Listed below are the key industry trends impacting the ESG in consumer goods theme, as identified by GlobalData.
Companies that address climate change issues win support from all stakeholders, boost their reputation and gain competitive advantage.
ESG – localism
Localism is a key ESG trend, shortening supply chains, minimising transportation, and reducing emissions. Amplified concerns regarding sustainability and familiarity have put local products in the spotlight during the global pandemic as consumers question the authenticity of products and the provenance of ingredients. This trend has long-term significance as many consumers continue to positively associate local products with a high level of quality, trust, and familiarity, even after lockdown measures have eased.
Supply chain management
Supply chain management involves the end-to-end management of the procurement of raw materials through to the manufacture and distribution of finished goods. There are multiple touchpoints and processes to ensure everything is managed smoothly and safely. Improving supply chain management can optimise efficiencies, maximise cost-effectiveness, improve health and safety, and enhance sustainability.
Effective supply chain management can also aid distribution and the flow of information in a global context of changing consumer behaviours and values. Linked with this is also the topic of sustainability, on which consumers are demanding more transparency. Supply chains need to adapt to manage such things as waste reduction. Technologies like artificial intelligence (AI) and blockchain are assisting supply chain management and traceability.
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Direct-to-consumer (D2C) supply chain models provide a convenient shopping experience, but companies must be mindful of the environmental impact these models can have and work to mitigate and offset this impact. D2C models cause a higher level of carbon emissions because the supply chain is disjointed with lots of separate to-the-door deliveries rather than large deliveries to established retail spaces.
Brands must work to make convenience sustainable, such as the personal care brand By Humankind, which achieves carbon neutral shipping by investing in forest projects to help offset the company’s emissions. Drones are also a potential solution for cutting D2C carbon emissions. The D2C supply chain emits more carbon than the traditional supply chain, and brands must offset these emissions.
Strategic ESG partnerships
ESG measures are most effective when they involve the entire fast-moving consumer goods (FMCG) value chain. Food production is responsible for 26% of global greenhouse gas emissions, so holistic ESG measures across the supply chain, including different suppliers and vendors, are needed to tackle this. Lidl UK partnered with long-standing supplier Wyke Farms to deliver carbon-neutral cheddar cheese.
Wyke Farms produces cheese to a leading sustainability standard. The partnership will see both parties collectively measure and offset carbon emissions using carbon credits generated through sustainable practices within the supply chains. The Carbon Trust will oversee this approach and ensure it adheres to scientific principles. Partnerships between retailers and suppliers can help reduce products’ carbon footprints across the supply chain.
This is an edited extract from the ESG in Consumer Goods – Thematic Research report produced by GlobalData Thematic Research.