What effect has the COVID-19 pandemic had on the sustainability strategies of retailers and consumer goods firms? Stephen Wynne-Jones reports. This article first appeared in ESM Issue 6 2020.
What a difference a year makes! While 2020 may have started with the sustainability agenda firmly front and centre, the COVID-19 crisis quickly surged to the foreground, where it has remained since. As the pandemic gained traction, ‘stay safe’ replaced ‘save the planet’ as the clarion call of the world’s population, as the things we took for granted – meeting friends, visiting bars and restaurants, travel – were put on ice.
Even a simple task such as visiting the supermarket was altered, with mandatory mask-wearing, queuing for entry, and heightened sanitisation measures becoming commonplace.
To the average man or woman on the street, the priorities were clear – and they didn’t necessarily involve saving the Amazon rainforest or reducing plastic waste – but behind the scenes, the environmental, social and corporate governance (ESG) juggernaut has shown little sign of slowing.
Challenging though these times may be, the coronavirus pandemic is not going to bring several years – or even decades – of positive eco-action to a halt. In fact, in many cases, the opposite is true – sustainability is being seen as the springboard for many businesses, whether large or small, to ‘build back better’ once the current malaise subsides.
In the final issue of last year, ESM introduced its first annual Sustainability Report, outlining the measures being taken by major retailers and consumer goods firms to address issues such as biodiversity, deforestation, waste management, green energy, and other related topics in the coming decade. Today, while many of these strategies have been reconfigured due to the mother of all black-swan events, the momentum has remained, or even accelerated.
Setting New Targets
Let’s not forget that, despite the obvious obstacles, the year 2020 was one that saw the introduction of the European Commission’s European Green Deal, a wide-ranging endeavour that seeks to make the EU climate neutral by the mid-part of the decade. By boosting the efficient use of resources, moving to a circular-economy mindset, restoring biodiversity and cutting pollution, the Commission is confident that the ambitious targets set out in the deal can be achieved.
Commenting during a recent webinar with European retail group EuroCommerce, vice-president of the European Commission Frans Timmermans acknowledged that Europe has made such pledges before, only for plans to fall apart once the various cards were laid on the table.
With the European Green Deal, Timmermans said, “We have to offer long-term predictability and security, and not change course every few years. [...] There is so much understanding on where we need to go, so the discussion should focus on how we ensure we leave no one behind.”
In terms of retailer involvement in such schemes, Timmermans pointed to the positive work being undertaken on food waste, but noted that there are certain measures, such as the price difference between virgin and recycled plastics, that will need to be addressed.
“There is so much goodwill in the retail and wholesale sector to take us into a sustainable world, but the advantages have to outweigh the disadvantages,” he explained during the webinar. “The main thing is to get everybody involved. It’s not something I want to put on the plate of retailers. It needs to start with consumers and their behavioural patterns.”
No Purpose, No Gain
This year, much of the dialogue within retail and FMCG has focused on the need to prioritise purpose over profit, and, indeed, the level to which firms have ensured the safety and security of their employees and customers has been little short of groundbreaking. Now the focus will be on how businesses can build on these positive foundations.
At the start of the lockdown period, in April, Euromonitor International published a report – Rethinking Sustainability: No Purpose, No Gain – in which it wrote that the ‘all in this together’ mentality of the COVID period is likely to accelerate disruptive business models and lead to a genuine embracement of the ‘purpose over profit’ mindset. Euromonitor then followed this up with further studies in October, finding that many of the goals that it outlined have ceased to become aspirational – they are now firmly embedded in the modi operandi of businesses.
“Sustainability is no longer about aspirations,” Maria Coronado Robles, sustainability insights manager at Euromonitor International, tells ESM. “It is about genuine concerns and commitments alongside powerful strategies with a long-term vision. Long-term sustainability issues such as climate emergency, pollution or inequalities will remain despite the pandemic, and, therefore, sustainability priorities and strategies are not expected to be massively affected by the second wave, although some delays will certainly happen.”
Clearly, the adverse economic landscape means that small businesses and those with fewer resources will need to refocus on profits to navigate the storm, Robles notes, but the majority of firms are likely to emerge from the coronavirus crisis with stronger values and purposes, remaining loyal to their promises and seeking to rebuild the economy in a better way.
“There is greater optimism regarding the outlook of the COVID-19 impact on business revenues,” she says. “As of October 2020, 29% of surveyed professionals expected a much worse impact on their company’s revenue, compared to the 2008/09 global financial crisis. This is a decrease of ten percentage points compared to April 2020. Companies such as Unilever and L’Oréal see the pandemic as an accelerator for the transition towards more sustainable business models, and many key players across all sectors have launched more environmental commitments post-outbreak.
“In addition, there is higher pressure from consumers, who will not tolerate lack of action on big problems such as climate emergency or inequalities, as well as more pressure from investors. For example, in October 2020, a coalition of investors with €1.8 trillion in assets teamed up to deliver a pioneering satellite monitoring programme for tropical forests that will assess retailers’ and manufacturers’ efforts to decouple their supply chains from deforestation.”
Taking The Lead
While there is no one-size-fits-all solution to issues such as the climate crisis or ocean plastics, company leadership teams are increasingly grabbing the bull by the horns on sustainability initiatives, seeing the advantages in both a top-down and bottom-up approach.
“Many CEOs are now seen as sustainability activists by their employees,” says Robles. “There is more awareness, willingness and resources to implement sustainability initiatives than there was pre-COVID. Yet, at the same time, sustainability leaders are putting purpose first, and by that they are activating the huge potential of bottom-up approaches. They are listening to their employees and their consumers. This is enabling them to find new sources of value that were previously hidden within the organisation.
“Purpose is what motivates people, and people are what make a company successful. With purpose, sustainability is more meaningful.”
This has also led to a re-evaluation of what it means to be successful in business. Big business is traditionally structured around short-term thinking – the next set of quarterly results, or the next AGM or shareholders’ meeting. However, by imbuing a new mindset into all facets of their organisations, business leaders are realising that there needn’t be a trade-off between sustainability and competitiveness.
“Traditionally, these two areas were seen as fundamentally opposed to each other,” says Robles. “Now the board of directors of an increasing number of companies understand the link between sustainability and financial performance.
“The health crisis has accelerated further discussions and actions at board level, stimulating the transition to a new corporate leadership that sees profitability and sustainability as a perfect marriage. This shift in mindset is here to stay, with an increasing number of businesses expected to look at sustainability as a vehicle to create a more holistic value for their business, beyond economic profit, focusing on the connection between sustainability initiatives and business benefits. Purpose has become the new standard of sustainable business leadership – what is good for the society and the planet is good for the business.”
Why Biodiversity Matters
The coronavirus crisis has also shone a spotlight on an increasingly important aspect of sustainability: biodiversity. While the WHO continues to investigate the original source of the SARS-CoV-2 virus, it appears almost certain that it has a zoonotic source – if not from human contact with bats, then with another animal species handled by humans. This fact alone should be considered a stark warning: unless humans treat biodiversity with the respect that it deserves and lessen deforestation, the chance of further, even deadlier outbreaks is a real possibility.
A recent study from Barclays, Biodiversity – No Plan(et) B, explores this in more detail. As the report indicates, of the thousands of plant species around the world, only nine account for two thirds of all food production – an agricultural monoculture that is crowding out biodiversity. One third of the world’s topsoil has been degraded, as has one third of forests, including 20% of the Amazon.
‘Ultimately, there is no business if food companies can’t buy commodities, and guarantee supply,’ the report notes. ‘Consumers have a big part to play, and the rapid growth of plant-based food is starting to move the needle, but it requires all stakeholders to act.’
The food-and-consumer-goods sector, Barclays notes, is making progress on this front, but more could be done. There have been positive steps in terms of pursuing certified and traceable raw materials from existing supply chains, encouraging the sustainable production of agriculture and dairy, as well as the aforementioned investment in the meat- or dairy-alternative markets.
Danone and Unilever, the report notes, are leading the way. The former’s CEO, Emmanuel Faber, has set out a ten-year plan to ‘bend the curve’ on climate change and biodiversity loss, while the latter has made a number of key announcements recently, including a €1 billion commitment to the Climate and Nature Fund, and a similar commitment to sourcing renewable materials for its household range.
One caveat: such endeavours will cost money. ‘Nestlé has said getting to carbon neutral will be expensive and requires higher levels of reinvestment,’ the report reads. ‘Many other companies haven’t quantified the cost yet, and this should be a key issue for investors. Plenty of laggards will need to catch up as the leaders are redoubling their efforts.’
In terms of ensuring the future safety and stability of our planet, it will likely be a cost worth paying.
The Plastics Paradox
One of the core areas of focus for retailers and consumer goods firms in recent years has been around the area of packaging reduction. Indeed, as Coca-Cola’s Jacques van Cauwenberge put it in ESM’s previous Sustainability Report, “Our world today faces a serious and complex waste problem that endangers not just our environment, but the very sustainability of our industry.”
One year on, few would argue that tackling packaging waste remains a central aim in the overall sustainability agenda, however, the COVID-19 pandemic has created what could be deemed a ‘plastics paradox’. In this sanitisation-led world, plastic’s role in food preservation has gained a new degree of importance. The past few months have seen plastic use increase in retail as a result of this heightened consumer demand, particularly when it comes to bakery or fresh items.
“People are nervous about contamination,” Susan Hansen, global strategist – F&A supply chains at Rabobank, tells ESM. “In fresh produce, shoppers will always sort through items to find the best products, but, at the same time, if others do the same thing, it makes them feel unsafe, and so we’ve seen an increase in plastic use.”
Indeed, up until the pandemic, plastic was increasingly being demonised – a ‘social nasty’ akin to excess sugar or fat content. While COVID has changed priorities for shoppers, Hansen believes that this will only be a temporary change.
“We’ve been through a completely strange and unnatural situation in which everybody had to get used to living in a new normal,” she explains. During the first few months of COVID, it was a matter of prioritising and getting food on the shelves. People couldn’t have cared less if it was wrapped in plastic – their needs had become very basic – but within a few months you started to see a build-up of plastic waste again, as well as a build up of waste PPE and protective equipment, and that is making people start to think about plastic again.”
Plastic reduction forms a central part of many retailers’ and consumer goods firms’ sustainability agendas. Many have pledged to switch to recycled plastic for their packaging at some point during the current decade, while others have reduced pack sizes and sought alternative materials, but what reads well on a sustainability report isn’t always grounded in reality, with current rPET stock levels, for example, falling well short of requirements.
“Retailers and brands are taking this on board and investing in the plastic-packaging chain, taking stakes in companies that are recycling and getting access to feedstock,” says Hansen. “Another area, in which the likes of Coca-Cola, Mars and Unilever have been active, is in chemical recycling. We’re seeing firms create coalitions with waste management companies and other brands in order to develop and accelerate this market.”
Absorbing The Cost
At the same time, as with any aspect of sustainability, such initiatives cost money, and brand owners need to find a way to neutralise these costs or face consumer pushback – shoppers will be unwilling to spend more.
“That’s probably the biggest paradox,” says Hansen. “Consumers can be very vocal, particularly on social media, about the need for plastic reduction, but when they are in the store, and they are presented with a sustainable product that costs more or a cheaper option, they will go for the cheaper option.
“With any new packaging solution, there’s going to be an additional cost in the beginning, until you get to a certain scale or the technology gets more affordable. Are the brands going to swallow that, or are retailers going to have to bear the cost? It all depends on the power balance within the chain. Perhaps, with all these new coalitions being set up to address sustainability, they will be better at ‘spreading the pain’, but there will always be a cost element involved.”
Over the next few days, ESM will catch up with some industry leaders seeking to drive positive change. Stay tuned.
© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.