Listed below are the key macroeconomic trends impacting the ESG in consumer goods theme, as identified by GlobalData.
The Covid-19 pandemic has disrupted operations of FMCG companies with consumers being concerned about health and safety, which has heightened hygiene standards and awareness.
Mergers and Acquisition (M&A)
Consumer goods companies are beginning to realise the importance of ESG, and many will improve their ESG image by acquiring sustainable companies in the future. Some companies are using M&A to diversity their plant-based product offering. Hormel Foods acquired plant-based snack brand Planters from Kraft Heinz for $3.4bn. The acquisition will broaden Hormel Food’s snack portfolio and appeal to vegan consumers.
Veganism and plant-based diets are a fast-growing consumer trend driven by ethical issues such as environmental impact and sustainability. FMCG companies that do not have a diverse plant-based product offering could acquire a company that does to avoid falling behind in this theme.
The impact of Covid-19 on ESG has been twofold from a social perspective. It has increased health and safety risks for staff members often working in restricted, crowded spaces, forcing companies to develop contingency plans to minimise risks. From a consumer preference standpoint, it increased demand for product safety and traceability, heightening the need to develop and effectively communicate stringent health and safety protocols.
Covid-19 also caused environmental concerns to drop down the agenda, with consumers favouring disposable packaging for hygiene purposes. It also meant company boards focused on controlling the damage caused by Covid-19 rather than concentrating on climate targets. Covid-19 will have a lasting effect on hygiene standards and health and safety. Post-Covid, companies will need to refocus their efforts on climate change plans.
Generation Hashtag makes up around one-quarter of the world’s population, and its influence will only increase over the next decade as its members continue to enter the workforce. As a generation coming of age during recessions, fractured politics, and exposure to fake news, consumers in this cohort are understandably cynical or even distrustful of established institutions and corporations.
The consumption habits of this generation will reflect this, and they will hold brands accountable for their actions. Tokenistic efforts to take social and environmental responsibility will no longer suffice. Consumers will choose brands that wholeheartedly embrace corporate social responsibility (CSR), including ethical business practices and a commitment to sustainability, transparency, and philanthropy.
Ethical consumerism is a growing trend that needs to be catered to by consumer goods companies. GlobalData’s Market Pulse Consumer Survey 2020 found that customers are more likely to pay a premium for sustainability-aligned causes, and 81% of customers would pay more for products supporting environmental protection. Green premiums, however, can exclude lower-income consumer groups, who are also concerned about sustainability. Bill Gates recommended investing in research and development (R&D) to reduce green premiums and create accessibility in his book How to Avoid a Climate Disaster.
Gates referenced Impossible Foods, a plant-based meat business that invested heavily in R&D to reduce product prices and expand market share. Impossible Foods went from having its products in 150 grocery stores to a presence in more than 15,000 within a year. Brands should recognise that sustainability measures drive consumers and reducing green premiums will result in increased market share and brand longevity.
This is an edited extract from the ESG in Consumer Goods – Thematic Research report produced by GlobalData Thematic Research.