FMCG Environmental Sustainability revisited: a complicated picture
Under pressure from consumers and regulators, retailers and FMCG manufacturers are working hard on Sustainability. But is change happening fast enough, ask Zoe Wakeham and Daniel Wood, Consultants in our Consumer & Retail practice.
Three years ago we explored some big FMCG Environmental Sustainability trends. It hardly needs saying that a lot of water has flowed under the bridge since then, from COVID to the cost of living crisis, and it is therefore high time for us to revisit the topic and look at how things have changed.
1. Sustainable packaging and the cost of living
There have undoubtedly been some welcome and eye-catching initiatives on plastics reduction from retailers and FMCG manufacturers in the last couple of years. For instance, Morrisons’ decision to ditch ‘bags for life’, a move it claims saves 3,200 tonnes of plastic per year.
Yet it is hard to escape the feeling that overall progress has been lacklustre. That is certainly the view of MPs, who in November 2022 criticised supermarkets and their suppliers for being “too slow” in a report on ending the toll of plastic waste.
There is an unpackaged elephant in the room: the cost of living crisis. Rising prices and affordability concerns have seen sustainable packaging slip down the agenda. Market research firm Kantar recently found that the cost of living crisis has dented eco-shopping habits, noting a decline in the number of ‘Eco Active’ shoppers for the first time in the four-year history of its report.
It comes as no surprise that many consumers have sought to save money by switching from branded products to supermarket own label. Asda found that within a few weeks of launching Just Essentials in summer 2022, 33% of its shoppers had products from the own label line in their baskets.
2. Environmental protection
Sustainability remains important to shoppers, and brand and product marketing is still awash with eco-claims. These had better be whiter than white – or perhaps greener than green would be more apt, as intolerance of greenwashing continues to grow. Trade magazine The Grocer reported on 10 February 2023 that the greenwashing crackdown is on, “with everyone from watchdogs to financial investors placing the claims of food companies in their crosshairs.” The Competition and Markets Authority, for instance, will be scrutinising everyday product labels for misleading green claims.
Meanwhile, one strand of the UK’s Environment Act seeks to protect rainforests and clean up supply chains by banning companies operating in the UK from using products grown on illegally deforested land. There is a feeling in some quarters, however, that these aspirations do not go far enough.
The European Commission is considering proposals under which companies selling products derived from poultry, cattle, palm oil, soy, maize, cocoa and other foodstuffs must verify they were not produced on deforested or degraded land. A higher bar than “illegal” deforestation.
3. Plant based alternatives
While many people have been forced into making changes to their shopping habits by the cost of living crisis, there is also evidence that consumers are being more proactive in adopting a more sustainable lifestyle. Deloitte research finds that consumers have significantly increased their focus on buying just what they need, which of course also ties in with financially-driven belt-tightening, and on reducing meat consumption.
Decline in meat eating at least in part reflects the ongoing rise of veganism, vegetarianism and ‘flexitarianism’. Globally, the vegan food market is projected to expand at a compound annual growth rate of 10.6% from 2022 to 2030.
Food giant Unilever, which owns the Vegetarian Butcher brand and has been adding vegan options to the product range of some its most prominent brands such as Ben & Jerry’s and Hellmann’s, is committed to an annual $1 billion sales target from plant-based meat and dairy alternatives within five to seven years. Mars, meanwhile, launched vegan versions of its Topic and Bounty bars in time for this year’s Veganuary, while Cathedral City launched its first plant-based cheese in September 2022. These launches are just the tip of the iceberg given that NPD of plant-based products is thriving in response to rising demand for meat-free options.
4. Sustainable sourcing
There remains a worrying disconnect between procurement teams and stakeholders on sustainable sourcing. A recent Amazon Business survey of 5,000 employees across France, Italy, Germany, Spain and the UK found that more than four in 10 (41%) were completely unaware of any sustainability guidelines within their organisation relating to procurement. Even though employees of all ages want to source sustainably.
It is often said that up to 80-90% of greenhouse gas emissions associated with an end product may come from the value chain – what is known as Scope 3 emissions. The push to measure and track these emissions from suppliers gained momentum from around mid-2020 onwards but it presents many challenges.
Some leading businesses, including consumer goods manufacturers, have made moves to secure supplies of green resources. McKinsey notes: “The longer that others wait to devise their own strategies for procuring low-emissions resources, the more likely they will be to end up at a disadvantage.”
To date, Scope 3 reporting has been mostly voluntary but there is mounting pressure for it to become mandatory. In October 2022, the International Sustainability Standards Board (ISSB) of the IFRS Foundation unanimously voted to include Scope 3 emissions disclosure within new standards it is developing. This move will appeal not only to many green-minded consumers but also to a growing band of investors. A PwC survey of 325 investors (representing $14 trillion in assets under management) found that more than one-third of them identified cutting Scope 3 emissions as a priority.
5. Energy efficiency
Energy efficiency looms far larger as an issue for retailers than it did three years ago for obvious reasons. Climate change concerns are starker than ever, to which can be added the headache of high energy prices.
Retail is said to account for around 17% of energy used by UK buildings, so there is potential for some major (and sustainability enhancing) savings to be made. High Street retailers are increasingly collaborating with their landlords to develop low carbon strategies and reviewing their heating, ventilation and air conditioning equipment to find more efficient solutions. In June 2022, the BRC published a useful Step-by-Step Guide to Energy Efficiency and Carbon Reduction in the Retail Industry, as part of its Climate Action Roadmap.
As we noted three years ago, “Sustainability is becoming the epicentre of FMCG business strategy”. That said, many leaders are understandably nervous of making investments that add to production costs in case consumers are unwilling to pay a ‘green premium’. A worry compounded by these inflationary times. Yet by making net zero a genuine priority companies may put themselves on the path to future success.
Organisations’ ESG propositions are clearly running into a number of challenges, among them macroeconomic headwinds, heightened pressure from stakeholders and a lack of talent to implement and operationalise strategy. We would welcome comments on how these Sustainability hurdles can be overcome.