What drives ESG performance in the food industry?

ESG performance in the food industry is primarily driven by growing consumer awareness & demand for sustainable practices. Companies are compelled to adopt environmentally friendly operations, promote social responsibility, & maintain strong governance structures to remain competitive and meet regulatory standards. Pressure from investors, who increasingly integrate ESG factors into their decision-making, also motivates firms to prioritize sustainability initiatives. Additionally, concerns about resource scarcity, climate change, & ethical sourcing push food companies to implement transparent supply chains and innovate sustainable solutions to reduce their environmental footprint & address societal issues like food insecurity & labor rights

In today's food industry, consumers are increasingly prioritizing sustainability, ethical sourcing, and transparency. They seek products that align with their values, such as organic, locally sourced, and environmentally friendly options. Companies that respond to these preferences by offering sustainable and responsibly sourced products are likely to gain a competitive edge and enhance their ESG performance.

Certified, organic, and plant-based products can have a higher market value. However, consumer habits change slowly, so do not expect that if you put an innovative product on the market, it will immediatey become a best-seller. Despite growing demand for healthier foods that are more respectful of the planet, most consumers by far still prefer cheaper options. Furthermore, most consumers cannot afford anything but cheaper options. Therefore, try and think of how to make your products available and appealing to all. For instance, you may want to focus on shortening your supply chain, acquiring natural local ingredients, and working with seasonal produce.

Increase in demand for sustainably sourced, ethically produced, and healthier food options from the consumers. Now a days, Investors are also considering ESG performance while making investment decision, its important for the food companies to put forward their efforts in including sustainable practices in their business operations.

Investors are becoming more conscious of environmental, social, and governance (ESG) factors when making investment decisions. They recognize that companies with strong ESG performance are better positioned to mitigate risks, drive long-term value creation, and maintain stakeholder trust. Therefore, companies in the food industry are under pressure to demonstrate robust ESG practices to attract investment and maintain shareholder confidence.

Investor scrutiny in the food industry is driving sustainability by incentivizing companies to adopt environmentally friendly practices, reduce waste, and address ethical concerns. This pressure comes from investors seeking long-term value and recognizing the importance of sustainability in mitigating risks and ensuring future profitability.

There are many reasons why investors are increasingly concerned and proactive about environmental issues in the food industry. There is a growing recognition that environmental risks pose significant financial risks to companies, potentially affecting their long-term profitability and viability. For instance, climate change can disrupt supply chains, lead to scarcity of raw materials, and increase operational costs. Investors also see the alignment with stricter environmental regulatory trends not just as a compliance issue but as a strategic advantage in a transitioning economy. Ultimately, investors aim to mitigate financial risks, capitalize on opportunities for sustainable growth, and contribute to nature-positive world.

Many large food firms are owned to a great degree by private equity and investment funds. Despite recent claims of growing concerns for ESG criteria, these firms remain focused on balanced portfolios including large financial gains and steady grow. Look, for instance, at what happenned when Emmanuel Faber tried to reorient Danone toward sustainability. He was ousted by unhappy investors. On the other hand, it is true that having a good ESG performance will, in no case, hurt your firm. Ensure you are ahead of market regulations and position yourself as a pioneer in environmental and social matters whenever possible! In this way you will be mitigating future risks and capturing present opportunities for growth and capital acquisition.

Another key driver of ESG performance in the food industry is the increasing investor expectations for companies to disclose and manage their ESG risks and opportunities. Investors recognize the material impact ESG factors have on financial performance and long-term value creation, using ESG criteria to evaluate investments. They assess how companies address climate change, water scarcity, biodiversity loss, food waste, human rights, animal welfare, and food safety. Demonstrating ESG performance and leadership enables food companies to attract more capital and reduce their cost of capital.

Governments and regulatory bodies are increasingly imposing stricter regulations and standards on the food industry to address various ESG issues, such as food safety, labor practices, and environmental impact. Compliance with these regulations is not only a legal obligation but also essential for maintaining reputational integrity and avoiding financial penalties. Companies must stay abreast of evolving regulatory landscapes and proactively adapt their practices to ensure compliance.

The evolving regulatory landscape is a significant driver of ESG performance in the food industry, as governments and regulatory bodies worldwide tighten the requirements for companies to comply with and report on their ESG issues. The synergy between regulatory requirements, like the EU Deforestation Regulation, and voluntary initiatives such as the SBTN and the TNFD, highlights a comprehensive approach to addressing environmental challenges. By adhering to them, companies can navigate the complexities of ESG, ensuring that their practices contribute positively to the planet while meeting the demands of stakeholders. This approach is essential for the long-term viability of the food industry and the health of the planet.

Especially in the #EU, regulation on food is hitting hard. One might think of the #Deforestation regulation, preventing, starting January 2025, to import products which might have contributed to deforestation. Other French laws, such as Loi "EGAlim" or "Loi AGEC" also provide strict guidelines to limit food waste.

Another significant driver of ESG performance in the food industry is the evolving regulatory landscape. Governments are imposing stricter requirements on food companies to comply with and report on their ESG impacts and practices. Regulations span various ESG topics like greenhouse gas emissions, water use, waste management, labour standards, health and nutrition, and product labelling. Companies that surpass these requirements can avoid fines, enhance reputation, and gain access to new markets and opportunities.

Lots of different standards exist to label food as "organic" or evaluate the degree of "green" of a F&B company. Besides generalist labels like #BCorp, specialist standards have been build for the food & beverage industry, both at #EU level such as #ISO26030, and at national level, such as #AgricultureBiologique or #LabelRouge for instance.

Various industry-specific standards and certifications, such as organic certification, fair trade labeling, and sustainable agriculture practices, serve as benchmarks for ESG performance in the food industry. Adhering to these standards not only enhances credibility and consumer trust but also fosters industry-wide sustainability initiatives and collaboration.

Focus on following nonprofit industry standards. Industry-based ones tend to be lesser known by consumers and usually involve lower commitments to sustainability. You may consider these standards if they are required by industry peers. Work with external stakeholders to ensure you are gathering all the relevant data (please perform a double materiality analysis) and when you receive certification or publish a report, use them as an opportunity for improvement, not just a sticker to add to your corporate webpage.

A fourth driver of ESG performance in the food industry is the adoption and implementation of industry standards and initiatives that promote best practices and benchmarks for ESG performance. These standards and initiatives, supported by stakeholders like industry associations, NGOs, certification bodies, and multi-stakeholder platforms, aim to enhance sustainability and responsibility in the food industry. Examples include the Global Reporting Initiative (GRI), the Sustainable Agriculture Initiative (SAI), the Roundtable on Sustainable Palm Oil (RSPO), and the Global Food Safety Initiative (GFSI). Companies adhering to these standards can improve ESG performance, credibility, and differentiation from competitors.

Embracing innovation presents opportunities for food companies to improve their ESG performance. Technologies such as blockchain for supply chain transparency, precision agriculture for resource efficiency, and plant-based alternatives for sustainable food production are revolutionizing the industry. Investing in research and development and adopting innovative solutions can help companies stay competitive while addressing ESG challenges.

Innovation is pivotal to propel sustainable impact and drive ESG perfomance. In the food and beverage sectors, challenges related to ingredients and packaging can become real opportunity to optimize sustainable sourcing, minimize waste, and generate new circular business models. Innovation can drive perfomance as it can unlock sustainable solutions while generating consumer and business value.

A fifth driver of ESG performance in the food industry is the exploration and exploitation of innovation opportunities. These opportunities involve the development and adoption of new technologies, processes, products, and business models aimed at solving ESG challenges and creating value for the industry and its stakeholders. Examples include precision agriculture, vertical farming, alternative proteins, biodegradable packaging, blockchain, and circular economy initiatives. Leveraging such innovations can improve ESG performance, competitiveness, and growth potential for food companies.

Engaging with stakeholders, including employees, suppliers, customers, and communities, is integral to fostering a culture of sustainability and responsible business practices. Companies that actively involve stakeholders in decision-making processes, listen to their concerns, and address feedback are better equipped to identify ESG risks and opportunities, build trust, and drive positive social and environmental outcomes.

Growing consumer awareness and concern about environmental and social issues are driving demand for sustainably sourced, ethically produced, and healthier food options. Increasingly stringent regulations regarding food safety, environmental impact, and labor practices are pushing companies to improve their ESG performance to comply with laws and regulations.

At BGA, we recognize that stakeholder engagement is critical to driving meaningful ESG performance. Our experience working with NGOs worldwide has shown us the immense value of collaboration across diverse groups. NGOs, in particular, play a pivotal role in shaping sustainable practices and holding industries accountable. By fostering partnerships with these organizations and other key stakeholders like customers, suppliers, and communities, companies can gain invaluable insights and feedback that not only enhance ESG strategies but also build trust and legitimacy. This collaborative approach is essential for creating long-term, impactful ESG solutions that resonate with all stakeholders involved - and they become your champions.

When considering ESG performance in the food industry, it's essential to also take into account factors such as supply chain resilience, climate change adaptation strategies, circular economy initiatives, diversity and inclusion efforts, and community engagement programs. Additionally, monitoring and reporting ESG metrics transparently, fostering partnerships with NGOs and industry peers, and continuously evaluating and improving sustainability practices are critical aspects to consider for long-term success and positive impact.

Due to the lengthy and intricate supply chains that might exist in the food and drink business, it is frequently unknown how ethically or sustainably the ingredients or packaging are made. Without traceability, no organisation can attain sustainability. As a result, monitoring and verification must receive more attention and funding.

At BGA, we view ESG as a journey, not a destination. Our extensive experience working with NGOs and other stakeholders globally has reinforced the importance of continuous engagement and collaboration. Each step in this journey offers opportunities for growth, learning, and improvement. By partnering with diverse stakeholders, including NGOs, food companies can gain deeper insights, refine their strategies, and build long-term trust. This ongoing process is essential for achieving impactful, lasting ESG outcomes that evolve alongside the industry’s needs and challenges and keeps companies leaders in their field and aligned with their stakeholders. An exciting journey we enjoy with our clients.