From sideshow to main event: getting sustainability right in the consumer sector

From sideshow to main event: getting sustainability right in the consumer sector

Mon 20 Nov 2023

This year’s COP28 event – the United Nations’ annual climate change conference – will include the first global stocktake, an analysis that will offer a comprehensive assessment of the progress being made against climate change since the adoption of the Paris Agreement. It will be a pivotal moment, offering the world an initial benchmark of where it stands – and how much is left to be done.

Against that backdrop, employees, regulators and funders in the consumer sector continue to drive companies towards improved environmental, social and governance (ESG) performance. That drive is already having an impact: more than half (59%) of consumer leaders have already budgeted costs for implementing sustainability strategies and reporting, according to our C-suite barometer 2023 research.

Considerations for a consumer business include the issues around the environmental footprint of a product: inputs, transportation, logistics, packaging, waste and energy. On the social front, meanwhile, it includes concerns about exploitation, wages and modern slavery. But with the ESG challenge comes an opportunity too – to position themselves at the heart of the consumer demand environment of the future.

“To date sustainability has been seen as a sideshow to the main business strategy,” Richard Karmel, a Partner at Mazars in the United Kingdom, says. “I’m not sure boards fully understand the business case for sustainability. They often see it as an internal cost for external benefit, rather than an internal cost for internal benefit. What we want to start to see is sustainability being built into the main business strategy.”

As well as a lack of focus, there is often a skills and knowledge gap that stretches all the way up to the board, according to Alice Strevens, an Associate Director at Mazars in the United Kingdom. “It’s expensive to bring people in who are experts in the areas aligned to the business model that a company needs,” she says. “There aren’t people with that experience advising at board level. That is problematic because boards cannot begin to understand what their responsibilities are, or how they can respond strategically to some of the challenges, if they are not being advised by people who really understand what they’re talking about.”

To actively involve leaders, drive decisive action, and benefit from a diverse range of insights on relevant considerations and discussion topics, download Mazars’ practical guide to sustainability for boards and leadership teams.

For Alice, another challenge for consumer companies is making sustainability claims against a product without devaluing the rest of their product range. “Businesses also need to have sense of the type of data and evidence that is needed to substantiate a sustainability claim, because the other issue they are going to face is the increasing regulatory environment,” she says. Richard agrees on the data point arguing that businesses “do not have the processes or policies in place to be able to measure the type of KPIs they need to track and monitor. They are playing catch up”.

Getting it right is not simply about data. According to Alice, there are “two different lenses” when it comes to sustainability. First, when a business is approaching environmental sustainability, there is often quantitative information underpinning the goal it is working towards. But when dealing with it from a human rights point of view, she argues, the same lens cannot be applied. The identification of human rights impacts must be developed through substantive risk analysis in geographies of operations and value chains as well as engagement with affected stakeholders. Many companies are not conducting this type of due diligence or using that to inform human rights saliency. It is true to say that “the absence of identified and disclosed human rights impacts is an indicator that they’re not reporting appropriately.”

Don’t get caught in an ESG echo chamber

There is also a danger of companies getting pulled into an “echo chamber”. “A lot of companies look at their competitors to understand what they’re doing and, as a result, what they should be doing from a materiality perspective. That’s problematic, because it reduces the imperative for real engagement with affected stakeholders,” Alice believes.

Although quantitative and qualitative inputs are vital, so too is effective stakeholder engagement. For Alice, that means a group that goes a lot wider than a business’s employees. As well as investors, businesses need to find ways to understand issues from affected communities and rights holders, as well as establish relationships with trade unions and non-governmental organisations. Doing that will help a business understand where its impacts lie and how they might relate to it and its value chain.

Steps towards an effective sustainability transformation

For businesses about to embark on a sustainability transformation, Richard says the first step is to get an “umbrella understanding” of their business from a sustainability perspective. “A company really needs to understand their supply chain and the risks in the raw materials that are being used to make their products,” he says. “Once you have a map showing where all the environmental and social risks are you can start to understand where all the risks lie. As a result, you can start to do materiality mapping and identify which are the most severe impacts and which are the most likely to arise. By doing that a business will achieve a prioritisation that it can act on.”

For many consumer companies, the issue of degrowth – reducing levels of production and consumption within an economy to conserve natural resources – should also be high on their agenda. “If we really want to tackle ESG issues, companies need to be thinking about what consumption will mean in the next ten, 20 or 30 years, particularly as we start to compete for resources,” Alice says. “Some consumer business models are all about volume and low prices, while some are about high price and less volume. Regardless, degrowth and circularity are concepts that boards need to grapple with and start thinking about now.”

With the profile of COP28 – coupled with ever-increasing demand from stakeholders – the consumer companies already on their sustainability journey are at an advantage. For those who haven’t even started yet, the time to act is now.

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