such as packaging, is part of the solution. The goal is to minimise the overall impact a manufacturer or supermarket has on the planet.
Current thinking is also about innovation with sustainable products. For example, replace plastic straws with bamboo straws. By changing the products / services provided manufacturers and supermarkets can minimise their impact on the planet whilst also offering shoppers a more sustainable product / service.
Finally, supermarkets and manufacturers are reviewing operations to minimise their impact on the planet. For example, use solar power rather than electricity from coal fired power stations. Supermarkets, such as Aldi Australia, have transitioned to 100% renewable energy to minimise their impact on the planet.
Planet partnership
CDP research highlights that supply chain emissions are on average 11.4 times higher than operational emissions. This research was from a variety of industries (8,000+ businesses) and included major FMCG companies such as Coca Cola, Kelloggs, Pepsico, Sainsbury’s, Unilever and Wal Mart. This research suggests for many manufacturers and supermarkets the actions of their suppliers may have a greater impact on the planet than their actions.
As reported by Forbes (Can Profitable and Sustainable Growth Co-exist?, Jan 23) Walmart’s Project Gigaton aims to decrease one million metric tonnes of greenhouse gases across its global value chain by 2030. To achieve this goal Walmart is partnering with many suppliers, sharing suggestions on how to source environmentally friendly raw materials, use renewable energy etc.
As more and better data has become available manufacturers and supermarkets have a better understanding of their value chains impact on the planet. Now the focus for many manufacturers and supermarkets is moving from an internal focus on their products / operations to a broader focus on minimising their value chains overall impact on the planet. The Walmart example above is an example. Another example is Coles and Woolworths taking responsibility for over 12,000 tonnes of stockpiled soft plastic after REDcycle ceased operations recently (news.com.au).
This section has quickly highlighted how manufacturers and supermarkets are minimising their long-term impact on the planet. Importantly these actions highlight that businesses are taking responsibility for their value chains. For example, Aldi Australia installed over 100,000 solar panels to achieve their goal of 100% renewable energy.
People
People sustainability includes treating all people ethically and fairly, taking care of people’s physical and mental well-being and valuing talent for their contribution. For the FMCG industry this includes supporting employees, people employed by other organisations in their value chain, shoppers and the communities in which they operate.
For the FMCG industry a classic case study about the importance of people sustainability would be the Nestle infant formula scandal. Shoppers boycotted Nestle products in the 70s and 80s due to their ‘aggressive marketing’ (Wikipedia) of infant formula, particularly in underdeveloped countries. Groups such as Save the Children argued that ‘the promotion of infant formula over breastfeeding has led to health problems and deaths among infants in less economically developed countries.’ (Wikipedia). This example highlights the threat to manufacturers and supermarkets that do not adopt people sustainability.
As outlined in my blog, ESG in FMCG , people sustainability poses another challenge for the FMCG industry. Many top selling products, such as alcohol, confectionery and tobacco, may have a negative impact on shoppers’ health. So, should the industry stop selling these products to achieve sustainability?
IMHO the FMCG industry has focused on ‘planet’ whilst delivering sustainability goals, e.g. 100% renewable energy. The industry still has many challenges to overcome to successfully implement people sustainability throughout the value chain.
Threats to sustainability
Greenwashing
Due to the potential financial returns many businesses have made sustainability claims that are not supported by data / independent analysis. This is generally labelled as ‘greenwashing’. Greenwashing could be described as deliberately using false or misleading information to suggest a company’s products / services are environmentally aware.
As explained in my blog, ESG in FMCG , even new businesses that appear to have a sustainability strategy have been criticised. For example, as reported in the NY Times, Roxana Dobre from Sustainalytics said We don’t feel we have sufficient information to say Beyond Meat is fundamentally different from JBS (Plant-Based Food Companies Face Critics: Environmental Advocates, Nov 21, NY Times). Based on peer -reviewed research Beyond Meat make claims such as their beef burgers uses 99% less water, 93% less land and produces 90% fewer greenhouse emissions vs a standard US beef burger. The challenge for Beyond Meat is to get real world data from their value chain to support these claims as opposed to a research paper.
In Australia the government and ACCC is aware of the risk posed by greenwashing. As reported by The Guardian (ACCC begins ‘greenwashing’ crackdown on companies’ false environmental claims, Oct 22) the ACCC is cracking down on greenwashing as international research suggests 40% of environmental claims may be false.
“We do not want to see a loss of consumer and community trust in these claims because it is a critical part of the purchasing decisions of consumers,”
Gina Cass-Gottlieb, chair of the Australian Competition and Consumer Commission
Outsourcing
Another tactic used by business to improve their sustainability results is to outsource production that is not sustainable. As explained earlier the focus is moving to sustainability of the entire value chain. So, outsourcing in the long-term will have limited impact.
For the FMCG industry many P/L (private label) products are outsourced. Much has already been written about potential abuse of workers in retailers’ value chains, especially in clothing. Most major manufacturers and supermarkets have ETI (ethical trading initiatives) to try to stop this occurring. Unfortunately, these initiatives do not also work. For example, in December 22 Burmese migrant workers, that worked in Thailand, commenced legal action against Tesco in the UK (Quartz, Did weak ‘social audits’ fail abused workers in Tesco’s supply chain?, Dec 22). Interestingly the workers are also taking action against Intertek, an auditing firm which completed social audits for Tesco. This case is an example of businesses being held responsible for their entire value chain. So, outsourcing production to improve sustainability results is questionable.
Summation
This simple blog suggests that sustainability could have many positives for the FMCG industry. It can increase manufacturers and supermarkets profit, improve brand / shopper loyalty whilst also minimising their value chains long-term impact on the environment.
The challenge for the FMCG industry will be the cultural shift to being responsible for the entire value chain. Supermarkets cannot blame suppliers (and vice versa) for having unsustainable value chains. This includes selling products that may have a negative impact on shoppers. All members of the value chain need to work together to achieve a sustainable value chain.
The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation. Contact Details .
