There is a global consensus on the impact that climate change has on businesses globally, as reflected by the increasing number of global experts (82% in 2022 - a 2.2 percentage point increase on 2021) considering that climate action is very or extremely important for the business, according to Euromonitor International’s Voice of the Industry: Sustainability survey 2022.
Stricter legislation and increasing pressure by stakeholders to disclose environmental performance is forcing companies to consider the use of international standards to ensure transparency and accountability, especially around Environmental, Social and Governance (ESG) criteria.
However, the high inflation rates, unstable sociopolitical environment and frequent delays and disruptions to global transport and logistics faced by the global market are contributing to heightened uncertainty, with some companies thinking about slowing down their sustainability ambitions.
The urgency to act now
Experts agree that climate change is shifting consumer demand and will affect the supply chain, accounting for 76% and 71% of responses respectively in Euromonitor’s Voice of the Industry: Sustainability survey. At the same time, consumers’ awareness of climate change is surging, as two out of three respondents mentioned they were concerned about the topic in 2022, according to Euromonitor’s Voice of the Consumer: Lifestyles survey. As environmental issues are expanding their influence on business performance, corporates are feeling the pressure, primarily from the CEO and competitors, but also from governments and consumers, to take real actions towards more climate-friendly business practices.
There is a huge need for businesses to take a proactive role in helping to shift economies towards more sustainable models, as key stakeholders such as consumers and investors closely follow advice from thought leaders and science-based organisations on the urgency to act now. For instance, in April 2022 the Intergovernmental Panel on Climate Change (IPPC) published a report which states that global emissions need to peak by 2025 if the Paris Agreement’s temperature trajectories are to be followed.
As taking care of the environment remains at the top of the agenda, companies need to incorporate ESG metrics and specific reporting to demonstrate to stakeholders how they are really contributing to reducing negative externalities through transparent and traceable actions.
Companies need to walk the talk with ESG issues
Despite the relatively high number of global industry experts (62%) reporting that their company prioritises ESG issues, most players fall short when it comes to action, as their intentions and commitments far exceed the number of real actions taken. On average, only 14% of global industry experts mention that their companies publish ESG reports, with food and beverages being the industry that leads in ESG reporting, with only 15% of responses, three times higher than household essentials companies, that come last.
As ESG becomes more important to consumers, investors and regulators, the widening gap between what companies say and do regarding ESG will pose increasing legal and reputational risks for businesses. To avoid these risks, it is critical that companies take meaningful steps to walk the talk, which in many cases requires not only investment, but also changing attitudes and behaviour and transparently measuring and reporting progress.
To efficiently address ESG issues, companies need to identify key areas of opportunity to tackle within each market. Every single market is unique, as it is determined by a particular combination of economic, social and governance characteristics that define the business scenario. So, companies should effectively balance consumers’ sustainability behaviours and preferences with the country-specific regulatory environment and an analysis of the competitor landscape so they can channel investment efforts towards fruitful areas, including potential partnerships.
There is no one-size-fits-all solution
While the scale and the types of areas for investment differ from company to company, there is a clear pattern among fmcg companies showing that the development and launch of sustainable products and services is the top investment priority. While companies are looking to meet the demands of a larger number of sustainability-minded consumers, they are also driving efforts to solve pressing environmental problems, with more than 75% of them planning to invest in waste and recycling initiatives, and almost as many investing in sustainable sourcing and more sustainable technology and energy sources to enhance supply chain resilience, while reducing scope 1, 2 and 3 emissions.
Companies are looking for ways to improve how they communicate sustainability initiatives, as only 32% of global experts consider their sustainability communication strategy to be effective with consumers, according to Euromonitor’s Voice of the Industry: Sustainability survey. Responding to the growing number of informed and savvy consumers, in 2022 companies have largely turned their interest to specific communication channels such as product packaging and claims. In 2022, the use of these channels accounted for 6.0 and 2.4 percentage point increases compared with 2021, respectively. Yet, companies need to be careful when using product claims to promote their sustainability credentials, as stricter greenwashing regulations are increasingly in place to protect consumers, requiring companies to properly back up generic or vague claims such as “environmentally-friendly” or “green”.
As the economic crisis hits consumers’ and companies’ budgets, more companies will struggle to implement sustainability strategies. Collaboration with other players that share a common objective has the potential to ease the financial burden and improve the capacity to overcome sustainability challenges. Working together with strategic partners allows companies to break down complexity, reduce costs and drive quicker results.
For more insights on global sustainability investment challenges, visit Euromonitor’s Sustainability insights page, take a look at the How to Attract and Win Customers with Sustainable Products webinar, or consider a bespoke consulting solution.