Nestlé has taken another small step on the long road to becoming a sustainable company
Since the publication of Nestlé’s previous “Creating Shared Value” report, the company has undertaken considerable efforts to manage its sustainability performance better, and report on the improvements.
The company has talked to investors, civil society groups and the media as part of a materiality analysis, which was vetted by company executives. It has sharpened its thinking around “shared value” – in other words creating value not only for shareholders but for all stakeholders. And it has implemented a new worldwide business management information system to track sustainability indicators.
Yet in the company’s latest report, the visible results of all this work are mixed. Nestlé highlights improvements in environmental performance, continued broad outreach to farmers and suppliers, expansion of efforts to meet the needs of lower-income consumers, and numerous changes in product formulation to provide enhanced nutrition. But gaps in Nestlé’s report show that, for this company, sustainability is still very much a work in progress.
Doubts and gaps
Nestlé’s list of material issues, for example, is broad enough to encompass almost anything the company does – including manufacturing and environmental footprint, people, agriculture and rural development, nutrition, and marketing and communication.
The company reports precious few quantitative goals and targets. Nestlé flip-flops between its intention to develop clear financial, environmental and social goals, and contradictory positions, saying it “generally considers historical performance trends to be more revealing and useful for future planning than setting individual forward targets”.
Disclosure on stakeholder interaction is also disappointing. Nestlé duly references three day-long stakeholder sessions held in Washington DC, Geneva and Kuala Lumpur. However, the company declines to reveal any but the most general feedback, saying only that it has committed to report back to the groups “on progress made”.
Another gaping hole concerns transparency on Nestlé’s management of human rights and labour issues in its supply chain. While Nestlé claims a total of 3,400 supplier audits in 2007, it does not publish audit results or include any specifics on actions taken in the event of non-compliance. A search of Nestlé’s website yields no additional information. Given that Nestlé does not operate any of its own commercial farming activities, this seems a significant oversight.
Nevertheless, Nestlé’s attempt to cover the huge scope of its global operations – the company operates in 86 countries and has 276,050 employees – does convey the challenges of addressing sustainability on many fronts. For Nestlé, this includes managing issues across different socioeconomic regimes and within ecosystem constraints.
Paradigm shift?
Nestlé heavily emphasises its philosophy of “creating shared value”, or CSV. A web-based, seven-minute video featuring chairman and chief executive Peter Brabeck-Letmathe lays out the company’s strategy of examining all operations from both internal and external perspectives. The concept is one many readers will recognise as a simple extension of the business case for sustainability, branded in Nestlé’s own terms. Where Nestlé tries to make its mark is in explicitly outlining the “shared value” created through different aspects of its operations, evident throughout the report in many sidebars and anecdotes.
In one example, Nestlé describes building three new facilities in rural, developing areas of Brazil, China and Pakistan. This decision follows Nestlé’s policy to operate in countries where commodities are produced rather than transporting raw materials across the globe. In addition to disclosing the considerable sums spent on construction – a new milk factory in Hailar, Inner Mongolia required an investment of 20 million Swiss francs ($19 million) – Nestlé discusses direct and indirect impacts such as number of jobs created, opportunities for local workers and suppliers to increase their technical capacity, and improvements in local environmental standards and conditions.
Nestlé makes insightful observations about water use both generally and in its supply chain. For example, Nestlé notes in at least three places that 70 per cent of world water usage is in agriculture. A sidebar on biofuels produced from food crops argues that full life-cycle impacts must be considered before biofuels are widely developed.
In discussing water extraction for bottled water, Nestlé accomplishes what few reporters even attempt. Namely, the company quantifies the global ecosystem impact of water use for production of bottled water at 0.0009 per cent of total human water withdrawal. Though some may see such quantification as a defensive ploy to deflect criticism, Nestlé in this instance has begun to get to the heart of what sustainability reporting should really be: a discussion of how companies can operate within the absolute limits of ecosystems and societies. Nestlé should concentrate on this type of transparency and context in future reports.
Bitter taste
Nestlé’s coverage of how its products contribute to “health and wellness” would have been much more palatable if the discussion had not seemed so oblivious to the idea of food as a source of pleasure. For example, baby food is referred to as “infant nutrition”, products are “renovated” to improve nutritional profiles, and so on. In addition, Nestlé touts an obscure “60/40+” formula used to assess its foods, which reflects a 60 per cent positive rating from consumers in a taste test with an additional “plus” for better nutritional content.
Nestlé does better when discussing advertising and marketing guidelines. It has instituted a new policy that prohibits advertising to children under six and limits advertising to children aged between six and 12 to those “products with a nutritional profile that helps children achieve a healthy, balanced diet”. A significant addition here in future reports could be a stakeholder panel of parents commenting on Nestlé’s advertising practices and the foods themselves. Nestlé does talk about setting “clear limits for such ingredients as sugar, salt and fat”, but these limits are not yet defined (rollout to be complete by end of 2008).
As could be expected given past controversy, Nestlé rounds out the discussion with a nod to breastfeeding and a description of how the company is monitoring its compliance with the World Health Organisation International Code of Marketing of Breast-Milk Substitutes. Nestlé makes a portion of these audit results available online, showing a clear record with no violations.
As Nestlé continues marshalling evidence for the creation of shared value, it should consider whom it is trying to convince, as neither activists nor investors will accept less than a full quantitative accounting of performance. By integrating its next report (due out in 2010) into company financial statements, Nestlé could build on progress made thus far, and take a bold step towards more seamless, targeted and quantitative disclosure of value generated – for both shareholders and other stakeholders.
Snapshot: Nestlé Creating Shared Value report
Follows GRI? No (some indicators reported)
Assured? Yes
Materiality analysis? Yes
Goals? Some
Targets? Some
Stakeholder input? Yes, including stakeholder quotes.
Seeks feedback? Yes
Key strength: Presentation of CSV concept.
Chief weakness: Uneven transparency, lack of data and trend lines.
Pleasant surprise: Avoids discussion of non-strategic philanthropic activities.
Aleksandra Dobkowski-Joy is a principal at Framework:CR.
adjoy@frameworkCR.com
www.frameworkCR.com
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