At first sight, corporate sustainability and KitKats have nothing in common. KitKats are one of life’s sweet treats. Corporate sustainability is a business strategy that allows commerce to thrive while respecting the world we share.
The connection is that KitKat maker, Nestlé, has set itself the ambitious sustainability target of becoming net zero by 2050, and the KitKat must play its part. Nestlé sells a staggering 17 billion KitKats worldwide every year. Meeting this demand adds up to a lot of raw materials and energy resources.
“Our brands have a huge role to play in achieving net zero,” Emma Kelleher, Nestlé’s head of sustainability for the UK and Ireland, told Business Spotlight. “The biggest part of a KitKat’s carbon footprint is its ingredients. This means the agricultural piece is really important in terms of supporting regenerative farming in harmony with nature.”
Nestlé intends to make the KitKat carbon neutral within four years. This requires going over the product with a fine-tooth comb to see where sustainability improvements can be made in sourcing, manufacturing, packaging and distribution. Nestlé has also joined the Rimba Collective. It uses contributions from the buyers and processors of palm oil (an ingredient in KitKats) to fund sustainable forest restoration and conservation projects over a 25-year time frame.
A moving target
Corporate sustainability is still in its infancy and its definition is a moving target. But in broad terms, those buying into the concept are committing themselves to environmental, social and economic objectives that will have a positive impact on society.
As might be expected, high-profile brands such as IKEA are already some distance into their sustainability journey. IKEA sources around 50 per cent of its wood from sustainable forests and its cotton farmers must meet certain criteria on the use of water, energy and chemicals. Unilever was another early mover. It began its sustainability programme ten years ago and has set out its objectives for supply chain, sourcing and production in its Sustainable Living Plan.
Initiatives are also coming from more unexpected sources. Car manufacturers and fuel companies do not immediately spring to mind when it comes to sustainability, but in May this year, Bosch, Shell and Volkswagen announced the launch of their jointly developed low-carbon petrol, which reduces CO2 emissions by 20 per cent per kilometre driven.
The consulting company Deloitte is committed to being net zero within the decade and it recently signed a deal with Delta to buy sustainable, low-emissions aviation fuel to reduce its carbon footprint. Meanwhile, Crystal Cruises has pledged that its fleet of nine ships will “sail responsibly”. This involves sustainability measures ranging from using environmentally friendly paints to protect the underwater ecosystem to buying local with an emphasis on eco-conscious suppliers and respecting the resources of the destinations it visits. On board, the emphasis is on recycling, reuse and reduction. Fitting low-flow showerheads, for example, has cut water consumption by 50 per cent.
Environmental impact
The strongest trend in corporate sustainability right now is action related to the environment. Concerns about climate change are driving initiatives on emissions, biodiversity, energy, water conservation and the elimination of single-use plastics. The European Union has committed almost €550 billion to green projects over the next seven years, while US President Joe Biden has earmarked $2 trillion to tackle climate change.
The sustainability agenda is long, complex and constantly growing. And few senior managers have the bandwidth to add it to their existing responsibilities. One solution gaining currency has been to bring sustainability experts on board. The idea of having an employee with full-time responsibility for sustainability was not on most companies’ radar 20 years ago, but a little over a decade later, this had begun to change. By 2014, 90 of the S&P 500 companies had recruited a chief sustainability officer.
“Sustainability leadership is entering a new phase, and 2020 and the pandemic will be seen as the tipping point for when sustainability became a business imperative,” says Andrew Lowe, a partner in sustainability in the London offices of US-based management consultants Korn Ferry. “The pressure for change or opportunity for growth, depending on how you look at it, is multidimensional. There is investor pressure, shareholder pressure and a huge amount of reporting and disclosure — not just around climate but other metrics, particularly human capital, with a real requirement for D&I disclosure in a substantive way.”
Also in the mix are legislation, influential activists such as Greta Thunberg and growing expectations among consumers that those they buy from are acting ethically and sustainably. Last but not least, investors are taking an increasingly proactive position on sustainability and companies will always follow the money.
Investor expectations
According to the Financial Times, inflows into sustainable exchange-traded funds (ETFs) overtook all other ETFs for the first time in Europe in the first quarter of 2021, while assets in sustainability-focused passive funds in 2020 jumped from $59 billion (€48 billion) to $174 billion (€143 billion). In the US, data from research firm Morningstar shows that sustainable funds attracted an all-time record of nearly $21.5 billion in the first quarter of 2021. That’s double what it was in the same period a year ago and five times greater than in 2019. Analysts expect increases of similar magnitude to continue as investors move away from non-ESG (environmental, social and governance) stocks and into ESG alternatives.
“Once investors start telling you they are expecting much-improved ESG standards, it suddenly creates a lot more interest in the topic,” Professor John Colley of Warwick University’s business school told Business Spotlight. “That’s the big change we’ve seen in the last year or two. Sustainability is more than a niche minority trend. It’s starting to have momentum.”
Warwick is one of the UK’s top ten business schools and it places a heavy emphasis on sustainable development topics in its teaching and research. “Historically, unless businesses were dealing with retail audiences with certain views on supply chain performance, sustainability was not an issue,” Professor Colley says. “But when investors start getting concerned about something, then boards do, too. That’s why sustainability is spreading into industry and B2B.”
Professor Colley adds that it would be naive to assume that businesses are embracing sustainability simply because it is good for the planet. “There is a healthy dose of self-interest involved. No business wants to find itself disadvantaged because its products or practices no longer meet stakeholder expectations,” he says. “There is more than one thing at play. It’s about business, it’s about reputation, it’s about the environment, it’s about being included in ESG stocks. If companies want ESG status, then they have to be taking clear action on things like energy and recycling.”
Too little too slowly?
Nestlé’s Emma Kelleher puts the reality for her industry succinctly. “Nestlé has been around for 150 years. If it wants to be around for another 150, it has to play a role in fixing the climate crisis,” she says. “If companies like us don’t act, then climate change will impact the food and drinks sector disproportionately because we rely on nature for our raw ingredients.”
In its 2021 “Global Risks Report”, the World Economic Forum argues that a move to greener production and consumption cannot wait and that businesses of all sizes and in all sectors must put sustainability at the heart of their post-Covid recovery. But making this happen is going to require changes deep within the supply chain, according to global environmental resource management consultancy ERM. “Technology can play a role in enhancing transparency, enabling access and bringing sustainability into real time. But, beyond a company’s direct operations — whether that is reducing emissions or identifying human rights abuses — is where the real challenge remains,” it says in its market commentary “What’s Next for Sustainable Business?”. “The complexity of global business means, if companies are not collaborating with competitors and peers, then it is unlikely they will be able to make the progress needed for a more sustainable economy.”
Progress and greenwashing
The main criticism companies face in relation to corporate sustainability is that they are doing too little too slowly and that their efforts are not convincing. “You get companies writing in their annual reports about how they have improved this or that by so much and they report their progress for a few years. Then, suddenly, it stops because the measures are clearly going in the wrong direction,” says Professor Colley. He adds that where investment criteria are not clear, as is still largely the case with ESG funds, companies will inevitably fall back on greenwashing to look the part.