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.

 

What is ESG?

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.

  • Environmental: This concerns companies’ ecological impact. For the food and beverage industry this could involve sustainable procurement, reducing carbon emissions and waste management.

  • Social: This involves companies’ relationships with employees, suppliers, customers, and communities. Examples range from fair labour practices to community engagement and efforts to safeguard consumer health.

  • Governance: This relates to leadership, audits, internal controls, and shareholder rights. In this sector, governance includes ethics, operational transparency, and regulatory compliance for traceability, food safety and quality.

Why is sustainability important in the food and beverage industry?

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:

  • Safeguarding the environment: Reducing emissions, waste and water usage helps to minimise the ecological footprint of food and beverage production.

  • Ethical practices: Ensuring fair labour practices and the humane treatment of animals in the supply chain is ethically sound and vital for a company’s reputation.

  • Resource management: Promoting the efficient use of resources avoids risks associated with unnecessary waste while enhancing profitability.

  • Consumer demand: Remaining competitive by addressing growing consumer expectations for ethically produced and environmentally friendly products.

  • Regulatory compliance: Helping companies stay ahead of regulations that demand sustainable practices and avoiding penalties or accusations of greenwashing.

  • Brand loyalty and market advantage: Fostering brand trust, consumer loyalty and a competitive edge in a market that values sustainability.

Prioritising ESG performance

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. 

Challenges and barriers for ESG in the food and beverage industry

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:

  • Invest in energy-efficient technologies: While this may involve some up-front expenditures, it should reduce long-term operational costs while minimising environmental impact.

  • Prioritise local sourcing: This will cut transportation costs, boost local economies and consolidate companies’ presence in their community, reinforcing the social aspects of ESG.

  • Implement recycling and waste reduction programs: Turning waste into resources will enhance sustainability, reduce costs and appeal to eco-conscious employees and customers.

  • Train employees in sustainable practices: Embedding sustainable habits into daily operations, based on a culture of learning and continual development, will enhance ESG over the long term.

  • Strategic integration of ESG principles: Tackling immediate financial issues while establishing a foundation for sustained corporate responsibility and environmental stewardship.

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.   

The power of a strong overall value proposition

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?  

The long-term gains

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. 

Key takeaways for ESG in the food sector

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. 

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Read part 4 in our Cost of Goods series: Balancing budget cuts and food safety management: strategies for manufacturers, retailers and service providers here.