ESG: 3 Ways ESG Requirements Will Affect Your Food Business and Brands

Since 2005, when ESG first arose as concept, our industry has changed a lot in regards to it’s focus on sustainability – driven by consumer demand for environmentally sound business operations. But it’s not just consumers who are interested in a brands ESG credentials – now more than ever, ESG is a hot talking point for investors who want to mitigate risk within their investment portfolios. In recent years, Environmental Social Governance has rapidly become one of the most talked about topics within our Food Industry as a whole, a trend accelerated by Covid-19, which saw consumers take a greater interest in the lifecycle of their food.

Although the prominence of ESG is well understood, many still do not understand the extent to which positive ESG activities could impact brand value, especially within the food industry. Recent research has revealed that “companies who embrace ESG criteria are performing better and safer for all stakeholders, investors, employees, customers and their communities” as well as being able to “access sticky pools of capital that can fuel stronger company performance long term”.

In our latest discussion for our ongoing ESG series, we highlight the 3 ways that embracing ESG activities could positively affect your food business, with a consideration of latest industry insights.

1. Operational Performance

“Solid ESG practices resulted in better operational performance in 88% of companies”

Companies who actively encourage and invest in ESG often benefit from improved employee productivity, increased energy efficiency, reduced waste and a reduction of water in day-to-day operations.

ESG initiatives generally lend themselves to improved operational performance, focused on employee welfare and the environmental impact of operations, with ESG reporting enabling businesses to easily spot inefficiencies in their processes. In order to improve metrics and meet ESG criteria, businesses must be willing to actively report on their activities, committed to continuous development and adapting their processes where necessary.

It’s been highlighted in recent years, that the impact of ESG activities on one of the most important stakeholders - employees - is often overlooked. Despite this however, it has been found that businesses who perform highest on ESG metrics, also rank highest in terms of employee satisfaction and motivation, which helps to drive productivity and reduce staff turnover. Employees, especially in younger generations, now care about the ethical standpoint of their employer - 86% of them favouring to support or work for companies that care about the same issues they do.

2. Increased Customer Satisfaction and Competitive Advantage

83% of consumers think companies should be actively shaping ESG best practices.

It’s no secret that consumer shopping behaviour has fundamentally changed, with shoppers now better informed about products before purchase and, more interested in the journey of their food products, from farm to fork.

Although buying habits are affected by a wide range of external influences, “nearly six in 10 consumers surveyed are willing to change their shopping habits to reduce environmental impact”. Those businesses who are actively working to improve their Environmental, Social and Governance impact are more likely to avail of improved customer loyalty, by demonstrating that their values align with those of the modern consumer as well as protecting themselves against market volatility.

In addition, ESG can be leveraged as a strong cause-related marketing tool, enhancing customer satisfaction which can improve brand reputation, often resulting in increased profitability. Recent research confirmed that 37% of consumers are seeking out and willing to pay up to 5% more for environmentally friendly products and are actively changing their shopping behaviour to do so.

Also, the marketing opportunities that come with positive ESG are no secret within the industry- food products now packaged with “Eco-labels", to articulate to customers the overall environmental impact of that product or brand. With 76% of consumers confirming they would discontinue relations with companies that treat employees, communities and the environment poorly, we are seeing more brands actively leaning on ESG statistics to differentiate products and highlight their ethical value over alternatives in the market.

3. Growth and Development Opportunities

In another study, nearly half (44 percent) of the companies we surveyed identified business and growth opportunities as the impetus for starting their sustainability programs.

Put simply, food businesses actively invested in ESG and in taking steps to improve their sustainability, are more attractive to investment opportunities, with better access to resources through stronger community and government relations. Not only are investors capitalising on the changing consumer behaviours, recognising how lucrative ESG can be, but businesses invested in ESG are less susceptible to the risks that can be unearthed when a brands supply chain is put under the spotlight – providing greater stability and therefore a safer investment.

ESG is focused on the betterment of society and therefore, those businesses that ensure this is a focus of their operations are more likely to build positive relationships with their communities and qualify for government development opportunities.