The cost of living crisis has significantly impacted consumer priorities. More than half of households (57%) report spending less on essentials to manage rising bills across food, fuel and energy. That makes price the most important consideration for many shoppers browsing stores.
But though they have less cash to spend, that doesn’t mean their concerns around climate change, social impact and ethical business practices have completely fallen by the wayside. In fact, 78% of consumers say that sustainability remains important to them, according to NielsenIQ. This means that despite ongoing uncertainty, food and drink businesses must continue to focus on environmental and social impact.
If you want to understand how businesses and consumers are navigating these economic challenges, this article explores the pivotal role of ESG and sustainability in the food and beverage sector.
ESG stands for Environmental, Social, and Governance, three critical factors used to evaluate a company’s sustainability and ethical impact. It encompasses how a business operates within the natural environment, leaders’ relationships with employees, customers and suppliers, and a business’s relationship with local communities.
Sustainability in the food industry is vital for a multitude of reasons, not just in terms of environmental impact but also business ethics and consumer satisfaction. Here are some of the main reasons why sustainable practices are essential for companies’ success in an environmentally conscious market:
Any corporate social responsibility (CSR) or environmental, social and governance (ESG) strategy needs to be developed with a solid understanding of the impact of the cost of living crisis on their consumers, of course.
Though there are some signs of stabilisation in the global economic outlook, a high percentage of low to medium-income earners continue to bear the brunt of rising household bills. This has dampened consumer confidence and willingness to spend, with many now firmly focused on price and promotions, and willing to trade down from their favourite brands to private label alternatives if it means saving cash.
The food and drink industry is navigating a dual challenge: integrating ESG principles amid economic pressures. Rising costs for ingredients, transport, and labour force businesses to reassess investments, slowing innovation and marketing efforts. This financial strain is compounded by the need to address sustainable supply chains, environmental impact, and ethical labour practices. Here’s how companies can address and overcome these challenges effectively:
By implementing these strategies, companies in the food and drink industry can effectively manage ESG challenges, turning economic pressures into opportunities for growth.
The role of ESG in the food and drink industry's sustainable evolution
It can feel counterintuitive against this backdrop to invest in sustainable solutions. But the reality is doing so can provide businesses with greater brand loyalty, healthier margins and savings in their supply chain.
For one, not only do consumers continue to care about environmental impact, but they remain willing to spend more on those food and drink businesses that reflect these values.
Over the past five years, products making ESG-related claims accounted for 56% of all brand growth, with products making eco-claims averaging 28% cumulative growth, versus 20% for products that made no such claims, says McKinsey.
Sustainability and ESG performance in the food and drink space should therefore be viewed as an invaluable way to drive growth and recover market share despite uncertainty.
Remember though that while many consumers will prioritise brands that have a strong track record on their ESG performance, the cost of living crisis means they’ll do so while looking for a strong overall value proposition at the same time. Food and drink businesses should bear this in mind when mapping out sustainable solutions.
For example, ensure any marketing or communications around the environmental impact of a product share both the benefits for the planet and the benefits for the consumer. Do ethical business practices mean a higher quality product? Do better animal welfare standards contribute to a healthier protein? Or does buying a product allow a consumer to directly benefit their local community?
Sustainable solutions aren’t only a source of competitive advantage with consumers either. They can also provide long-term ways to improve the resilience of global supply chains and build in greater efficiencies and therefore savings for food and drink businesses. An upside that is never more important than in a challenging economic climate.
Consider how local sourcing can both reduce carbon footprint and cut shipping costs, for example. Or how longer energy consumption in factories can both slash bills and reduce environmental impact.
There are numerous reasons, in other words, why food and drink businesses should continue to prioritise their ESG performance and sustainability, despite ongoing uncertainty. Not only does it retain existing customers and attract new ones, but it can improve margins, drive growth and create supply chains more resilient to future shocks. All of which is critical as businesses – and their consumers - navigate the current crisis.
Read part 4 in our Cost of Goods series: Balancing budget cuts and food safety management: strategies for manufacturers, retailers and service providers here.