Nestlé and Unilever lead the pack when it comes to the biggest 10 consumer goods producers, according to an Ethical Corporation analysis, but even the laggards are trying to up their game
Sustainability at big consumer goods companies once meant little more than coming up with some form of recyclable packaging and putting money into meaningful philanthropy. No longer. As Will Hailer, head of consumer goods at OC&C Strategy Consultants points out, the goal posts have moved and these days such efforts don’t make the grade.
At a time of growing realisation of the toll our voracious consumption patterns are taking on our resource-constrained planet – coffee, for example, is now the most valuable commodity after oil - consumers want to know that the companies that produce their favourite brands are making serious efforts to address their impacts in their manufacturing practices and supply chains.
And companies have every reason to listen. A 2015 Global Sustainability Report from the US consumer research agency Nielson found that 66% of consumers were willing to pay more for a sustainable brand, up from 55% in 2014. Among millennials, 73% were willing to pay a sustainability premium.
But failure to step up to its social and environmental responsibilities has far more serious implications than losing market share to a greener competitor. Former BP CEO John Browne argued in his book Connect: How Companies Succeed by Engaging Radically with Society that a company could lose up to 30% of its value if it doesn’t get its relationship with society right – translating into around £5.6bn for a typical FTSE100 company.
So how are the biggest fast moving consumer goods (FMCG) companies, the ones that have the greatest potential to wreck environmental and social damage through sheer size, doing on this increasingly important metric?
We decided to assess the progress of the world’s top 10 FMCG companies by turnover, according to OC&C Strategy Consultants’ 2015 ranking. In declining order of size they are: Nestlé, Procter & Gamble, PepsiCo, Unilever, JBS, AB InBev, Coca-Cola, Tyson Foods, Mondeléz, and Archer Daniels Midland.
While it is relatively easy to assess consumer companies on their financial sustainability, it is much trickier to do so on their social, environmental, and good governance goals and actions. Though most companies start by internally setting goals to reduce greenhouse gas emissions, water usage and waste, there is no universally accepted set of sustainability metrics and how to report them in order to make easy comparisons.
To get an idea of the leading sustainability performers in our top 10, Ethical Corporation looked at their sustainability reports and the companies’ inclusion in leading sustainability indexes (see sidebar); we also viewed sustainability news items emanating from our 10. Interesting patterns and indicators emerge, and while this assessment is subjective, it helps to show best practice among the biggest FMCG players. What we found is that the leaders are the leaders because they started early and have stayed a course – and the laggards are following their examples as they pursue the sustainability journey.
Clearly, Nestlé and Unilever are the sustainability leaders. For one thing, they’ve been around longer than those that that are the result of many mergers and acquisitions, such as Mondeléz, and have been more consistent than the likes of Brazil’s JBS, the global beef conglomerate, which have produced sustainability goals, reports, and efforts less consistently and for fewer years.
When it comes to collaboration and partnerships with other companies and non-profits, supply chain issues, and action around climate change, Nestlé and Unilever predominate. Their outspoken CEOs – Paul Polman at Unilever and Peter Brabeck-Letmathe – aren’t afraid to take public stands on these issues.
Unilever, and to a certain degree Nestlé, also seem to have embraced a holistic sustainability definition and have begun embedding it into their business models. This means they are beginning to take “breakthrough” goals, which are highly aspirational and beyond stretch goals. Unilever global vice-president for sustainable business Karen Hamilton, distils her company’s sustainability work into three big goals. “By 2020 we will improve the health and well-being of more than a billion people, halve the environmental impact of our products, and enhance the livelihood of millions working across our value chain,” Hamilton says.
Waste, water and climate
Let’s look at three different metrics – zero waste sites, water use, and climate change action – to see how the leaders have performed.
Unilever in February announced that it had reached an “industry-leading” achievement of eliminating non-hazardous waste to landfill at more than 600 of its manufacturing, office and warehouse sites in 70 countries (though it did not say what percentage of sites this represented) while Nestlé, which had a 2015 goal of zero waste at 10% of factories, achieved this at 22% of sites.
At Unilever sites in Egypt, trash is sent to local entrepreneurs, who sort for recycling and use plastics in upcycled fishermen’s bags; in Africa some waste is turned into low-cost building materials; in Ivory Coast waste fires cement kilns. Unilever’s ultimate goal is a “zero-waste value chain” and it is collaborating with the Closed Loop initiative to build better recycling facilities as well as with non-profit 2degrees to share its best practice with other companies.
On water, Unilever is lauded by Oxfam’s Behind the Brands report for getting suppliers to report water management practices, though Oxfam says Nestlé has the most specific guidelines for suppliers on water management. Oxfam praises both Unilever and Coca-Cola for adopting the idea of water neutrality for internal operations, a great case of best practice. However, none of these brands has yet set value-chain water-use reduction goals, which Oxfam sees as a necessary next step.
On climate, Unilever is the only company to get a score of nine out of 10 from Oxfam.
Oxfam says Unilever has strong policies on deforestation and palm oil and strong guidelines for suppliers, and is involved in many partnerships to push the Paris agreements beyond promise to actions. Other companies, Oxfam says, haven’t stretched themselves enough in their emissions-reductions ambitions.
The middle ground
Coca-Cola, PepsiCo, Mondeléz and P&G form the middle tranche in terms of sustainability leadership among our 10 FMCG firms. Oxfam in particular gives Coca-Cola kudos for its land rights policy, and Coca-Cola also gets top marks from Canada’s Corporate Knights and from Germany’s Oekom Research.
Coca-Cola views three of its recent actions as breakthrough in terms of sustainability leadership, says communications director Serena Levy. “Three actions we view [as] having great potential well into the future are our water replenish work, 5by20 programme, and our PlantBottle innovation.” The 5by20 initiative, which has a goal of empowering 5 million women entrepreneurs across the value chain by 2020, has already reached 1.2 million women.
Andy Krumholz of Escama Studio, a social enterprise that employs women to make fashionable purses and handbags out of recycled pull tabs from drinks tins, says Coca-Cola’s long-term support has been key. “Coca-Cola has helped source the raw materials to create our products and purchased our finished products for sale in their branded shops,” Krumholz says. “Without their consistent support over the years our venture would not have been able to sustain the livelihood of 65 artisans at a fair living wage.”
PlantBottle (made from 30% plant-based plastic) attracted some negative attention for claiming too much green goodness, but has helped Coke reduce CO2 emissions by 315,000 tonnes. Last July the company debuted a PET recyclable bottle made entirely from plant plastic.
Both P&G and Mondeléz have made some moves to increase their leadership in sustainability recently. Jack McAneny, director of global sustainability, says P&G has created a long-term environmental vision that is aligned with multiple UN Sustainable Development Goals (SDGs). McAneny says the company established multiple short-term goals, “to ensure we stay on track to deliver this vision”.
Alignment with UN SDGs is quickly becoming best practice for large FMCG companies. The place where you might expect FMCG firms to have the most influence on the SDGs would be on nutrition. When the Access to Nutrition Foundation recently assessed major food and drink manufacturers on this issue Unilever and Nestlé took the expected number one and number two spots, respectively, while Mondeléz got fourth place (behind smaller Danone) and Coca-Cola took 12th place, down from ninth in 2013. Access to Nutrition said that there was “no evidence to indicate that [Coca-Cola’s] product development is aligned with internationally recognised dietary guidelines”.
Cordelia Tschantré of Nestlé’s media relations group said Nestlé is proud of its best-practice work with micronutrient fortification of its products, such as adding iodine to Maggi cubes. The leaders are also cutting sugar, fat and salt from their products.
Access to Nutrition, however, says global food companies aren’t moving fast enough and need to work more on educating consumers on best choices.
By simply reading summaries of sustainability reports it’s easy to assume that FMCG companies are very good citizens, because their reports are stuffed to overflowing. But whether it is enough – enough to reach SDGs, enough to forestall environmental crisis – is key, and it’s hard to pass judgment.
Andrea Spencer-Cooke of One Stone Consulting, based in Sydney, says the massive supply chains of these companies means change is slow and must be assessed over a longer term, yet acceleration has to happen at some point. “It’s broadly accepted that incremental change and business as usual sustainability strategies simply won’t meet the SDGs in time,” she says.
And the rest…
None of our remaining FMCG companies – JBS, Tyson, InBev, and ADM – is on the Dow Jones Sustainability Index (DJSI). Neither do they make it to the rankings of Canada’s Corporate Knight or the US-based Ethisphere Institute’s World’s Most Ethical Companies list.
But they do pursue sustainability goals and report on their progress. ADM, though long considered something of a sustainable agriculture villain as a leading producer of genetically engineered corn, has commitments toward sustainable palm oil, soy and cocoa and is working with The Forest Trust.
In April the company unveiled an online progress tracker showing that in the past year the company has mapped its palm oil footprint, established baseline traceability scores and completed a review of direct palm oil suppliers. ADM also made a 2014 commitment to human rights and analysed human rights risks in its supply chain.
Chicken, beef and pork producer Tyson has a long history of activism against it for factory farm conditions, US Clean Water Act violations, and for sustained and rampant use of human antibiotics. Yet the company has attempted to up its game in transparency and goal-setting.
“We’re doing our part to address the global concern about antibiotic resistance,” says Tyson spokesman Gary Mickelson. “In 2015 we announced we’re striving to eliminate the use of human antibiotics from our broiler chicken flocks by the end of September 2017.”
Tyson also set a goal to reduce the amount of water used to produce its meat by 12% by 2020, using 2015 as the baseline year.
Giant Brazilian beef producer JBS also claimed two “breakthroughs” for the industry: a responsible purchasing policy for the 60,000 farms in its supply chain and a monitoring system that uses geospatial analysis to make sure suppliers aren’t involved in deforestation of Brazil’s Amazon region, illegal land grabs, or forced or child labour, spokesman Eduardo Pavanelli Galvão says.
Last but not least, AB InBev, the world’s largest brewer, has long worked on being environmentally conscious and responsible and claims to be the most water-efficient brewer on the planet. Like many other brewers AB InBev’s efforts to promote “responsible drinking” let it mostly skirt the health impacts and risks for humans when consuming alcohol products.
The take away
The globe’s largest FMCG companies all clearly have sustainability goals in mind. For most of them, spreading sustainability actions down through their supply chains is becoming second nature, as is a recognition that they have to help achieve the UN SDGs. Only time will tell whether the leaders and the laggards can ramp up their good actions enough to make our daily consumption patterns sustainable.
Andrew Winston, sustainability strategy advisor to the Sustainability Consortium and author of The Big Pivot, says in an April report, Greening Global Supply Chains, that the big brands have a big challenge ahead of them.
“The consumer goods sector will need to play a key role,” Winston says. “It must innovate and help everyone consume smarter and better. More specifically, the ‘pivot’ for retailers and manufacturers will mean getting far greater visibility into supplier operations. Then, armed with better information, they can create aggressive and collaborative programs to reduce impacts and rethink production and consumption across value chains.”
Kudos and condemnations
Coca-Cola (#13), Unilever (#47), and Nestlé (#89) are the only three of our top 10 to make Canada’s Corporate Knights 2016 Top 100 Most Sustainable Corporations in the World list.
Oxfam’s Behind the Brands, which specifically rates the 10 largest food and beverage companies on agricultural practices and agricultural workers’ rights has five of our 10 in its 2016 Top Ten Scorecard. Nestlé and Unilever get the top spots and have improved on most indicators in Oxfam’s three years of scoring. Oxfam says Unilever is the only one of the top 10 companies that both increased its attention on climate change and asked its suppliers to support farmers’ rights organisations.
Influence Map’s 2016 ranking of the best and worst corporations influencing climate policy and actions gives Unilever a B+, AB InBev a B, Nestlé, Coca-Cola and Mondeléz B-, PepsiCo a C+ and Procter and Gamble a D-.
Only Unilever and Nestlé make CDP’s 2015 Climate A List in the consumer staples category. The list includes global companies disclosing their greenhouse gas emissions and performing best on climate change mitigation, adaptation, and transparency.
Oekom Research, based in Munich, has rated more than 3,700 companies with its extensive sustainability leadership criteria. In the food and drinks sector, the top three leaders are Coca-Cola, the Coca-Cola HBC (bottler) and Unilever. All three receive what Oekom calls “prime” status, which means they meet sector-specific minimum requirements for sustainability and management by the time of the rating (end of 2015).
From our top 10, only PepsiCo makes the Ethisphere 2016 Most Ethical Companies List, which is based on RepRisk data.
Archer Daniels Midland ranks 48th on the Political Economy Research Institute’s Toxic 100 Air Polluters list (compiled in 2013)sustainability environmental responsibilities sustainable brands CSR climate change deforestation Palm Oil traceability strategy