Published 4 years ago.
About a 5 minute read.
FMCGs need to accelerate innovation to keep up with changing consumer preferences for plant-based products and less packaging, to name a few.
A new CDP report released today, Fast Moving
ranks 16 of the largest, publicly listed Food and Beverage and Household
and Personal Care companies on business readiness for a low-carbon transition,
in the face of rapidly changing consumer trends such as a rise in
and increasing activism on plastic
The life cycle environmental impact of products from the two industries is
significant, and FMCGs have a key role to play in curbing over a third of global
greenhouse gas emissions. 90 percent of the sector’s carbon emissions lie
in the value chain, leaving companies exposed to raw material risks and product
consumption risks. The proximity of the sector to consumers means companies are
exposed to changes in consumer preferences, but also have the opportunity to
drive behavior change in order to ensure the longevity of their brands.
Some of the most transformative low-carbon innovations delivered by companies
such as Danone, Nestlé and P&G include developing vegan and organic
product ranges. The CDP analysis shows 5 out of the 7 food and drinks companies
that have offered dairy or meat-based products are innovating with new vegan
Similarly, Household and Personal Care companies are creating more plant-based,
natural options — 6 out of 7 companies, including L’Oréal, are actively
innovating to replace petrochemicals with natural, biodegradable ingredients.
Unilever is among the four companies to have developed vegan personal care
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A tide of consumer activism on plastic packaging has resulted in increased
scrutiny and changing preferences for circular, zero-waste business models. This
is forcing companies to rethink their approach, with around 60 percent of
companies investing to advance biodegradable plastic and recycling
infrastructure, and Danone leading the way.
Despite this innovation in the sector, almost 60 percent of the top 10
revenue-generating brands for each company have failed to deliver low carbon
innovations in the last 10 years. Given most companies (88 percent) generate
over 50 percent of their revenues from these key brands, including Nescafé,
Budweiser and Dove, they must up their game or risk falling foul of
changing consumer demands.
Many FMCGs are responding by acquiring smaller, sustainable brands. 75 percent
of companies have directed M&A efforts towards the acquisition of niche,
environmental brands in the last 5 years and this type of activity has more than
quadrupled over that time. For Food and Beverage companies, this trend is
further driven by the alignment of health and environmental trends, demonstrated
by Nestlé’s recent acquisition of Sweet Earth and PepsiCo’s purchase of
Bare Foods. However, this approach will not be sustainable if their
fundamental business models — which are based on driving more consumption —
Beyond reputational risks, impending regulation is also threatening these
companies, as more robust rules on packaging and waste are introduced. The EU
94/62 directive’s 2018 amendment has set measures for reducing packaging waste
at source as well as improving recycling and recovery, while product labelling
and carbon footprinting is on the horizon.
The sector is also highly exposed to the physical risks associated with climate
change. For example, heat stress and water scarcity have the potential to
disrupt agricultural supply chains and cause price volatility. This poses a real
threat to the sector, especially for diversified food companies such as Nestlé and
Kraft Heinz that rely on a variety of raw materials. When it comes to
physical risks in the consumption phase, personal care and home care companies
are most exposed, due to the amount of water it takes to use their products.
Notwithstanding the media scrutiny around palm oil, some companies are being
slow to respond. Despite the palm oil exposure faced by all Household and
Personal Care companies, less than 45 percent is supplied from physically
certified sources. Of the palm oil users, only Danone and L'Oréal have already
achieved a 100 percent physically certified supply.
Carole Ferguson, Head of Investor Research at CDP, commented, “As consumer-facing brands — at risk not just from climate change but water scarcity and
deforestation, too — these companies have a unique role to play in driving forward
the sustainable economic transition. Ongoing activism around plastics and
packaging is just the tip of the iceberg, and we expect to see more
environmental issues come to the fore as consumers start to question what goes
into the products they buy, use and dispose of.
"Leading companies are taking action across their entire value chain and
redefining the role of business in society — by engaging with suppliers,
innovating their product lines and even working with consumers to drive behavior
change," she added. "This level of action is impressive but necessary to address fundamental
risks. And these efforts need to be replicated by others in the sector, if they
are to justify their role in a society that can no longer be based on fast
paced, rising consumption and linear business models."
Kweichow Moutai, a food and beverage company listed on the Shanghai stock
exchange, did not respond to CDP’s 2018 climate change questionnaire; CDP
encourages investors to raise this lack of transparency in discussions with
CDP’s League Table of companies in the Food and Beverage sub-sector:
CDP’s League Table of companies in the Household and Personal care
The CDP report assesses companies across four key
areas aligned with the recommendations from the Task Force on
Climate-related Financial Disclosures (TCFD).
1 Food and agricultural production accounts for about a quarter of all global
emissions while emissions from electricity and heat production associated with
water heating, cooking and appliances in the built environment account for 8
Published Feb 24, 2019 7pm EST / 4pm PST / 12am GMT / 1am CET