The Covid-19 crisis has elevated the importance of sustainability, but we must banish old thinking to build back better, writes Deidre Sorensen, partner at OC&C Strategy Consultants
Amid the horror, the global pandemic revealed the best in human behaviour: communities united, factories pivoted to make PPE, and restaurants repurposed to feed frontline workers.
Given this socially minded zeitgeist, it is no surprise that sustainability continues to top the agenda (or rather, it is a nice surprise – Covid-hit companies could have easily sidelined sustainability in the fight for survival).
With vaccines offering a light at the end of the tunnel, OC&C Strategy Consultants is increasingly speaking to FMCG businesses that want to build back better – a phrase and approach also echoed by governments.
There is little doubt the pandemic will permanently change how we live, work and shop. This also applies to how businesses approach ESG (environmental, social, and corporate governance). The new normal requires new thinking, starting with a clear-out of these four myths:
Myth 1: Sustainability is just about the environment
When sustainability is mentioned, first thoughts leap to greenhouse gases and waste management. While the ‘E’ of ‘ESG’ remains important, the ‘S’ and ‘G’ are rising in prominence.
OC&C’s research shows that the pandemic has made people care more about sustainability, with a particular focus on social and community issues. Some 50% of people care more about the treatment of employees since the outbreak, 53% care more about protection of vulnerable people, and 25% care more about connection with their local community. These numbers cannot be ignored.
Myth 2: Sustainability is purely a consumer-driven priority
It is time to stop viewing sustainability solely through the lens of the consumer. Asking whether recyclable packaging will shift more product misses a large part of the story.
ESG policy has been rising in importance for all stakeholder groups, notably employees and investors.
Businesses must become sustainable to recruit and retain the best talent. Not only do younger generations care passionately about sustainability, they are also prepared to do something about it (they support animal rights, so they become vegan…). This attitude carries over into the workplace. OC&C’s data shows that Generation Z, which is just entering the workforce, places more value on ‘doing something worthwhile’ than their predecessors – indeed it is their second most important career criteria after money.
US ice-cream maker Ben & Jerry’s has a social mission at its heart; it attracts, retains and motivates talent with programmes like its Community Action Teams, which allow employees to support organisations in the communities where they live and work. This mindset doesn’t just result in social impact and happier employees – it affects the bottom line, given the costs of recruitment and attrition. In a battle for the best talent, those with clear sustainability goals will increasingly emerge the winners.
Investors are also seeking companies with a robust approach to sustainability. US-based BlackRock has begun to exit non-sustainable investments, such as coal, and has campaigned for companies to disclose their sustainability strategies.
High-profile players recognise that unsustainable practices come with increased commercial and regulatory risk (governments are increasingly introducing new regulations to drive sustainability), while solid ESG practice offers opportunity for competitive advantage. Businesses that tick the right boxes can therefore access a lower cost of capital than their more unsustainable peers. For example, over the last few years, companies such as Danone have linked credit facilities to ESG goals, directly linking cost of capital to sustainability metrics. From an investor perspective, companies with strong ESG credentials are increasingly associated with a ‘sustainability premium’, leading to increased flows into ESG-oriented funds and businesses.
Myth 3: You must choose between purpose and profit
Shifting attitudes among consumers, employees and investors mean sustainability is now an imperative – and one that delivers real competitive advantage.
To benefit from this, a change in mindset is needed. Businesses should no longer view sustainability as an aside – a nice bit of CSR on which to spend profits – but part of core corporate strategy. With this mindset, the more successful you are, the more profits you generate but also the more impact you can have – it becomes a virtuous circle, not a trade-off.
Headlines or naysayers warning of a “sustainability bubble” should not deter companies either. While bubbles inevitably burst – and this may or may not be one – companies with a solid strategy will emerge survivors (the dot.com shock of 2001 did not extinguish smart e-commerce players or stop the digitisation of industries, but those that rushed in without a plan just to participate were quick to disappear).
It’s not whether you participate in sustainability these days (that’s basically a given in today’s world) but how that will distinguish successful businesses: companies that have embedded sustainability into their long-term strategy can drive competitive advantage over those that engage in superficial PR activities or uncoordinated initiatives – while having positive impact too.
Myth 4: Competitive advantage is an individual reward
In talking about competitive advantage, OC&C is not suggesting that companies should look at every initiative as a way to beat a competitor. Indeed, there may be times that, to achieve the greatest impact, an industry will need to work together – working with peers, suppliers or customers through the value chain, to reduce plastic packaging or set common sustainability standards, could reap competitive advantage for a whole FMCG sector, for example. Determining how to do this – whether through trade associations or NGOs, to ensure no anti-competitive actions – still needs to be navigated by most industries, but will be an important challenge to face in the coming years.
Where to begin
Some companies have the ‘luxury’ of building sustainability in from the beginning, but many others are grappling with how to address it in legacy businesses. However, with bold strategic thinking, it’s entirely possible for a legacy business to address the challenges of the new world.
Companies are adopting three main models: the first stops at compliance – doing the minimum required; the second engages in sustainability, but it is not integrated into the core strategy (see myth 3); and finally, there are companies reaping the commercial benefit of putting sustainability at the core of their vision. Giants like Unilever and PepsiCo continue to push the boundaries of sustainability commitments; others like Ecotone (formerly Wessanen) commit to B-Corp ideals and carving out a strategy to drive biodiversity in the food supply chain; smaller brands such as Tony’s Chocolonely set the bar on putting social and fair trade practices at the heart of the brand.
This third category is gaining more and more members. Is it time for your business to change its mindset and join them?
To find out more about our work visit www.occstrategy.com or contact us directly at email@example.com.
Deidre brings 20+ years of global experience (as a consultant and strategy director in industry) to OC&C’s London office, where she focuses on strategy and operating model questions within and beyond the consumer goods sector, particularly in food and drink. She also leads on ESG and sustainability related topics both for clients as well as for OC&C.