“Greed, for lack of a better word, is good.”
In 1987, Gordon Gecko finally articulated what had long been the rallying cry of Wall Street.
But investors around the world, for the most part, had already turned to more socially responsible investing by avoiding apartheid in South Africa in the mid-to-late 1980s.
Perhaps inspired by the rise of a global corporate consciousness, the United Nations launched the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 to address rising greenhouse gas emissions.
Finally, after decades of a laser-like focus on the bottom line, investors began turning to “responsible investing” in the early years. The movement celebrated its emergence with the publication in 2005 of “Who Cares Wins 2005 Conference Report: Investing for Long-Term Value.”
That landmark report gave a voice to the silent majority of institutional investors, asset managers, research analysts and others who felt environmental, social and governance (ESG) considerations would play an increasingly crucial role in long-term investment strategies. term.
“Global sustainable fund assets rebounded in the fourth quarter to reach nearly $2.5 trillion at the end of December,” according to analysts at Morning Star. “Europe continued to represent the largest share of the sustainable fund landscape with 83% of global sustainable fund assets. It remains the most developed and diverse ESG market, followed by the US, which was home to 11% of global sustainable fund assets as of December 2022.”
The report, and the trillions of dollars investors have invested in these funds, have made it clear that when it comes to investing, good can also be good.
Environmental
ESG investing has since skyrocketed to play a crucial role in alternative investment strategies.
Consistently receiving the most attention, E for ESG focuses on issues that affect the planet, such as climate change, pollution, biodiversity, waste management, and responsible use of natural resources.
The financial services industry has responded enthusiastically. Based on the 2022 numbers from the Working Group on Weather-Related Financial Disclosures, more than “60% of asset managers and more than 75% of asset owners surveyed indicated that they currently report weather-related information to their clients and beneficiaries, respectively. Most asset managers report through sustainability reports or directly to clients, while most asset owners report through annual, sustainability, or climate-specific reports.
Social
The social component of ESG efforts covers issues related to people, such as human rights, labor standards, child labor, equal opportunity, and the global food supply.
Consumers are increasingly concerned about the way brands do business, from ethical sourcing to responsible labor practices, and it’s influencing purchasing decisions like never before.
Governance
Finally, corporate governance topics include topics focused on corporate governance, such as board structure, executive compensation, bonuses, and corruption. The most significant corporate governance issues include:
Justice. Brands must treat stakeholders at all levels fairly.
Transparency. Businesses must operate in the light of day, with processes visible to stakeholders, regulators, and consumers.
Leadership. Corporate governance manages key strategies but also ensures reasonable executive compensation.
Cyber security. Shareholders are increasingly concerned about cybersecurity risks, which have become critical threats to brand reputation and profit.
How ESG is already extending to F&B
In less than 30 years, ESG has evolved from a lofty ideal to an investment engine, supported by nearly every metric, whether it’s growth in assets under management, consistent market returns, or genuine consumer interest. And this movement has quickly spread to the food and beverage sector.
We don’t like to talk about it, but it’s a poorly kept secret that the global food and drink business poses a huge threat to the health of the planet. Consider:
Animal agriculture is the fourth largest producer (11%) of the world’s greenhouse gas emissions, according to the World Resources Institute.
Global consumers discard about 1.4 billion tons of food a year.
He USA it leads the way in this dubious competition, where 30% to 40% of the food supply ends up as waste. That equates to 40 million tons each year. Or, if you want to feel worse, almost 220 pounds per person.
In fact, food waste is the largest single component in America’s landfills.
Agriculture consumes 70% of the world’s fresh water, according to the world Bank. (And that doesn’t include the meat industry.)
Saving the planet
According to Mintel Consulting Sustainability Barometer 2022More than half of consumers worldwide say the responsibility for saving the planet, at least in environmental terms, should lie with manufacturers and governments, not individual consumers.
It’s no surprise, then, that food and beverage companies across the supply chain are facing increasing pressure to rewrite their environmental and sustainability playbooks. As a result, companies have begun to examine their energy sources, disposal practices, and ecological footprints.
But it’s been a tough sell. Brand leaders in the space have approached the ESG movement from a risk mitigation perspective. But many see the short-term costs they must incur—eliminating the use of plastics or paying farm partners a living wage, for example—as too prohibitive to help in the long term.
But it has become clear that ESG adoption is emerging as a value proposition that is increasingly difficult to ignore.
“A study looking at 171 food and beverage companies found that a higher level of ESG disclosure resulted in better access to social capital and financial resources, and a survey by McKinsey & Co. even suggested that investment professionals and senior management would be willing to pay a premium for companies with a positive ESG track record,” Patrick Quine, a partner at Sheppard Mullin, wrote in food manufacturing.
Companies can implement ESG protocols more affordably by adopting new technologies and innovative business practices that dramatically reduce energy and water consumption.
Regulators will regulate
Industry veterans are no strangers to regulatory scrutiny. And an increased focus on ESG is almost certain to attract even more attention from government agencies and policymakers. The European Union has already begun to take action, and the US Securities and Exchange Commission (SEC) is taking a closer look at ESG investing.
And while it’s still early days, companies need to get ahead of the wave of new regulations that are sweeping the industry. Spending now to monitor regulatory changes will save brands later by avoiding the risk of non-compliance, which invites fines or threats of legal action.
“Consumers will undoubtedly support legislation that, on the surface, appears to benefit the environment,” the Mintel report says. “Consumer support will drive additional bans, putting significant cost pressures on manufacturers as they seek to comply with the mandates and find suitable, albeit more expensive, alternatives.”
For a deeper dive into the “2023 Food Industry ESG Survival Guide”, click here.
