A ranking of the world’s 100 most sustainably managed public companies was published last week with iconic names such as Sony, Philips, Merck and Cisco Systems topping the list. But one industry was largely a no-show: food processing.
The Wall Street Journal evaluated 5,500 publicly traded companies on environmental, social and governance (ESG) metrics, with Nestle the only food company scoring in the Top 100. That’s troublesome for an industry that wishes to enhance its connection to and credibility with consumers.
Why is the food industry such a laggard in ESG? The reason is simple: Food companies have not been innovators in sustainability, or any realm for that matter, unless they have a gun held to their heads.
To be sure, certain food processors such as Unilever have made great strides in advancing their corporate social responsibility (CSR) goals. That company’s has been particularly exemplary, making €500 million available to keep its suppliers afloat and providing another €100 million in free soap, sanitizer, bleach and food for consumers and communities.
And food processors, supermarket chains and restaurants have had other big issues to confront in a food system that’s been turned upside down by Covid-19. Fixing supply chains, revamping restaurants and rationalizing product lines have happened with unusual alacrity born out of the necessity.
But that is exactly the point. While the food industry claims to be attuned to the consumer, its risk aversion means it makes major changes only when it’s forced, as the pandemic has shown. When food companies don’t see a crisis, ‘innovation’ amounts to line extensions and retro, iconic boxes.
We’re not seeing enough bold moves like the confectionery industry’s to sell more items 200 calories or less; or Panera Bread’s move as the first U.S. restaurant chain to or UK supermarket chain Tesco pledging to by 300% by 2025, the first retailer in the country to do so. These companies got ahead of issues before the brush fire ignited. But these efforts are rare.
Simply being slavish to CSR reporting no longer goes far enough. Last year, 90% of companies on the S&P 500 Index published sustainability reports. CSR reporting is no longer a differentiator; it is a minimum ante to be relevant in today’s consumer and business climate.
Big issues confronting consumers and industry – racial bias, income inequality, climate change, unhealthy populations, political instability – require a new leadership style. It demands leadership teams that step up, own the societal problems their business affects and, most importantly, move to fix it. The majority of CEOs agree. Three-quarters of CEOs polled by say they have a personal responsibility to lead change on societal issues.
Besides the obvious societal benefits, there are two hard business reasons for companies to step up:
It can increase revenues and shareholder value. A study by EY Beacon Institute and Harvard Business School found that 85% of ‘purpose-led’ companies increased revenue while almost half of the non-purpose-led companies had revenue declines. According to Deutsche Bank in 2019, companies that “experienced positive press on climate change saw share prices outperform the MSCI World index by 26%.” And according to the Stern School of Business at NYU, while sustainability-marketed products account for only 17% of sales, they have driven nearly 55% of consumer packaged goods growth in the last five years.
It matters significantly to consumers and workers. The largest workforce segment – Millennials – want their employers to be more socially active and purpose-driven. A high percentage (83%) want businesses to be more involved in societal issues. More than half always look for healthy foods and want companies to supply them. And they are five times more likely to stay at a company where they feel a strong sense of purpose.
The food industry’s poor standing on the newly released ESG list is disheartening. It should embarrass any food company that is behind the curve on these issues. However, for an industry that thrives on market research, it should serve as an immensely valuable consumer insight: Being more socially responsible will not only be good for the world, it will also help win over a new generation of consumers who want the food they buy to be produced by companies that care.
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